First quarter net income was a record $61.3 million, up 22.8% compared to last year’s reported net income of $50 million.
“Our first quarter performance in both sales and earnings was slightly ahead of our internal operating plan, and we continue to anticipate overall sales growth for the year of eight to 10%, with earnings increasing by 10% to 12% before the asbestos charges taken during 2006,” said Frank C. Sullivan, president and chief executive officer. “We anticipate particularly strong comparative improvement in our second quarter results, when contrasted with last year’s second quarter when we experienced the significant impacts of Gulf coast hurricanes and certain one-time costs,” he said.
RPM’s industrial segment continued its strong growth pattern established during calendar 2005, with sales increasing 26.6% to $545.3 million from $430.8 million in last year’s first quarter. Of the increase, 16.1% resulted from acquisitions, primarily the illbruck purchase, and 10.5% was organic, including foreign exchange, reflecting brisk sales strength nearly throughout the segment. Industrial EBIT increased 13.7% to $74.0 million from $65.1 million a year ago.
Consumer segment sales declined 5.6%, mainly as the result of uneven buying patterns and inventory reductions on the part of several major retailers during the quarter plus the January sale of the small wallcovering business, and partly from the housing-market slowdown. Consumer segment EBIT declined 9.4% to $41.9 million from $46.3 million in the fiscal 2006 first quarter due mainly to the sales decline.
Both segments continued to experience net higher raw material costs during the quarter, as reflected in the gross margin, but many of these costs are expected to begin to moderate during the second quarter.
On July 25, RPM’s Rust-Oleum subsidiary acquired the Watco Group, based in Godalming, United Kingdom. Watco, which manufactures and markets industrial coatings and concrete floor coatings, has annual sales of approximately $20 million and is expected to be accretive to earnings within one year.
On September 14, RPM’s StonCor Group announced its acquisition of 14.99% of the outstanding shares of Kemrock Industries & Exports Ltd., a $20 million producer of fiberglass reinforced plastic (FRP) based in Vadodara, Gujarat State, India.
“We continue to be optimistic regarding our 2007 fiscal year performance, despite some of the external challenges facing our consumer businesses, particularly, and raw material costs, generally. We believe the inventory adjustments and uneven buying behavior by major retailers in the first quarter will return to a more balanced position as we move through this fiscal year, since consumer takeaway at the point of sale continues at a fairly steady pace. We also anticipate that the impact of raw material cost increases will gradually decline over the course of the year. Meanwhile, our strong industrial segment growth continues, reflecting overall industrial and commercial vitality,” Sullivan said.