10.05.16
RPM International Inc. has reported record sales, net income and earnings per diluted share for its fiscal 2017 first quarter ended August 31, 2016, despite continued strong headwinds from currency exchange, softness in the energy and heavy equipment industries worldwide and an overall sluggish global economy.
First-Quarter Results
Fiscal 2017 first-quarter net sales of $1.25 billion increased 0.8% over the $1.24 billion reported a year ago. First-quarter net income was up 13.0% to $112.8 million from $99.8 million in the year-ago period, and diluted earnings per share of $0.83 were up 12.2% from $0.74 in the fiscal 2016 first quarter. RPM's consolidated earnings before interest and taxes (EBIT) increased 4.2% to $167.4 million from $160.6 million reported in the fiscal 2016 first quarter. During the quarter, the company early adopted ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting." As a result of adoption of this accounting standard, the company recognized a tax benefit, which contributed to lowering the quarterly effective tax rate to 23.6%.
"We were very pleased with the balanced EBIT leverage across all three of our segments during the first quarter, especially in light of the challenging revenue growth environment globally," stated Frank C. Sullivan, RPM chairman and chief executive officer.
First-Quarter Segment Sales and Earnings
The company's industrial segment net sales declined 0.2%, to $675.8 million from $677.1 million reported a year ago, with 1.2% in organic growth, while acquisitions added 1.0%. Foreign currency translation reduced sales by 2.4%. Industrial segment EBIT increased 5.9% to $91.1 million from $86.0 million in the fiscal 2016 first quarter.
"RPM's industrial businesses continued a recent trend of mixed results, depending on the markets they serve, both geographically and by industry. Our companies serving North American commercial construction markets continued to post strong results, while those serving the energy and heavy equipment industries worldwide faced continued dampened demand. Currency headwinds continued to affect our industrial businesses outside the U.S., although our Brazilian business delivered mid-single-digit growth at actual exchange rates and high-single-digit growth in local currencies," stated Sullivan.
RPM's specialty segment had sales growth of 3.8%, to $176.3 million from $169.9 million in the fiscal 2016 first quarter. Organic growth contributed 2.6%, while acquisition growth was 2.9%. Foreign currency translation was a negative 1.7%. Specialty segment EBIT was up 15.5% to $30.4 million from $26.3 million in the fiscal 2016 first quarter.
"Many of our specialty business units had solid performance in the quarter, led by our Legend Brands restoration equipment unit and recent acquisitions that added incrementally, all of which contributed to great EBIT conversion," Sullivan stated.
RPM's consumer segment reported a 1.1% increase in sales to $399.9 million from $395.6 million in the fiscal 2016 first quarter. Organic sales improved 1.8%, while acquisition growth contributed 1.0%. Foreign currency translation reduced sales by 1.7%. Consumer segment EBIT improved 6.1% to $70.1 million from $66.1 million in the fiscal 2016 first quarter.
"Our core consumer businesses of small project paints, primers and patch and repair products met our expectations, while our nail enamel product line results were below the prior-year first quarter, as expected. In addition, we struggled a bit in our core caulks and sealants category, as an extremely strong spring sell-in season depleted safety stocks and we were unable to meet continued strong demand during the quarter. Additional capacity is being installed, which should alleviate this issue by the end of our fiscal second quarter," stated Sullivan.
Cash Flow and Financial Position
During the fiscal 2017 first quarter, cash from operations was $6.5 million compared to $6.6 million a year ago. Capital expenditures were $17.0 million in the quarter, compared to $12.0 million in the year-ago period.
Total debt at August 31, 2016 of $1.66 billion compares to $1.64 billion at May 31, 2016 and $1.72 billion at the end of last year's first quarter. Net (of cash) debt-to-total capital was 50.5%, versus 54.5% at the end of last year's first quarter and 50.0% at the end of the prior fiscal year. Liquidity, including cash, was $976.0 million, compared to $882.2 million a year ago and $1.1 billion at May 31, 2016.
"RPM continues to be in a strong financial position to fund a growing cash dividend, acquisitions and internal growth investments," Sullivan stated.
Business Outlook
"We continue to generate growth across most RPM businesses despite many market and economic challenges, and our operating units were able to leverage this modest sales growth into very strong EBIT growth. This leverage, combined with the quarter's tax benefit, generated very good improvement in net income and earnings per diluted share. While we experienced a lower tax rate in the quarter due to the adoption of the new accounting standard, we estimate that the full-year effective tax rate will remain in the 26% range as previously disclosed. As a result, we are maintaining our guidance for diluted earnings per share in fiscal 2017 of between $2.68 and $2.78," stated Sullivan.
Webcast and Conference Call Information
Management will host a conference call to discuss the quarter's results beginning at 10:00 a.m. EDT today. The call can be accessed by dialing 888-771-4371 or 847-585-4405 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. The call may also be accessed via the RPM website at www.RPMinc.com.
For those unable to listen to the live call, a replay will be available from approximately 12:30 p.m. EDT on October 5, 2016 until 11:59 p.m. EDT on October 12, 2016. The replay can be accessed by dialing 888-843-7419 or 630-652-3042 for international callers. The access code is 41121754. The call also will be available both live and for replay, and as a written transcript, via the RPM web site at www.RPMinc.com.
First-Quarter Results
Fiscal 2017 first-quarter net sales of $1.25 billion increased 0.8% over the $1.24 billion reported a year ago. First-quarter net income was up 13.0% to $112.8 million from $99.8 million in the year-ago period, and diluted earnings per share of $0.83 were up 12.2% from $0.74 in the fiscal 2016 first quarter. RPM's consolidated earnings before interest and taxes (EBIT) increased 4.2% to $167.4 million from $160.6 million reported in the fiscal 2016 first quarter. During the quarter, the company early adopted ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting." As a result of adoption of this accounting standard, the company recognized a tax benefit, which contributed to lowering the quarterly effective tax rate to 23.6%.
"We were very pleased with the balanced EBIT leverage across all three of our segments during the first quarter, especially in light of the challenging revenue growth environment globally," stated Frank C. Sullivan, RPM chairman and chief executive officer.
First-Quarter Segment Sales and Earnings
The company's industrial segment net sales declined 0.2%, to $675.8 million from $677.1 million reported a year ago, with 1.2% in organic growth, while acquisitions added 1.0%. Foreign currency translation reduced sales by 2.4%. Industrial segment EBIT increased 5.9% to $91.1 million from $86.0 million in the fiscal 2016 first quarter.
"RPM's industrial businesses continued a recent trend of mixed results, depending on the markets they serve, both geographically and by industry. Our companies serving North American commercial construction markets continued to post strong results, while those serving the energy and heavy equipment industries worldwide faced continued dampened demand. Currency headwinds continued to affect our industrial businesses outside the U.S., although our Brazilian business delivered mid-single-digit growth at actual exchange rates and high-single-digit growth in local currencies," stated Sullivan.
RPM's specialty segment had sales growth of 3.8%, to $176.3 million from $169.9 million in the fiscal 2016 first quarter. Organic growth contributed 2.6%, while acquisition growth was 2.9%. Foreign currency translation was a negative 1.7%. Specialty segment EBIT was up 15.5% to $30.4 million from $26.3 million in the fiscal 2016 first quarter.
"Many of our specialty business units had solid performance in the quarter, led by our Legend Brands restoration equipment unit and recent acquisitions that added incrementally, all of which contributed to great EBIT conversion," Sullivan stated.
RPM's consumer segment reported a 1.1% increase in sales to $399.9 million from $395.6 million in the fiscal 2016 first quarter. Organic sales improved 1.8%, while acquisition growth contributed 1.0%. Foreign currency translation reduced sales by 1.7%. Consumer segment EBIT improved 6.1% to $70.1 million from $66.1 million in the fiscal 2016 first quarter.
"Our core consumer businesses of small project paints, primers and patch and repair products met our expectations, while our nail enamel product line results were below the prior-year first quarter, as expected. In addition, we struggled a bit in our core caulks and sealants category, as an extremely strong spring sell-in season depleted safety stocks and we were unable to meet continued strong demand during the quarter. Additional capacity is being installed, which should alleviate this issue by the end of our fiscal second quarter," stated Sullivan.
Cash Flow and Financial Position
During the fiscal 2017 first quarter, cash from operations was $6.5 million compared to $6.6 million a year ago. Capital expenditures were $17.0 million in the quarter, compared to $12.0 million in the year-ago period.
Total debt at August 31, 2016 of $1.66 billion compares to $1.64 billion at May 31, 2016 and $1.72 billion at the end of last year's first quarter. Net (of cash) debt-to-total capital was 50.5%, versus 54.5% at the end of last year's first quarter and 50.0% at the end of the prior fiscal year. Liquidity, including cash, was $976.0 million, compared to $882.2 million a year ago and $1.1 billion at May 31, 2016.
"RPM continues to be in a strong financial position to fund a growing cash dividend, acquisitions and internal growth investments," Sullivan stated.
Business Outlook
"We continue to generate growth across most RPM businesses despite many market and economic challenges, and our operating units were able to leverage this modest sales growth into very strong EBIT growth. This leverage, combined with the quarter's tax benefit, generated very good improvement in net income and earnings per diluted share. While we experienced a lower tax rate in the quarter due to the adoption of the new accounting standard, we estimate that the full-year effective tax rate will remain in the 26% range as previously disclosed. As a result, we are maintaining our guidance for diluted earnings per share in fiscal 2017 of between $2.68 and $2.78," stated Sullivan.
Webcast and Conference Call Information
Management will host a conference call to discuss the quarter's results beginning at 10:00 a.m. EDT today. The call can be accessed by dialing 888-771-4371 or 847-585-4405 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. The call may also be accessed via the RPM website at www.RPMinc.com.
For those unable to listen to the live call, a replay will be available from approximately 12:30 p.m. EDT on October 5, 2016 until 11:59 p.m. EDT on October 12, 2016. The replay can be accessed by dialing 888-843-7419 or 630-652-3042 for international callers. The access code is 41121754. The call also will be available both live and for replay, and as a written transcript, via the RPM web site at www.RPMinc.com.