A month has gone by since the last earnings report for RPM International (RPM - Free Report) . Shares have added about 2.6% 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 drivers.
RPM’s Q3 Earnings Beat, 2020 Guidance Scrapped
RPM International Inc. reported impressive earnings in third-quarter fiscal 2020 (ended Feb 29, 2020). Its bottom line surpassed the Zacks Consensus Estimate and improved significantly from the year-ago period, driven by the 2020 MAP to Growth initiative, strong pricing and moderate raw material inflation.
Earnings & Revenues Discussion
The company reported adjusted earnings of 23 cents per share, beating the consensus mark of 20 cents by 15%. The reported figure also increased a whopping 76.9% from the year-ago figure of 13 cents per share.
Net sales in the quarter totaled $1.17 billion, which marginally missed the consensus mark of $1.18 billion but increased 2.9% from the prior-year level of $1.14 billion. The improvement is attributed to 3% organic sales growth and 0.7% contribution from acquisitions. However, foreign currency headwinds resulted in sales decline of 0.8% from the year-ago quarter.
During the quarter, adjusted EBIT rose 30.4% year over year to $60.5 million.
Construction Products Group (contributing 31.7% to net sales): Sales in the segment increased 4.7% from a year ago to $372.1 million, backed by 5.1% organic growth and 1% contribution from acquisitions, partially offset by a 1.4% foreign currency impact. Strong sales growth from market share gains and the introduction of innovative new products aided the segment to generate improved results. Notably, it witnessed strong growth in roofing, belowgrade waterproofing and concrete admixtures businesses. Adjusted EBIT came in at $6 million versus the year-ago loss of $0.3 million.
Performance Coatings Group (21.8%): Segment sales inched up 1% from a year ago to $255.7 million, owing to 1.6% organic sales growth and 0.2% contribution from acquisitions. However, the metric was negatively impacted by 0.8% due to unfavorable foreign currency translation. Strong continental European operations — driven by a new global management structure, and protective and marine coatings business unit — positively impacted the results. However, government budget constraints slowed down highway and bridge maintenance businesses, particularly in the U.K. Adjusted EBIT increased 33.2% on a year-over-year basis to $24.2 million. Its focus on higher-margin product and service offerings and the MAP to Growth business initiative drove adjusted EBIT margin by 230 basis points from the prior year.
Consumer Group (34%): Sales of $378.3 million in the segment increased 5.4% from the prior-year period, backed by 6% organic growth. However, foreign currency translation impacted sales by 0.6%. Market share gains and unseasonably warm winter weather in North America supported the growth. Notably, the fastest growth was achieved in caulks, sealants, and patch and repair product lines. The segment’s adjusted EBIT totaled $32.1 million, up 19.2% from the prior year.
Specialty Products Group (12.5%): The segment’s sales totaled $147.5 million, which declined 4.1% on a year-over-year basis, owing to 7.1% fall in organic sales and 0.3% foreign currency impact. Contribution of 3.3% from acquisitions partially offset the negatives. Comparatively lower demand for water damage restoration products overshadowed the positives from the wood coatings business. Sales were down year over year in OEM fluorescent pigments, nail polish and edible coatings businesses. Adjusted EBIT was also down 13.4% year over year.
As of Feb 29, 2020, RPM had cash and cash equivalents of $212.2 million compared with $195.2 million a year ago and $223.2 million at fiscal 2019-end. Long-term debt (excluding current maturities) at the end of the fiscal third quarter was $2.49 billion compared with $2.07 billion in the comparable prior-year period and $1.97 billion at fiscal 2019-end. At the end of fiscal third quarter, cash provided by operations was $381.2 million compared with $145.5 million in the comparable year-ago period.
Coronavirus-induced global shutdowns are likely to impact RPM’s business. Notably, the duration or scope of the pandemic is unpredictable. “COVID-19 is also disrupting our ability to implement new initiatives under our restructuring program. While there are some activities that can be carried out virtually, many require a physical presence that is being hindered by limits on travel and access to facilities. Because of this, we will be extending the timeline for achieving our MAP to Growth goals. As markets stabilize and we gain more clarity into business conditions, we will communicate our new MAP to Growth timeline.” said RPM chairman and CEO Frank C. Sullivan. The company estimates fourth-quarter revenues to be down 10-15% year over year due to COVID-19 impact. Meanwhile, it suspended its fourth-quarter and fiscal 2020 guidance. Nonetheless, the company remains confident about the diversified business, as many of its products are deemed essential for construction, maintenance and repair projects. Also, a large number of its North American facilities — especially those in construction, and DIY home and hardware retail — are considered essential and are still operational. Notably, the company is also experiencing strong demand for professional and consumer cleaning and disinfectant brands.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -26.71% due to these changes.
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.
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.