10.09.17
RPM International Inc. reported record sales, net income and earnings per diluted share for its fiscal 2018 first quarter ended August 31, 2017, despite continued strong headwinds from rising raw material costs.
First-Quarter Results
Fiscal 2018 first-quarter net sales of $1.35 billion increased 7.5 percent over the $1.25 billion reported a year ago. First-quarter net income was up 3.2 percent to $116.4 million from $112.8 million in the year-ago period, and diluted earnings per share of $0.86 were up 3.6 percent from $0.83 in the fiscal 2017 first quarter. Income before income taxes (IBT) increased 4.6 percent to $155.3 million from $148.5 million in the fiscal 2017 first quarter. RPM’s consolidated earnings before interest and taxes (EBIT) increased 6.1 percent to $177.6 million from $167.4 million reported in the fiscal 2017 first quarter.
“We derived significant benefits from the nine acquisitions made in fiscal 2017, along with our selling, general and administrative (SG&A) cost reduction actions taken last year,” said Frank C. Sullivan, RPM chairman and CEO. “Rising raw material costs negatively impacted gross profit margins. As a result, we instituted price increases, which began to take effect late in the quarter. After three years of foreign currency headwinds attributable to the strengthening U.S. dollar, currency translation was essentially neutral this quarter.”
First-Quarter Segment Sales and Earnings
The company’s industrial segment net sales increased 8.0 percent, to $729.8 million from $675.8 million reported a year ago, with 3.2 percent in organic growth, while acquisitions added 4.3 percent. Foreign currency translation increased sales by 0.5 percent. Industrial segment EBIT increased 0.4 percent to $91.5 million from $91.1 million in the fiscal 2017 first quarter.
“Our industrial segment results reflect a combination of higher raw material costs, unfavorable product mix, higher distribution expense and disappointing results from a struggling Latin America,” Sullivan said. “Our European and Canadian businesses performed very well in the quarter. North American commercial construction markets, which have bolstered the industrial segment’s performance over the past several years, have become a bit choppy, with some areas performing well and others showing weakness. Our businesses serving the oil and gas industries were down in the mid-single digits, compared to double-digit declines over the past three years. We expect sales at those businesses to turn positive in the second half of this fiscal year.”
RPM’s consumer segment reported a 6.8 percent increase in sales to $427.1 million from $399.9 million in the fiscal 2017 first quarter. Organic sales declined 1.2 percent, while acquisition growth contributed 8.1 percent. Foreign currency translation reduced sales by 0.1 percent. Consumer segment EBIT improved 3.5 percent to $72.6 million from $70.1 million in the fiscal 2017 first quarter.
“Our growth in consumer is being driven by Touch n’ Foam and SPS, both of which were acquired in the third quarter of fiscal 2017,” Sullivan said. Even though the residential housing market remains solid, overall organic growth in the U.S. paint category, across the industry, has been softer over the last couple of quarters.”
RPM’s specialty segment had sales growth of 6.9 percent to $188.5 million from $176.3 million in the fiscal 2017 first quarter. Organic growth contributed 3.0 percent, while acquisition growth was 4.1 percent. Foreign currency translation was a negative 0.2 percent. Specialty segment EBIT was up 8.9 percent to $33 million from $30.4 million in the fiscal 2017 first quarter.
“Many of our specialty business units had solid performance in the quarter, led by a surge at our restoration equipment unit, which was partially due to immediate response efforts to Hurricane Harvey,” said Sullivan. “Our powder coatings, wood finishes and wood preservatives businesses also performed well in the quarter. The segment was able to more than offset higher raw material costs through SG&A savings resulting from actions taken in the prior fiscal year.”
Cash Flow and Financial Position
During the fiscal 2018 first quarter, cash used from operations was $26.1 million compared to cash provided by operations of $6.5 million a year ago. Capital expenditures were $17.5 million in the quarter, compared to $17 million in the year-ago period.
Total debt at Aug. 31, 2017 of $2.12 billion compares to $2.09 billion at May 31, 2017 and $1.66 billion at the end of last year’s first quarter. Net (of cash) debt-to-total capital was 54.7 percent, versus 50.5 percent at the end of last year’s first quarter and 54.8 percent at the end of the prior fiscal year. Liquidity, including cash, was $1 billion, compared to $976 million a year ago and $1.15 billion at May 31, 2017.
Business Outlook
“Sales during the first quarter were in line with our expectations and revenue growth was very balanced across all three segments. We believe that the severe hurricane season will initially hinder sales in the second quarter, but provide higher than originally expected sales in the back half as communities in the devastated Texas, Florida and Caribbean regions begin the rebuilding process,” Sullivan said. “On the raw material front, the hurricanes will perpetuate the already higher raw material cost environment well into the second quarter before moderating. Our price increase actions should offset a large portion of the raw material increases.
“Additionally, we continue to incur expenses relating to the ongoing integration of Flowcrete and Euclid into the newly formed Euclid Group. We are also very focused on driving improved operating leverage throughout the entire industrial segment, which will involve future re-alignments to generate additional cost savings and efficiencies. As a result of these factors across our businesses, our sales growth guidance for the balance of fiscal 2018 in our industrial and consumer segments is in the mid-single-digit range and specialty in the low- to mid-single-digit range. We are maintaining our full-year EPS guidance of $2.85 to $2.95 per diluted share.”
First-Quarter Results
Fiscal 2018 first-quarter net sales of $1.35 billion increased 7.5 percent over the $1.25 billion reported a year ago. First-quarter net income was up 3.2 percent to $116.4 million from $112.8 million in the year-ago period, and diluted earnings per share of $0.86 were up 3.6 percent from $0.83 in the fiscal 2017 first quarter. Income before income taxes (IBT) increased 4.6 percent to $155.3 million from $148.5 million in the fiscal 2017 first quarter. RPM’s consolidated earnings before interest and taxes (EBIT) increased 6.1 percent to $177.6 million from $167.4 million reported in the fiscal 2017 first quarter.
“We derived significant benefits from the nine acquisitions made in fiscal 2017, along with our selling, general and administrative (SG&A) cost reduction actions taken last year,” said Frank C. Sullivan, RPM chairman and CEO. “Rising raw material costs negatively impacted gross profit margins. As a result, we instituted price increases, which began to take effect late in the quarter. After three years of foreign currency headwinds attributable to the strengthening U.S. dollar, currency translation was essentially neutral this quarter.”
First-Quarter Segment Sales and Earnings
The company’s industrial segment net sales increased 8.0 percent, to $729.8 million from $675.8 million reported a year ago, with 3.2 percent in organic growth, while acquisitions added 4.3 percent. Foreign currency translation increased sales by 0.5 percent. Industrial segment EBIT increased 0.4 percent to $91.5 million from $91.1 million in the fiscal 2017 first quarter.
“Our industrial segment results reflect a combination of higher raw material costs, unfavorable product mix, higher distribution expense and disappointing results from a struggling Latin America,” Sullivan said. “Our European and Canadian businesses performed very well in the quarter. North American commercial construction markets, which have bolstered the industrial segment’s performance over the past several years, have become a bit choppy, with some areas performing well and others showing weakness. Our businesses serving the oil and gas industries were down in the mid-single digits, compared to double-digit declines over the past three years. We expect sales at those businesses to turn positive in the second half of this fiscal year.”
RPM’s consumer segment reported a 6.8 percent increase in sales to $427.1 million from $399.9 million in the fiscal 2017 first quarter. Organic sales declined 1.2 percent, while acquisition growth contributed 8.1 percent. Foreign currency translation reduced sales by 0.1 percent. Consumer segment EBIT improved 3.5 percent to $72.6 million from $70.1 million in the fiscal 2017 first quarter.
“Our growth in consumer is being driven by Touch n’ Foam and SPS, both of which were acquired in the third quarter of fiscal 2017,” Sullivan said. Even though the residential housing market remains solid, overall organic growth in the U.S. paint category, across the industry, has been softer over the last couple of quarters.”
RPM’s specialty segment had sales growth of 6.9 percent to $188.5 million from $176.3 million in the fiscal 2017 first quarter. Organic growth contributed 3.0 percent, while acquisition growth was 4.1 percent. Foreign currency translation was a negative 0.2 percent. Specialty segment EBIT was up 8.9 percent to $33 million from $30.4 million in the fiscal 2017 first quarter.
“Many of our specialty business units had solid performance in the quarter, led by a surge at our restoration equipment unit, which was partially due to immediate response efforts to Hurricane Harvey,” said Sullivan. “Our powder coatings, wood finishes and wood preservatives businesses also performed well in the quarter. The segment was able to more than offset higher raw material costs through SG&A savings resulting from actions taken in the prior fiscal year.”
Cash Flow and Financial Position
During the fiscal 2018 first quarter, cash used from operations was $26.1 million compared to cash provided by operations of $6.5 million a year ago. Capital expenditures were $17.5 million in the quarter, compared to $17 million in the year-ago period.
Total debt at Aug. 31, 2017 of $2.12 billion compares to $2.09 billion at May 31, 2017 and $1.66 billion at the end of last year’s first quarter. Net (of cash) debt-to-total capital was 54.7 percent, versus 50.5 percent at the end of last year’s first quarter and 54.8 percent at the end of the prior fiscal year. Liquidity, including cash, was $1 billion, compared to $976 million a year ago and $1.15 billion at May 31, 2017.
Business Outlook
“Sales during the first quarter were in line with our expectations and revenue growth was very balanced across all three segments. We believe that the severe hurricane season will initially hinder sales in the second quarter, but provide higher than originally expected sales in the back half as communities in the devastated Texas, Florida and Caribbean regions begin the rebuilding process,” Sullivan said. “On the raw material front, the hurricanes will perpetuate the already higher raw material cost environment well into the second quarter before moderating. Our price increase actions should offset a large portion of the raw material increases.
“Additionally, we continue to incur expenses relating to the ongoing integration of Flowcrete and Euclid into the newly formed Euclid Group. We are also very focused on driving improved operating leverage throughout the entire industrial segment, which will involve future re-alignments to generate additional cost savings and efficiencies. As a result of these factors across our businesses, our sales growth guidance for the balance of fiscal 2018 in our industrial and consumer segments is in the mid-single-digit range and specialty in the low- to mid-single-digit range. We are maintaining our full-year EPS guidance of $2.85 to $2.95 per diluted share.”
