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RPM's Q2 Earnings to Benefit From Cost-Saving Initiatives

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RPM International Inc. (RPM - Free Report) is scheduled to report second-quarter fiscal 2020 results on Jan 8, before the opening bell.

In the last reported quarter, the company’s earnings topped the Zacks Consensus Estimate by 4.4% and grew 25% on a year-over-year basis on the back of 2020 MAP to Growth operating improvement plan. Net sales also improved slightly from the year-ago quarter on the back of acquisitions-related synergies, partially offset by foreign currency headwinds.

However, revenues missed the consensus mark by 1.3%.

Trend in Estimate Revision

The Zacks Consensus Estimate for earnings per share for the quarter to be reported is currently pegged at 73 cents, remaining unchanged over the past 60 days. This indicates an increase of 40.4% from the year-ago reported figure of 52 cents per share. The consensus mark for revenues is $1.4 billion, suggesting a 2.6% year-over-year improvement.

RPM International Inc. Price and EPS Surprise

 

Factors Supporting Growth

Despite being hurt by currency impacts, the company is expected to have registered modest sales growth during the quarter to be reported, supported by solid inorganic moves and growth across the business.

Its focus on strategic acquisitions to drive top-line growth and gain market share bodes well. The company’s 2020 MAP to Growth operating improvement plan — comprising efforts to reduce costs by closing plants, merging IT system, centralizing more of its back-office functions and rationalizing manufacturing footprint — is expected to have boosted margins and the bottom line in the fiscal second quarter.

For the fiscal second quarter, the company projects revenue growth of 2-3%. It expects adjusted EBIT growth in the band of 20-24% and adjusted earnings in the low- to mid-70-cent range.

Meanwhile, increasing costs for distribution and labor have been a major concern for RPM. That said, the company has been aggressively pursuing price increases to offset increasing costs and protect gross profit margins. The same is likely to have contributed to fiscal second-quarter bottom-line growth. In a nutshell, its multi-year restructuring plan — the 2020 Margin Acceleration Plan (“2020 MAP to Growth”) — will help it maintain a balance between its segments’ performance and drive growth.

What Our Model Indicates

Our proven model does not conclusively predict an earnings beat for RPM this time around. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, that is not the case here, as you will see below.

Earnings ESP: Earnings ESP for RPM is 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: The company currently has a Zacks Rank #3, which increases the predictive power of ESP. However, the company’s current ESP makes surprise prediction difficult. You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks With Favorable Combination

Here are some companies in the Zacks Construction sector, which according to our model have the right combination of elements to post an earnings beat in their respective quarters to be reported.

Norbord Inc. (OSB - Free Report) has an Earnings ESP of +166.67% and a Zacks Rank #2.

Louisiana-Pacific Corporation (LPX - Free Report) has an Earnings ESP of +36.36% and holds a Zacks Rank #3.

Weyerhaeuser Company (WY - Free Report) has an Earnings ESP of +14.29% and a Zacks Rank #3.

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