04.06.18
RPM International Inc. reported record sales, net income and diluted earnings per share for its fiscal 2018 third quarter ended Feb. 28, 2018.
Third-Quarter Results
Net sales grew 7.8 percent to $1.1 billion in the fiscal 2018 third quarter from $1 billion in the fiscal 2017 third quarter. Organic sales improved 1.8 percent, while acquisitions added 3.1 percent. Foreign currency translation positively affected sales by 2.9 percent. Net income was $40.2 million versus $11.9 million in the fiscal 2017 third quarter. Third-quarter earnings per diluted share were $0.30 compared to $0.09 reported last year. Third-quarter net income included an income tax benefit of $5.9 million, compared to year-ago income tax expense of $4.3 million.
Income before income taxes (IBT) was $34.7 million versus year-ago IBT of $17 million. Consolidated earnings before interest and taxes (EBIT) were $56.7 million, up 52.6 percent from year-ago EBIT of $37.1 million.
During the quarter, the company recognized a non-recurring $0.01 per share net tax benefit as a result of the enactment of the Tax Cuts and Jobs Act on Dec. 22, 2017, and an additional $0.08 per share benefit from the resulting lower U.S. statutory tax rate. In January, the full-year guidance that was communicated included a $0.10 per share benefit from the lower corporate tax rate, of which $0.08 per share was recognized in the third quarter.
“RPM’s operating performance for the third quarter was outstanding, despite severe, continued industry-wide headwinds from higher raw material costs. We continue to generate exceptional EBIT leverage, reflecting the early success of cost savings initiatives we began implementing last year and rigorous SG&A spending discipline we have exercised throughout this year,” said Frank C. Sullivan, RPM chairman and CEO.
Third-Quarter Segment Sales and Earnings
Industrial segment sales increased 9.2 percent to $569.2 million from $521.4 million in the fiscal 2017 third quarter. Organic sales improved 2.2 percent, while acquisitions added 2.8 percent. Foreign currency translation positively affected sales by 4.2 percent. IBT increased 52.1 percent to $17.8 million, compared to year-ago IBT of $11.7 million. Industrial segment EBIT for the quarter of $20.3 million was up 38.8 percent from last year’s EBIT of $14.6 million.
“Our industrial segment, representing over 50percent of consolidated sales, increased EBIT by nearly 40 percent through greater SG&A cost leverage, despite higher raw materials costs. Our Tremco Roofing and international polymer flooring businesses did extremely well, partially offset by continued weakness in Brazil and mixed results in Europe,” Sullivan said.
Sales in RPM’s consumer segment increased 6.4 percent to $363.4 million from $341.4 million in the fiscal 2017 third quarter. Organic sales improved 0.7 percent, while acquisitions added 4.2percent. Foreign currency translation positively affected sales by 1.5 percent. IBT was $29.1 million, down 2.3 percent from year-ago IBT of $29.8 million. Consumer segment EBIT declined 2.1 percent to $29.3 million from $29.9 million in the fiscal 2017 third quarter. Last year’s consumer EBIT included a $4.9 million intangible impairment charge on the Synta product line.
“In our consumer segment, prior-year acquisitions continue to drive incremental sales and our organic growth has outperformed that of our peers in the consumer space. However, the overall sluggishness in consumer point-of-sale takeaway over the last several quarters continued. We expect a robust advertising schedule in the fourth quarter to position the consumer segment for accelerated growth in fiscal 2019,” Sullivan said.
Third-quarter sales in the company’s specialty segment increased 6.5 percent to $170.1 million from $159.7 million a year ago. Organic sales increased 2.7 percent and acquisitions added 2.2 percent. Foreign currency translation positively affected sales by 1.6 percent. IBT was $22.8 million, up 51.9 percent from year-ago IBT of $15.0 million. Specialty segment EBIT improved 52.6 percent to $22.7 million from $14.9 million a year ago. Last year’s specialty EBIT included a European facility closure charge of $4.2 million.
“Sales were brisk in our restoration, OEM and pleasure marine coatings businesses, which were partially offset by expected declines in our edible coatings business as a result of a patent expiration. Specialty generated very strong improvement in EBIT, largely as a result of SG&A cost savings actions we began implementing last year, including a plant closure in Europe, and tight spending controls this year,” Sullivan said.
Nine-Month Results
Nine-month net sales grew 8.6 percent to $3.76 billion from $3.47 billion a year ago. Net income was $252.1 million compared to $53.8 million in the year-ago period. Diluted earnings per share improved to $1.87 from $0.41 in the first nine months of fiscal 2017. IBT was $299.2 million versus year-ago IBT of $58.6 million. Consolidated EBIT was $366.1 million compared to year-ago EBIT of $118.2 million. Prior-year results included pre-tax impairment charges of $193.2 million, a pre-tax charge of $12.3 million for exiting a business in the Middle East, and a pre-tax charge of $4.2 million for a plant closure in Europe.
Nine-Month Segment Sales and Earnings
Sales for RPM’s industrial segment increased 9.4 percent to $2.0 billion from $1.83 billion in the fiscal 2017 first nine months. Organic sales increased 3.7 percent, while acquisitions added 3.5 percent. Foreign currency translation positively affected sales by 2.2 percent. IBT was $174.4 million, up 15.3 percent from year-ago IBT of $151.3 million. Industrial segment EBIT of $182.0 million was up 15.2 percent from EBIT of $157.9 million in the first nine months of fiscal 2017, which included a charge for exiting a business in the Middle East.
In the consumer segment, nine-month sales were up 8.1 percent to $1.21 billion from $1.12 billion in the first nine months of fiscal 2017. Organic sales improved 0.2 percent, while acquisitions added 7.2 percent. Foreign currency positively affected sales by 0.7 percent. IBT was $146.6 million, compared to a year-ago loss before income taxes of $40.7 million. Consumer segment EBIT was $147.1 million compared to a loss of $40.6 million in the first nine months a year ago, as a result of impairment charges.
Specialty segment sales increased 6.9 percent to $555.7 million from $519.6 million in the first nine months a year ago. Organic sales increased 2.8 percent and acquisitions added 3.4percent. Foreign currency translation positively affected sales by 0.7 percent. IBT was $90.4 million, up 17.9 percent from year-ago IBT of $76.7 million. Specialty segment EBIT improved 18.2 percent to $90.1 million from $76.3 million in the same period a year ago, which included the charge for a plant closure in Europe.
Cash Flow and Financial Position
For the first nine months of fiscal 2018, cash from operations was $140.7 million, compared to $173.5 million in the first nine months of fiscal 2017. Capital expenditures during the current nine-month period of $72.8 million compare to $80.1 million over the same time in fiscal 2017. Total debt at the end of the first nine months of fiscal 2018 was $2.18 billion, compared to $1.98 billion a year ago and $2.09 billion at the end of fiscal 2017. RPM’s net (of cash) debt-to-total capitalization ratio was 54.0percent, compared to 58.0 percent at Feb. 28, 2017 and 54.8 percent at May 31, 2017.
At Feb. 28, 2018, RPM’s total liquidity, including cash and long-term committed available credit, was $966.9 million. “We continue to aggressively pursue acquisitions and reinvest in our existing businesses,” Sullivan said.
Business Outlook
“On a consolidated basis in the fourth quarter, we expect RPM to generate mid-to-upper-single-digit sales growth that will drive double-digit EBIT growth, reflecting continued tight SG&A spending controls, despite the challenging higher raw material environment. Overall, these anticipated results are consistent with what we communicated back in January,” Sullivan said.
“As for the performance of our segments in the fourth quarter, we expect sales growth in our industrial segment in the mid- to upper-single digits, driven by continued strong performance in our Tremco Roofing liquid applied products, as well as favorable foreign currency translation. For our consumer segment, we expect sales growth in the mid-single-digit range and for the specialty segment, sales growth in the low-single-digit range,” Sullivan said.
The company currently expects its income tax rate to be in the 26 percent to 27 percent range in the fourth quarter of fiscal 2018, which includes the lower U.S. statutory income tax rate. The company noted its tax rate could change as the IRS continues to issue guidance on the new tax law.
“We are narrowing our fiscal 2018 earnings guidance upwards to a range of $3.05 to $3.10 per diluted share from our previous guidance of $3.00 to $3.10 per diluted share, reflecting our expectation of a continuation of solid top-line sales and double-digit EBIT growth,” Sullivan said.
Third-Quarter Results
Net sales grew 7.8 percent to $1.1 billion in the fiscal 2018 third quarter from $1 billion in the fiscal 2017 third quarter. Organic sales improved 1.8 percent, while acquisitions added 3.1 percent. Foreign currency translation positively affected sales by 2.9 percent. Net income was $40.2 million versus $11.9 million in the fiscal 2017 third quarter. Third-quarter earnings per diluted share were $0.30 compared to $0.09 reported last year. Third-quarter net income included an income tax benefit of $5.9 million, compared to year-ago income tax expense of $4.3 million.
Income before income taxes (IBT) was $34.7 million versus year-ago IBT of $17 million. Consolidated earnings before interest and taxes (EBIT) were $56.7 million, up 52.6 percent from year-ago EBIT of $37.1 million.
During the quarter, the company recognized a non-recurring $0.01 per share net tax benefit as a result of the enactment of the Tax Cuts and Jobs Act on Dec. 22, 2017, and an additional $0.08 per share benefit from the resulting lower U.S. statutory tax rate. In January, the full-year guidance that was communicated included a $0.10 per share benefit from the lower corporate tax rate, of which $0.08 per share was recognized in the third quarter.
“RPM’s operating performance for the third quarter was outstanding, despite severe, continued industry-wide headwinds from higher raw material costs. We continue to generate exceptional EBIT leverage, reflecting the early success of cost savings initiatives we began implementing last year and rigorous SG&A spending discipline we have exercised throughout this year,” said Frank C. Sullivan, RPM chairman and CEO.
Third-Quarter Segment Sales and Earnings
Industrial segment sales increased 9.2 percent to $569.2 million from $521.4 million in the fiscal 2017 third quarter. Organic sales improved 2.2 percent, while acquisitions added 2.8 percent. Foreign currency translation positively affected sales by 4.2 percent. IBT increased 52.1 percent to $17.8 million, compared to year-ago IBT of $11.7 million. Industrial segment EBIT for the quarter of $20.3 million was up 38.8 percent from last year’s EBIT of $14.6 million.
“Our industrial segment, representing over 50percent of consolidated sales, increased EBIT by nearly 40 percent through greater SG&A cost leverage, despite higher raw materials costs. Our Tremco Roofing and international polymer flooring businesses did extremely well, partially offset by continued weakness in Brazil and mixed results in Europe,” Sullivan said.
Sales in RPM’s consumer segment increased 6.4 percent to $363.4 million from $341.4 million in the fiscal 2017 third quarter. Organic sales improved 0.7 percent, while acquisitions added 4.2percent. Foreign currency translation positively affected sales by 1.5 percent. IBT was $29.1 million, down 2.3 percent from year-ago IBT of $29.8 million. Consumer segment EBIT declined 2.1 percent to $29.3 million from $29.9 million in the fiscal 2017 third quarter. Last year’s consumer EBIT included a $4.9 million intangible impairment charge on the Synta product line.
“In our consumer segment, prior-year acquisitions continue to drive incremental sales and our organic growth has outperformed that of our peers in the consumer space. However, the overall sluggishness in consumer point-of-sale takeaway over the last several quarters continued. We expect a robust advertising schedule in the fourth quarter to position the consumer segment for accelerated growth in fiscal 2019,” Sullivan said.
Third-quarter sales in the company’s specialty segment increased 6.5 percent to $170.1 million from $159.7 million a year ago. Organic sales increased 2.7 percent and acquisitions added 2.2 percent. Foreign currency translation positively affected sales by 1.6 percent. IBT was $22.8 million, up 51.9 percent from year-ago IBT of $15.0 million. Specialty segment EBIT improved 52.6 percent to $22.7 million from $14.9 million a year ago. Last year’s specialty EBIT included a European facility closure charge of $4.2 million.
“Sales were brisk in our restoration, OEM and pleasure marine coatings businesses, which were partially offset by expected declines in our edible coatings business as a result of a patent expiration. Specialty generated very strong improvement in EBIT, largely as a result of SG&A cost savings actions we began implementing last year, including a plant closure in Europe, and tight spending controls this year,” Sullivan said.
Nine-Month Results
Nine-month net sales grew 8.6 percent to $3.76 billion from $3.47 billion a year ago. Net income was $252.1 million compared to $53.8 million in the year-ago period. Diluted earnings per share improved to $1.87 from $0.41 in the first nine months of fiscal 2017. IBT was $299.2 million versus year-ago IBT of $58.6 million. Consolidated EBIT was $366.1 million compared to year-ago EBIT of $118.2 million. Prior-year results included pre-tax impairment charges of $193.2 million, a pre-tax charge of $12.3 million for exiting a business in the Middle East, and a pre-tax charge of $4.2 million for a plant closure in Europe.
Nine-Month Segment Sales and Earnings
Sales for RPM’s industrial segment increased 9.4 percent to $2.0 billion from $1.83 billion in the fiscal 2017 first nine months. Organic sales increased 3.7 percent, while acquisitions added 3.5 percent. Foreign currency translation positively affected sales by 2.2 percent. IBT was $174.4 million, up 15.3 percent from year-ago IBT of $151.3 million. Industrial segment EBIT of $182.0 million was up 15.2 percent from EBIT of $157.9 million in the first nine months of fiscal 2017, which included a charge for exiting a business in the Middle East.
In the consumer segment, nine-month sales were up 8.1 percent to $1.21 billion from $1.12 billion in the first nine months of fiscal 2017. Organic sales improved 0.2 percent, while acquisitions added 7.2 percent. Foreign currency positively affected sales by 0.7 percent. IBT was $146.6 million, compared to a year-ago loss before income taxes of $40.7 million. Consumer segment EBIT was $147.1 million compared to a loss of $40.6 million in the first nine months a year ago, as a result of impairment charges.
Specialty segment sales increased 6.9 percent to $555.7 million from $519.6 million in the first nine months a year ago. Organic sales increased 2.8 percent and acquisitions added 3.4percent. Foreign currency translation positively affected sales by 0.7 percent. IBT was $90.4 million, up 17.9 percent from year-ago IBT of $76.7 million. Specialty segment EBIT improved 18.2 percent to $90.1 million from $76.3 million in the same period a year ago, which included the charge for a plant closure in Europe.
Cash Flow and Financial Position
For the first nine months of fiscal 2018, cash from operations was $140.7 million, compared to $173.5 million in the first nine months of fiscal 2017. Capital expenditures during the current nine-month period of $72.8 million compare to $80.1 million over the same time in fiscal 2017. Total debt at the end of the first nine months of fiscal 2018 was $2.18 billion, compared to $1.98 billion a year ago and $2.09 billion at the end of fiscal 2017. RPM’s net (of cash) debt-to-total capitalization ratio was 54.0percent, compared to 58.0 percent at Feb. 28, 2017 and 54.8 percent at May 31, 2017.
At Feb. 28, 2018, RPM’s total liquidity, including cash and long-term committed available credit, was $966.9 million. “We continue to aggressively pursue acquisitions and reinvest in our existing businesses,” Sullivan said.
Business Outlook
“On a consolidated basis in the fourth quarter, we expect RPM to generate mid-to-upper-single-digit sales growth that will drive double-digit EBIT growth, reflecting continued tight SG&A spending controls, despite the challenging higher raw material environment. Overall, these anticipated results are consistent with what we communicated back in January,” Sullivan said.
“As for the performance of our segments in the fourth quarter, we expect sales growth in our industrial segment in the mid- to upper-single digits, driven by continued strong performance in our Tremco Roofing liquid applied products, as well as favorable foreign currency translation. For our consumer segment, we expect sales growth in the mid-single-digit range and for the specialty segment, sales growth in the low-single-digit range,” Sullivan said.
The company currently expects its income tax rate to be in the 26 percent to 27 percent range in the fourth quarter of fiscal 2018, which includes the lower U.S. statutory income tax rate. The company noted its tax rate could change as the IRS continues to issue guidance on the new tax law.
“We are narrowing our fiscal 2018 earnings guidance upwards to a range of $3.05 to $3.10 per diluted share from our previous guidance of $3.00 to $3.10 per diluted share, reflecting our expectation of a continuation of solid top-line sales and double-digit EBIT growth,” Sullivan said.
