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RPM International (RPM) Up 2.1% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for RPM International (RPM - Free Report) . Shares have added about 2.1% 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 Q2 Earnings and Revenues Beat Estimates, Margins High

RPM International Inc. reported better-than-expected results in second-quarter fiscal 2020. Both the top and bottom lines surpassed the Zacks Consensus Estimate, and improved on a year-over-year basis, driven by the 2020 MAP to Growth initiative, strong pricing and moderating raw material inflation.

Delving Deeper

The company reported adjusted earnings of 76 cents per share, beating the consensus mark of 73 cents by 4.1%. The reported figure also increased a whopping 31% from a year-ago figure of 58 cents, backed by its 2020 MAP to Growth operating improvement plan and strong top-line growth.
 
Net sales in the quarter totaled $1.401 billion, beating the consensus mark of $1.398 billion by 0.3%. Also, the said figure increased 2.8% from the prior-year period. The improvement is attributed to 3.5% organic sales growth and 0.6% contribution from acquisitions. However, foreign currency headwinds resulted in sales decline of 1.3% from the year-ago quarter.

During the quarter, adjusted EBIT rose 22% year over year to $153.7 million. Adjusted EBIT margin also increased 180 bps year over year.

Segment Details

Construction Products Group: Sales in the segment increased 6.9% from a year ago to $499.5 million, backed by 7.4% organic growth and 1.2% contribution from acquisitions, partially offset by a 1.7% foreign currency impact. Despite being hurt by tepid North American commercial construction market, the company’s roofing and concrete admixture and repair products businesses improved. Notably, its recent buyouts of Nudura and Schul are impressive.  Adjusted EBIT rose 43.3% from the year-ago period to $61.9 million.

Performance Coatings Group: Segment sales improved 0.3% from a year ago to $292.7 million, owing to 1.7% organic sales growth and 0.1% contribution from acquisitions. However, the metric was negatively impacted by 1.5% due to unfavorable foreign currency translation. Strong corrosion control and fireproofing coatings businesses were partially offset by soft international markets and strategic actions to exit low-margin product lines. Notably, the segment’s adjusted EBIT increased 12.9% on a year-over-year basis to $37 million.

Consumer Group: Sales of $450.9 million in the segment increased 6% from the prior-year period, backed by 0.6% contribution from acquisitions and 6.4% organic growth. However, foreign currency translation impacted sales by 1%. New sealant and adhesive products continued to drive growth, while European sales — a large portion of which are generated in the U.K. — remained soft due to Brexit uncertainty. The segment’s adjusted EBIT totaled $54.7 million, up 26.8% from the prior year.

Specialty Products Group: The segment’s sales totaled $158.2 million, which declined 11.1% on a year-over-year basis, owing to a 10.5% fall in organic sales and 0.6% foreign currency impact. The downside was mainly due to lower demand. Adjusted EBIT was also down 19.4% year over year. Meanwhile, the company is consolidating ERP systems to one platform and implementing other 2020 MAP to Growth operational improvements to reduce costs.

Balance Sheet

As of Nov 30, 2019, RPM had cash and cash equivalents of $208.2 million compared with $226.9 million a year ago and $223.2 million at fiscal 2019-end.

Long-term debt (excluding current maturities) at the end of the fiscal second quarter was $2.42 billion compared with $1.92 billion in the comparable prior-year period and $1.97 billion at fiscal 2019-end.

In the first six months of fiscal 2019, cash used in operations was $300.2 million compared with $148.3 million in the comparable year-ago period.

Guidance

For fiscal third-quarter 2020, the company expects to generate revenue growth of 2.5-4%. It also expects 25-30% adjusted EBIT growth and adjusted earnings in the high-teens to low-20-cent range.

Notably, the fiscal third quarter is seasonally weak, thanks to slowing down of painting and construction activity due to cold and snowy weather. The fiscal fourth quarter is comparatively stronger as work begins to accelerate on painting and construction projects.

Given results in the first half and expectations for the rest of fiscal 2020, the company has reaffirmed its full-year fiscal 2020 guidance. For fiscal 2020, it still anticipates revenues to be at the lower end of the previous guided range of 2.5-4%. Adjusted EBIT growth is expected in the 20-24% range. Notably, it projects adjusted earnings between $3.30 and $3.42 per share.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -15.27% due to these changes.

VGM Scores

At this time, RPM International has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

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.


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