RPM Reports Record Fiscal 2024 Second-Quarter Results

RPM International Inc. reported record financial results for its fiscal 2024 second quarter ended Nov. 30, 2023.

“For eight consecutive quarters, we have generated record sales and adjusted EBIT, and we are making good progress toward achieving our MAP 2025 profitability goals by becoming a more efficient and collaborative organization,” said Frank C. Sullivan, RPM chairman and CEO.

“At our investor day last year, we discussed two other key components of MAP 2025 – improving cash flow conversion and investing to accelerate organic growth. We have made great progress with cash flow, as our $767.8 million cash from operating activities through the first six months of fiscal 2024 has already exceeded our previous 12-month fiscal year record. Our organic growth investments are yielding successes, particularly in high-performance buildings and turnkey flooring systems, where we are gaining share,” said Sullivan.

“Our Construction Products Group and Performance Coatings Group, the segments focused on coatings and high-performance buildings, led growth in the second quarter. They benefited from their focus on maintenance and repair, as well as their positioning to sell highly engineered solutions into growing end markets. Demand in DIY and specialty OEM markets remained weak; however, we overcame these challenges by successfully executing MAP 2025 initiatives to expand gross margins by 320 basis points and generate double-digit adjusted EBIT growth.”  

Fiscal 2024 sales were $1.79 billion, up slightly from the prior year, and were a second-quarter record. Sales were in addition to strong growth in the prior-year period when sales increased 9.3%. Pricing was positive in all segments as they catch up with cost inflation.

Volume growth was strongest in businesses that were positioned to serve solid demand for infrastructure, reshoring and high-performance building projects with engineered solutions, which was more than offset by lower DIY consumer takeaway at retail stores and weak demand from specialty OEM end markets.

Geographically, sales growth was strongest in markets outside the U.S. A new management team and focused sales strategy in Europe contributed to 8.9% growth, and Africa/Middle East and Asia/Pacific benefited from improved coordination under PCG management that resulted in 13.0% and 6.4% sales growth, respectively.

Sales included a 0.3% organic decline, a 0.2% decline from divestitures net of acquisitions, and 0.5% growth from foreign currency translation.

Second-quarter adjusted diluted EPS was $1.22, an increase of 10.9% over prior year and adjusted EBIT increased 10.4% to $236.9 million, both records. This was in addition to strong growth in the prior-year period when adjusted EBIT increased 36.4%.

This growth was driven by gross margin expansion of 320 basis points, aided by MAP 2025 initiatives, including the commodity cycle, a positive mix from shifting toward higher margin products and services, and improved fixed-cost leverage at businesses with volume growth.

Second-Quarter 2024 Segment Sales and Earnings

• Construction Products Group: CPG achieved record second-quarter sales with strength in concrete admixtures and repair products as a result of increased demand for engineered solutions serving infrastructure and reshoring-related projects, as well as market share gains. Businesses serving high-performance building construction and renovation also performed well. Demand in markets outside the U.S. was strong and was driven by infrastructure-related demand in Latin America and a more focused sales strategy in Europe.

Sales included 6.1% organic growth, 0.6% growth from acquisitions, and 1.4% growth from foreign currency translation.

Record second-quarter adjusted EBIT was driven by the positive impact of MAP 2025 initiatives, favorable mix, and improved fixed-cost leverage from volume growth. Variable compensation increased as a result of improved financial performance and was partially offset by expense reduction actions implemented at the end of fiscal 2023.

• Performance Coatings Group: PCG generated record second-quarter sales, which were in addition to strong results in the prior-year period, driven by growth in engineered turnkey flooring systems serving reshoring capital projects and market share gains. Strong growth in Asia/Pacific and Africa/Middle East, which were all recently aligned under PCG, also contributed to the record sales.

Sales included 5.6% organic growth, a 0.5% decline from divestitures net of acquisitions, and no impact from foreign currency translation.

All-time record adjusted EBIT was driven by sales growth, favorable mix and improved fixed-cost leverage that was enhanced by MAP 2025 initiatives. The adjusted EBIT growth was achieved in addition to strong results in the prior-year period.

• Specialty Products Group: SPG’s second-quarter sales decline was driven by weak demand in specialty OEM end markets, particularly those with exposure to residential housing. Sales were also negatively impacted by the divestiture of the non-core furniture warranty business in the third quarter of fiscal 2023 and challenging comparisons in the prior-year period when the disaster restoration business had strong results in response to Hurricane Ian. Higher selling prices partially offset this sales decline.

Sales included a 14.6% organic decline, a 2.7% reduction from divestitures, and 0.7% growth from foreign currency translation.

Adjusted EBIT was negatively impacted by the sales decline and unfavorable fixed-cost leverage. The divestiture of the non-core furniture warranty business also contributed to the adjusted EBIT decline. Investments in long-term growth initiatives weighed on adjusted EBIT margins and were partially offset by expense-reduction actions in the fourth quarter of fiscal 2023.

Adjusted EBIT excluded a $4.0 million expense related to an adverse legal ruling for a divested business.

• Consumer Group: The Consumer Group’s second-quarter sales decline was driven by reduced DIY takeaway at retail stores as housing turnover hit multi-year lows and consumers focused their spending on travel and entertainment, as well as certain retailers destocking inventories. These pressures were partially offset by market share gains, strength in international markets, and higher pricing to catch up with inflation. The Consumer Group faced challenging comparisons to the prior-year period when sales grew 15.3%.

Sales included a 5.1% organic decline, no impact from acquisitions, and foreign currency translation headwinds of 0.1%.

Record second-quarter adjusted EBIT was driven by gross margin expansion enabled by MAP 2025 initiatives and strength in international markets. This growth was in addition to strong prior-year results when adjusted EBIT increased 180.3%.

• Cash Flow and Financial Position

During the first six months of fiscal 2024:

• Cash provided by operating activities was $767.8 million, which exceeded the previous 12-month fiscal year record, compared to $190.9 million during the prior-year period, and included an all-time quarterly record of $408.6 million during the second quarter of fiscal 2024. The increase was driven by increased profitability and improved working capital management, including MAP 2025 initiatives.

• Capital expenditures were $89.3 million compared to $113.5 million during the prior-year period, driven by the timing of investments, including those related to MAP 2025 initiatives, which are expected to accelerate in the second half of fiscal 2024.

The company returned $138.3 million to stockholders through cash dividends and share repurchases and achieved its 50th consecutive year of dividend increases.

• As of November 30, 2023, total debt was $2.25 billion compared to $2.84 billion a year ago, with the $592.4 million reduction driven by improved cash flow being used to repay debt.
Total liquidity, including cash and committed revolving credit facilities, was $1.51 billion, compared to $880.0 million a year ago.

Business Outlook

“We expect business conditions in the third quarter to generally be similar to the second quarter, with strength in our CPG and PCG segments, international markets, and market share gains offsetting continued weakness in DIY and specialty OEM demand. Adjusted EBIT growth is expected to accelerate, driven by less challenging prior-year comparisons and MAP 2025 benefits, which should more than offset lower volumes in certain businesses and investments we are making to accelerate future growth and efficiencies,” Sullivan added.

“For the remainder of the year, we are leveraging our focus on repair and maintenance; our strong position serving demand for infrastructure, high performance buildings and reshoring projects; and MAP 2025 to deliver another year of record sales and adjusted EBIT.”

The company expects the following in the fiscal 2024 third quarter:
• Consolidated sales to be flat compared to prior-year record results.
• CPG sales to increase in the mid-single-digit percentage range compared to prior-year record results.
• PCG sales to increase in the mid-single-digit percentage range compared to prior-year record results.
• SPG sales to decrease in the mid-teen percentage range compared to prior-year record results.
Consumer Group sales to decrease in the low-single-digit percentage range compared to prior-year record results.
• Consolidated adjusted EBIT to increase 25% to 35% compared to prior-year record results.

The company expects the following in the full-year fiscal 2024:
• Consolidated sales to increase in the low-single-digit percentage range compared to prior-year record results. The previous outlook was for mid-single-digit percentage growth.
• Consolidated adjusted EBIT to increase in the low-double-digit to mid-teen percentage range compared to prior-year record results. This outlook is unchanged from the prior outlook.