Fiscal 2014 first-quarter net sales of $1.165 billion increased 11.3% over the $1.047 billion reported a year ago. RPM's consolidated earnings before interest and taxes (EBIT) grew 96.4% to $164.0 million from $83.5 million reported in the fiscal 2013 first quarter. First-quarter net income increased 204.0% to $103.1 million, up from the $33.9 million reported in the year-ago period, and diluted earnings per share improved by 196.2% to $0.77 from $0.26.
During last year's first quarter, the company incurred a one-time, non-cash charge of $45.3 million for the partial write-down of its investments in Kemrock Industries and Exports Limited in India and an $11.0 million charge in its roofing business.
Excluding the impact of these charges in the year-ago period, RPM's 2014 first-quarter net sales increased 11.0% from an adjusted $1.050 billion, consolidated EBIT grew 17.3% over an adjusted $139.8 million, net income was up 21.6% from the adjusted $84.8 million last year, and diluted earnings per share improved 20.3% from the adjusted $0.64 earned a year ago.
First-Quarter Segment Sales and Earnings
RPM's consumer segment reported a 26.2% increase in sales to $433.4 million from $343.4 million in the fiscal 2013 first quarter. Organic growth was 9.1%, principally volume driven, with negative foreign exchange of 0.3% and acquisition growth of 17.4%. Consumer segment EBIT improved 40.6% to $82.7 million in the fiscal 2014 first quarter from $58.8 million in the same period a year ago, driven primarily by higher volume, as well as strong performance from fiscal 2013 acquisitions.
"Our consumer segment continued trends set over the past several quarters, benefiting from higher sales that resulted from market share gains, innovative newer products at selling prices significantly above our norm and the recovery in the U.S. housing market," stated Frank C. Sullivan, chairman and chief executive officer. "Additionally, two consumer segment businesses acquired in fiscal 2013, Kirker and Synta, are both performing well above expectations."
The company's industrial segment net sales improved 4.0%, to $731.2 million from the $703.3 million reported a year ago, with 3.5% in organic growth offset by 0.2% in foreign exchange losses, while acquisitions added 0.7%. Industrial segment EBIT grew 30.2% to $100.1 million from the $76.9 million reported in the fiscal 2013 first quarter. The first-quarter industrial segment sales increase was 3.5% over the adjusted $706.2 million last year, and EBIT growth was 2.5% over the adjusted $97.7 million in last year's first quarter.
"In the industrial segment, sales increased modestly in both our European businesses and our North American roofing business, marking an earlier than anticipated turnaround from last year's performance. Both Europe and roofing are already showing bottom line leverage as a result of restructuring actions taken in the last fiscal year. We continue to see gradual improvement in RPM businesses serving North American commercial construction markets, while our unique industrial companies within the RPM2 Group are experiencing particularly robust sales growth," stated Sullivan.
Cash Flow and Financial Position
During the fiscal 2014 first quarter, cash from operations was a negative $129.5 million, compared to $17.7 million a year ago, due primarily to increased working capital needs associated with increased sales volumes and a $61.9 million settlement payment by the company's roofing division to the U.S. General Services Administration, which was accrued in fiscal 2013. Capital expenditures were $10.7 million in the quarter, compared to $12.7 million in the year-ago period. Depreciation was $14.4 million during the first quarter of fiscal 2014, compared to $13.3 million for the same period last year.
Total debt at August 31, 2013 of $1.4 billion compares to $1.4 billion at May 31, 2013 and $1.2 billion at the end of last year's first quarter. Net (of cash) debt-to-total capital was 49.1%, versus 43.5% at the end of last year's first quarter and 46.2% at the end of the prior fiscal year. Liquidity, including cash, was $896.2 million, compared to $870.8 million a year ago and $1.1 billion at May 31, 2013.
"RPM's strong cash and liquidity position enables us to continue to support a growing cash dividend, as well as our acquisition program," Sullivan said. "Our debt-to-total capital ratio remains within our traditional range, and we continue to pursue acquisitions that complement our core growth strategies."
Recent Acquisition Boosts Already Strong Presence in Commercial Flooring Market
On September 3, 2013, RPM announced that its Performance Coatings Group (PCG) acquired Expanko, Inc., a producer of terrazzo, cork, rubber and rubber/cork tiles, primarily for the education, healthcare, hospitality and sports/entertainment commercial markets. With sales of more than $12 million, Expanko is expected to benefit from enhanced distribution and marketing capabilities available within PCG to expand its reach beyond its traditional eastern U.S. geography. The acquisition is expected to be accretive to earnings within one year.
"We are cautious with regards to the uncertainties surrounding the political gridlock in Washington, as well as U.S. Federal Reserve policy and its impact on global foreign exchange markets," said Sullivan. "However, we are very encouraged by the earlier than expected improved performance in RPM's European and roofing businesses and the continued momentum in all aspects of our consumer segment. Therefore, we are increasing our full-year outlook for EPS growth to a range of 10% to 14%, or $2.00 to $2.07 per diluted share," Sullivan concluded.
Webcast and Conference Call Information
Management will host a conference call to further discuss these results beginning at 10:00 a.m. EDT today. The call can be accessed by dialing 800-901-5213 or 617-786-2962 for international callers. Participants are asked to call the assigned number approximately 10 minutes before the conference call begins. The call, which will last approximately one hour, will be open to the public, but only financial analysts will be permitted to ask questions. The media and all other participants will be in a listen-only mode.
For those unable to listen to the live call, a replay will be available from approximately 1 p.m. EDT today until 11:59 p.m. EDT on October 16, 2013. The replay can be accessed by dialing 888-286-8010 or 617-801-6888 for international callers. The access code is 40471764. The call also will be available both live and for replay, and as a written transcript, via the RPM web site atwww.rpminc.com.