04.12.17
RPM International Inc. has reported record sales for its fiscal 2017 third quarter ended February 28, 2017. Third-quarter net income declined versus the prior-year period primarily due to a pre-tax charge of $4.9 million for an intangible impairment on the Restore product line and a pre-tax charge of $4.2 million for the closing of a European manufacturing facility.
Net sales grew 3.4% to $1.0 billion in the fiscal 2017 third quarter from $988.6 million in the fiscal 2016 third quarter. Net income of $11.9 million in the fiscal 2017 third quarter decreased 35.8% from $18.6 million reported a year ago. Third-quarter earnings per share were $0.09, down 35.7% from the $0.14 reported last year. Income before income taxes (IBT) was $17.0 million, down 22.4% from year-ago IBT of $21.9 million. Consolidated earnings before interest and taxes (EBIT) were $37.1 million, down 11.9% from year-ago EBIT of $42.1 million. The impairment and restructuring charges reduced both IBT and EBIT by $9.1 million in the quarter.
During the current quarter, certain negative trends in the Restore product line led to a loss of market share, resulting in a downward revision to its long-term forecast. This was determined to represent an impairment triggering event and, after additional testing, resulted in a pre-tax impairment charge of $4.9 million. Also during the quarter, as previously discussed, an unprofitable operation in Europe was closed that resulted in a pre-tax charge of $4.2 million.
“We were pleased with our consolidated sales growth during the third quarter, which is typically slow due to cold winter weather that limits outdoor repair, maintenance and construction activities. Our earnings were negatively impacted by approximately $0.05 per share due to the Restore intangible impairment charge and the charge for the closure of a European manufacturing facility, which is consistent with our strategy to close underperforming operations. On the acquisition front, we completed five transactions during the quarter, which will add approximately $170 million in annualized sales,” stated Frank C. Sullivan, RPM chairman and chief executive officer. “Costs associated with completing these acquisitions, as well as the associated impact on cost of sales resulting from the step-up in inventory, further reduced EPS by approximately $0.03 per share.”
Industrial segment sales increased 5.8% to $521.4 million from $492.7 million in the fiscal 2016 third quarter. Organic sales improved 2.5%, while acquisitions added 4.1%. Foreign currency translation negatively impacted sales by 0.8%. IBT was $11.7 million, compared to year-ago IBT of $0.5 million. Industrial segment EBIT for the quarter of $14.6 million was up sharply from last year’s EBIT of $2.0 million.
“Our businesses serving the U.S. commercial construction market again experienced solid organic growth. Most businesses in Europe were up in the low- to mid-single-digit range in local currencies and current-year acquisitions contributed nicely to the segment’s overall sales growth. We were very pleased with the strong EBIT leverage achieved on solid top-line sales,” stated Sullivan.
Third-quarter sales in the company’s specialty segment increased 1.8% to $159.7 million from $156.9 million a year ago. Organic sales decreased 0.6% and acquisitions added 3.8%. Foreign currency translation negatively impacted sales by 1.4%. IBT was $15.0 million, down 31.0% from year-ago IBT of $21.7 million. Specialty segment EBIT declined 30.8% to $14.9 million from $21.5 million in the fiscal 2016 third quarter.
“Sales were soft for nearly all of our specialty segment businesses, which cut across a broad range of industries, and earnings were negatively impacted by the European facility closure amounting to $4.2 million. In this traditionally slow quarter, the segment didn’t generate enough top-line momentum to create positive leverage through its fixed operating cost structure,” stated Sullivan.
Sales in RPM’s consumer segment increased 0.7% to $341.4 million from $339.0 million in the fiscal 2016 third quarter. Organic sales declined 3.6%, while acquisitions added 5.1%. Foreign currency translation negatively impacted sales by 0.8%. IBT was $29.8 million, down 23.2% from year-ago IBT of $38.8 million. Consumer segment EBIT declined 22.9% to $29.9 million from $38.8 million a year ago.
“Excluding our Kirker nail enamel business, the consumer segment produced modest sales growth, primarily driven by acquisitions. The decline in organic sales was driven by the timing of orders from our retail customers during the quarter. Impacting segment earnings for the quarter was the Restore impairment charge, along with acquisition-related expenses and the impact on cost of sales relating to the step-up in inventory. Looking ahead, we are encouraged by housing market activity, retail customer results and the acceptance of recently introduced new products,” stated Sullivan.
For the first nine months of fiscal 2017, cash from operations was $173.5 million, compared to $223.8 million in the first nine months of fiscal 2016. Capital expenditures during the current nine-month period of $80.1 million compare to $54.8 million over the same time in fiscal 2016. Cash invested in acquisitions totaled $247 million. Total debt at the end of the first nine months of fiscal 2017 was $1.98 billion, compared to $1.74 billion a year ago and $1.64 billion at the end of fiscal 2016. RPM’s net (of cash) debt-to-total capitalization ratio was 58.0%, compared to 55.1% at February 29, 2016 and 50.0% at May 31, 2016.
“At February 28, 2017, RPM’s total liquidity, including cash and long-term committed available credit, was $620.0 million. Building upon this year’s strong pace of acquisitions, we continue our search for entrepreneurial acquisition candidates and to invest in our internal growth initiatives. In March 2017, we issued $450 million in bonds to pay down existing balances and free up available borrowings on our revolving credit facility,” stated Sullivan.
Nine-month net sales grew 2.3% to $3.47 billion from $3.39 billion a year ago. Net income of $53.8 million declined 73.4% from net income of $201.8 million in the year-ago period. Diluted earnings per share declined 72.7% to $0.41 from $1.50 in the first nine months of fiscal 2016. IBT was $58.6 million, down 79.4% from year-ago IBT of $284.4 million. Consolidated EBIT was $118.2 million, down 65.7% from year-ago EBIT of $344.4 million.
The fiscal 2017 nine month results included a $188.3 million Kirker impairment charge and a $12.3 million charge related to the decision to exit Flowcrete Middle East, while the fiscal 2016 nine-month results included a $14.5 million reversal of Kirker's final earnout accrual into income. Excluding these items, earnings per diluted share increased from $1.43 per share to $1.44 per share, while consolidated EBIT was $318.8 million, down 3.4% from year-ago EBIT of $329.9 million.
Sales for RPM’s industrial segment increased 2.1%, to $1.83 billion from $1.79 billion in the fiscal 2016 first nine months. Organic sales increased 1.9%, while acquisitions added 2.3%. Foreign currency translation negatively impacted sales by 2.1%. IBT was $151.3 million, up 1.5% from year-ago IBT of $149.0 million. Industrial segment EBIT of $158.0 million was up 2.9% from EBIT of $153.5 million in the first nine months of fiscal 2016. Excluding the current-year Flowcrete Middle East charge, EBIT was $170.2 million, up 10.9% from year-ago EBIT of $153.5 million.
Specialty segment sales increased 3.8% to $519.6 million from $500.4 million in the first nine months a year ago. Organic sales increased 2.5% and acquisitions added 3.0%. Foreign currency translation negatively impacted sales by 1.7%. IBT was $76.7 million, up 0.2% from year-ago IBT of $76.5 million. Specialty segment EBIT improved 0.5% to $76.3 million from $75.8 million in the same period a year ago.
In the consumer segment, nine-month sales were up 2.0% to $1.12 billion from $1.09 billion in the first nine months of fiscal 2016. Organic sales improved 1.4%, while acquisitions added 2.1%. Foreign currency negatively impacted sales by 1.5%. Loss before income taxes was $40.7 million, compared to year-ago IBT of $170.3 million. Consumer segment EBIT was a negative $40.6 million compared to EBIT of $170.2 million in the first nine months a year ago. Excluding the current-year Kirker impairment charge and the prior year’s Kirker earnout reversal, EBIT was $147.7 million, down 5.1% from year-ago EBIT of $155.7 million.
“As we look ahead, we expect that recent expense-reduction initiatives, along with the $220 million in revenue added via nine acquisitions this fiscal year, have RPM well positioned for solid performance in the fourth quarter and into fiscal 2018,” Sullivan stated.
“In our industrial segment, we expect mid-single-digit sales growth during the fourth quarter. This is predicated on continued strength in our businesses serving U.S. commercial construction markets and steady progress in Europe. Also, contributing to growth will be approximately $80 million in annualized sales from six industrial acquisitions completed this fiscal year,” stated Sullivan.
“The specialty segment is expected to grow in the low- to mid-single-digit range during the fourth quarter, driven by a balance between organic and acquisition growth,” Sullivan stated.
“Our consumer segment’s fourth-quarter sales should increase in the mid-single-digit range. Third-quarter acquisitions in the segment will help balance out underperformance at our Kirker business, which remains challenged,” Sullivan stated.
“As-reported EPS guidance for the full fiscal year of $1.54 to $1.64 remains unchanged. In January, we provided full-year as-adjusted EPS guidance of $2.62 to $2.72. As-adjusted EPS guidance is being reduced by $0.05 per share to $2.57 to $2.67 for the combined third quarter charges for the Restore intangible impairment and the European facility closure,” stated Sullivan.
Net sales grew 3.4% to $1.0 billion in the fiscal 2017 third quarter from $988.6 million in the fiscal 2016 third quarter. Net income of $11.9 million in the fiscal 2017 third quarter decreased 35.8% from $18.6 million reported a year ago. Third-quarter earnings per share were $0.09, down 35.7% from the $0.14 reported last year. Income before income taxes (IBT) was $17.0 million, down 22.4% from year-ago IBT of $21.9 million. Consolidated earnings before interest and taxes (EBIT) were $37.1 million, down 11.9% from year-ago EBIT of $42.1 million. The impairment and restructuring charges reduced both IBT and EBIT by $9.1 million in the quarter.
During the current quarter, certain negative trends in the Restore product line led to a loss of market share, resulting in a downward revision to its long-term forecast. This was determined to represent an impairment triggering event and, after additional testing, resulted in a pre-tax impairment charge of $4.9 million. Also during the quarter, as previously discussed, an unprofitable operation in Europe was closed that resulted in a pre-tax charge of $4.2 million.
“We were pleased with our consolidated sales growth during the third quarter, which is typically slow due to cold winter weather that limits outdoor repair, maintenance and construction activities. Our earnings were negatively impacted by approximately $0.05 per share due to the Restore intangible impairment charge and the charge for the closure of a European manufacturing facility, which is consistent with our strategy to close underperforming operations. On the acquisition front, we completed five transactions during the quarter, which will add approximately $170 million in annualized sales,” stated Frank C. Sullivan, RPM chairman and chief executive officer. “Costs associated with completing these acquisitions, as well as the associated impact on cost of sales resulting from the step-up in inventory, further reduced EPS by approximately $0.03 per share.”
Industrial segment sales increased 5.8% to $521.4 million from $492.7 million in the fiscal 2016 third quarter. Organic sales improved 2.5%, while acquisitions added 4.1%. Foreign currency translation negatively impacted sales by 0.8%. IBT was $11.7 million, compared to year-ago IBT of $0.5 million. Industrial segment EBIT for the quarter of $14.6 million was up sharply from last year’s EBIT of $2.0 million.
“Our businesses serving the U.S. commercial construction market again experienced solid organic growth. Most businesses in Europe were up in the low- to mid-single-digit range in local currencies and current-year acquisitions contributed nicely to the segment’s overall sales growth. We were very pleased with the strong EBIT leverage achieved on solid top-line sales,” stated Sullivan.
Third-quarter sales in the company’s specialty segment increased 1.8% to $159.7 million from $156.9 million a year ago. Organic sales decreased 0.6% and acquisitions added 3.8%. Foreign currency translation negatively impacted sales by 1.4%. IBT was $15.0 million, down 31.0% from year-ago IBT of $21.7 million. Specialty segment EBIT declined 30.8% to $14.9 million from $21.5 million in the fiscal 2016 third quarter.
“Sales were soft for nearly all of our specialty segment businesses, which cut across a broad range of industries, and earnings were negatively impacted by the European facility closure amounting to $4.2 million. In this traditionally slow quarter, the segment didn’t generate enough top-line momentum to create positive leverage through its fixed operating cost structure,” stated Sullivan.
Sales in RPM’s consumer segment increased 0.7% to $341.4 million from $339.0 million in the fiscal 2016 third quarter. Organic sales declined 3.6%, while acquisitions added 5.1%. Foreign currency translation negatively impacted sales by 0.8%. IBT was $29.8 million, down 23.2% from year-ago IBT of $38.8 million. Consumer segment EBIT declined 22.9% to $29.9 million from $38.8 million a year ago.
“Excluding our Kirker nail enamel business, the consumer segment produced modest sales growth, primarily driven by acquisitions. The decline in organic sales was driven by the timing of orders from our retail customers during the quarter. Impacting segment earnings for the quarter was the Restore impairment charge, along with acquisition-related expenses and the impact on cost of sales relating to the step-up in inventory. Looking ahead, we are encouraged by housing market activity, retail customer results and the acceptance of recently introduced new products,” stated Sullivan.
For the first nine months of fiscal 2017, cash from operations was $173.5 million, compared to $223.8 million in the first nine months of fiscal 2016. Capital expenditures during the current nine-month period of $80.1 million compare to $54.8 million over the same time in fiscal 2016. Cash invested in acquisitions totaled $247 million. Total debt at the end of the first nine months of fiscal 2017 was $1.98 billion, compared to $1.74 billion a year ago and $1.64 billion at the end of fiscal 2016. RPM’s net (of cash) debt-to-total capitalization ratio was 58.0%, compared to 55.1% at February 29, 2016 and 50.0% at May 31, 2016.
“At February 28, 2017, RPM’s total liquidity, including cash and long-term committed available credit, was $620.0 million. Building upon this year’s strong pace of acquisitions, we continue our search for entrepreneurial acquisition candidates and to invest in our internal growth initiatives. In March 2017, we issued $450 million in bonds to pay down existing balances and free up available borrowings on our revolving credit facility,” stated Sullivan.
Nine-month net sales grew 2.3% to $3.47 billion from $3.39 billion a year ago. Net income of $53.8 million declined 73.4% from net income of $201.8 million in the year-ago period. Diluted earnings per share declined 72.7% to $0.41 from $1.50 in the first nine months of fiscal 2016. IBT was $58.6 million, down 79.4% from year-ago IBT of $284.4 million. Consolidated EBIT was $118.2 million, down 65.7% from year-ago EBIT of $344.4 million.
The fiscal 2017 nine month results included a $188.3 million Kirker impairment charge and a $12.3 million charge related to the decision to exit Flowcrete Middle East, while the fiscal 2016 nine-month results included a $14.5 million reversal of Kirker's final earnout accrual into income. Excluding these items, earnings per diluted share increased from $1.43 per share to $1.44 per share, while consolidated EBIT was $318.8 million, down 3.4% from year-ago EBIT of $329.9 million.
Sales for RPM’s industrial segment increased 2.1%, to $1.83 billion from $1.79 billion in the fiscal 2016 first nine months. Organic sales increased 1.9%, while acquisitions added 2.3%. Foreign currency translation negatively impacted sales by 2.1%. IBT was $151.3 million, up 1.5% from year-ago IBT of $149.0 million. Industrial segment EBIT of $158.0 million was up 2.9% from EBIT of $153.5 million in the first nine months of fiscal 2016. Excluding the current-year Flowcrete Middle East charge, EBIT was $170.2 million, up 10.9% from year-ago EBIT of $153.5 million.
Specialty segment sales increased 3.8% to $519.6 million from $500.4 million in the first nine months a year ago. Organic sales increased 2.5% and acquisitions added 3.0%. Foreign currency translation negatively impacted sales by 1.7%. IBT was $76.7 million, up 0.2% from year-ago IBT of $76.5 million. Specialty segment EBIT improved 0.5% to $76.3 million from $75.8 million in the same period a year ago.
In the consumer segment, nine-month sales were up 2.0% to $1.12 billion from $1.09 billion in the first nine months of fiscal 2016. Organic sales improved 1.4%, while acquisitions added 2.1%. Foreign currency negatively impacted sales by 1.5%. Loss before income taxes was $40.7 million, compared to year-ago IBT of $170.3 million. Consumer segment EBIT was a negative $40.6 million compared to EBIT of $170.2 million in the first nine months a year ago. Excluding the current-year Kirker impairment charge and the prior year’s Kirker earnout reversal, EBIT was $147.7 million, down 5.1% from year-ago EBIT of $155.7 million.
“As we look ahead, we expect that recent expense-reduction initiatives, along with the $220 million in revenue added via nine acquisitions this fiscal year, have RPM well positioned for solid performance in the fourth quarter and into fiscal 2018,” Sullivan stated.
“In our industrial segment, we expect mid-single-digit sales growth during the fourth quarter. This is predicated on continued strength in our businesses serving U.S. commercial construction markets and steady progress in Europe. Also, contributing to growth will be approximately $80 million in annualized sales from six industrial acquisitions completed this fiscal year,” stated Sullivan.
“The specialty segment is expected to grow in the low- to mid-single-digit range during the fourth quarter, driven by a balance between organic and acquisition growth,” Sullivan stated.
“Our consumer segment’s fourth-quarter sales should increase in the mid-single-digit range. Third-quarter acquisitions in the segment will help balance out underperformance at our Kirker business, which remains challenged,” Sullivan stated.
“As-reported EPS guidance for the full fiscal year of $1.54 to $1.64 remains unchanged. In January, we provided full-year as-adjusted EPS guidance of $2.62 to $2.72. As-adjusted EPS guidance is being reduced by $0.05 per share to $2.57 to $2.67 for the combined third quarter charges for the Restore intangible impairment and the European facility closure,” stated Sullivan.
