10.03.18
RPM International Inc. reported financial results for its fiscal 2019 first quarter ended Aug. 31, 2018.
First-Quarter Results
Fiscal 2019 first-quarter net sales were a record $1.46 billion, up 8.5 percent over the $1.35 billion reported a year ago. Including the impact of restructuring charges, first-quarter net income was $69.8 million versus $116.4 million in the year-ago period, and diluted earnings per share were $0.52 compared to $0.86 in the year-ago quarter. Income before income taxes was $91.9 million compared to $155.3 million reported in the fiscal 2018 first quarter. RPM’s consolidated earnings before interest and taxes were $113.9 million compared to $177.6 million reported in the fiscal 2018 first quarter. The fiscal 2019 first quarter included asset write-offs and other restructuring-related expenses of $39.8 million. Excluding these charges, RPM’s adjusted EBIT was $153.7 million and diluted EPS was $0.76.
“We saw strong top-line sales growth in the first quarter, with organic sales growth up 7.8 percent, while profitability continued to be adversely affected by rising raw material costs. In addition, bottom-line results reflected the impact of restructuring charges, higher legal and advertising costs in our consumer segment and the adverse effect of transactional foreign exchange,” said Frank C. Sullivan, RPM chairman and CEO.
“Our team is focused on driving increased profitability, long-term growth and enhanced value for our shareholders, and we are making good progress in executing on our operating improvement plan, which is specifically designed to increase margins, reduce working capital, and improve overall operating efficiency. During the quarter, we continued our strategic restructuring initiatives, including the reduction of more than 150 positions and the announced closure of four manufacturing facilities, all in line with our 2020 Margin Acceleration Plan,” Sullivan added.
First-Quarter Segment Sales and Earnings
The company’s industrial segment net sales increased 7.2 percent, to $782 million from $729.8 million reported a year ago, reflecting an organic growth of 6.7 percent and acquisitions contributing an additional 1.6 percent. Foreign currency translation reduced sales by 1.1 percent. Industrial segment IBT was $69.1 million compared with $88.9 million a year ago. EBIT was $71.5 million compared to $91.5 million in the fiscal 2018 first quarter. Adjusted EBIT, which excludes the charges mentioned earlier, increased 2.5 percent to $93.8 million from the year-ago period.
“The industrial segment benefited from especially strong performance in North American waterproofing and a healthy recovery in our businesses serving the oil and gas sector. Leverage to the bottom line was masked by unfavorable transactional foreign exchange expense resulting from the strengthening of the dollar versus certain international currencies,” Sullivan said. “In the process of realigning our global brands, we adjusted our leadership structure, initiated the closure of two plants and discontinued certain international product lines.”
RPM’s consumer segment generated a 13.6 percent increase in sales to $485.2 million from $427.1 million in the fiscal 2018 first quarter. Organic sales increased 12.4 percent, while acquisition growth contributed 1.7 percent. Foreign currency translation reduced sales by 0.5 percent. Consumer segment IBT was $51.3 million compared with $72.4 million in the prior-year period. EBIT was $51.5 million compared to $72.6 million in the fiscal 2018 first quarter. Excluding asset write-offs and other restructuring-related expenses, adjusted EBIT was $52.9 million versus the prior period.
“Consumer segment sales were strong due to new accounts and market share gains, particularly in wood stains and automotive finishes,” Sullivan said. “As previously discussed during our fiscal 2018 fourth-quarter conference call, we anticipated that the fiscal 2019 first quarter would be the high-water mark for margin erosion in the consumer segment. We responded with price increases late in the first quarter to help address this. In addition, legal costs accounted for nearly half of the EBIT decline for the quarter, with much of the remainder resulting from stepped up advertising to support recent market share gains.”
RPM’s specialty segment reported sales growth of 2.3 percent, to $192.8 million from $188.5 million in the fiscal 2018 first quarter. Organic growth contributed two percent, while acquisition growth was 0.4 percent. Foreign currency translation reduced sales by 0.1 percent. Specialty segment IBT was $27.8 million compared with $33.2 million in the prior-year period. EBIT was $27.7 million compared to $33.0 million in the fiscal 2018 first quarter. Adjusted EBIT, which excludes restructuring-related expenses, was $30.5 million in the fiscal 2019 first quarter.
“Specialty segment first-quarter results for the prior year were elevated by our water damage restoration businesses’ response to Hurricane Harvey, which created tougher year-over-year comparisons. Also, the first quarter of fiscal 2019 is the last quarter of negative comparisons related to the NatureSeal patent expiration last August,” Sullivan said.
Cash Flow and Financial Position
During the fiscal 2019 first quarter, cash used from operations was $7.1 million compared to $26.1 million a year ago. Capital expenditures were $28.3 million in the quarter, compared to $17.5 million in the year-ago period.
Total debt at Aug. 31, 2018, of $2.27 billion compares to $2.17 billion at May 31, 2018, and $2.12 billion at the end of last year’s first quarter. Net (of cash) debt-to-total capital was 56.2 percent, versus 54.7 percent at the end of last year’s first quarter and 54.2 percent at the end of the prior fiscal year. Total liquidity, including cash and long-term available credit, was $868.9 million, compared to $1.0 billion a year ago and $1.0 billion at May 31, 2018.
“Our businesses will continue to aggressively pursue price increases to protect our gross profit margins in the face of continued raw material cost escalation. With asbestos trust payments now behind us, we are implementing strategic initiatives to enhance shareholder value through operational improvements and improved capital allocation. The current phase of our restructuring program is proceeding as scheduled with recently announced plant closings and leadership realignment. We will share a comprehensive update on our plan at an investor day on Nov. 28, which will be webcast via the RPM website,” said Sullivan.
First-Quarter Results
Fiscal 2019 first-quarter net sales were a record $1.46 billion, up 8.5 percent over the $1.35 billion reported a year ago. Including the impact of restructuring charges, first-quarter net income was $69.8 million versus $116.4 million in the year-ago period, and diluted earnings per share were $0.52 compared to $0.86 in the year-ago quarter. Income before income taxes was $91.9 million compared to $155.3 million reported in the fiscal 2018 first quarter. RPM’s consolidated earnings before interest and taxes were $113.9 million compared to $177.6 million reported in the fiscal 2018 first quarter. The fiscal 2019 first quarter included asset write-offs and other restructuring-related expenses of $39.8 million. Excluding these charges, RPM’s adjusted EBIT was $153.7 million and diluted EPS was $0.76.
“We saw strong top-line sales growth in the first quarter, with organic sales growth up 7.8 percent, while profitability continued to be adversely affected by rising raw material costs. In addition, bottom-line results reflected the impact of restructuring charges, higher legal and advertising costs in our consumer segment and the adverse effect of transactional foreign exchange,” said Frank C. Sullivan, RPM chairman and CEO.
“Our team is focused on driving increased profitability, long-term growth and enhanced value for our shareholders, and we are making good progress in executing on our operating improvement plan, which is specifically designed to increase margins, reduce working capital, and improve overall operating efficiency. During the quarter, we continued our strategic restructuring initiatives, including the reduction of more than 150 positions and the announced closure of four manufacturing facilities, all in line with our 2020 Margin Acceleration Plan,” Sullivan added.
First-Quarter Segment Sales and Earnings
The company’s industrial segment net sales increased 7.2 percent, to $782 million from $729.8 million reported a year ago, reflecting an organic growth of 6.7 percent and acquisitions contributing an additional 1.6 percent. Foreign currency translation reduced sales by 1.1 percent. Industrial segment IBT was $69.1 million compared with $88.9 million a year ago. EBIT was $71.5 million compared to $91.5 million in the fiscal 2018 first quarter. Adjusted EBIT, which excludes the charges mentioned earlier, increased 2.5 percent to $93.8 million from the year-ago period.
“The industrial segment benefited from especially strong performance in North American waterproofing and a healthy recovery in our businesses serving the oil and gas sector. Leverage to the bottom line was masked by unfavorable transactional foreign exchange expense resulting from the strengthening of the dollar versus certain international currencies,” Sullivan said. “In the process of realigning our global brands, we adjusted our leadership structure, initiated the closure of two plants and discontinued certain international product lines.”
RPM’s consumer segment generated a 13.6 percent increase in sales to $485.2 million from $427.1 million in the fiscal 2018 first quarter. Organic sales increased 12.4 percent, while acquisition growth contributed 1.7 percent. Foreign currency translation reduced sales by 0.5 percent. Consumer segment IBT was $51.3 million compared with $72.4 million in the prior-year period. EBIT was $51.5 million compared to $72.6 million in the fiscal 2018 first quarter. Excluding asset write-offs and other restructuring-related expenses, adjusted EBIT was $52.9 million versus the prior period.
“Consumer segment sales were strong due to new accounts and market share gains, particularly in wood stains and automotive finishes,” Sullivan said. “As previously discussed during our fiscal 2018 fourth-quarter conference call, we anticipated that the fiscal 2019 first quarter would be the high-water mark for margin erosion in the consumer segment. We responded with price increases late in the first quarter to help address this. In addition, legal costs accounted for nearly half of the EBIT decline for the quarter, with much of the remainder resulting from stepped up advertising to support recent market share gains.”
RPM’s specialty segment reported sales growth of 2.3 percent, to $192.8 million from $188.5 million in the fiscal 2018 first quarter. Organic growth contributed two percent, while acquisition growth was 0.4 percent. Foreign currency translation reduced sales by 0.1 percent. Specialty segment IBT was $27.8 million compared with $33.2 million in the prior-year period. EBIT was $27.7 million compared to $33.0 million in the fiscal 2018 first quarter. Adjusted EBIT, which excludes restructuring-related expenses, was $30.5 million in the fiscal 2019 first quarter.
“Specialty segment first-quarter results for the prior year were elevated by our water damage restoration businesses’ response to Hurricane Harvey, which created tougher year-over-year comparisons. Also, the first quarter of fiscal 2019 is the last quarter of negative comparisons related to the NatureSeal patent expiration last August,” Sullivan said.
Cash Flow and Financial Position
During the fiscal 2019 first quarter, cash used from operations was $7.1 million compared to $26.1 million a year ago. Capital expenditures were $28.3 million in the quarter, compared to $17.5 million in the year-ago period.
Total debt at Aug. 31, 2018, of $2.27 billion compares to $2.17 billion at May 31, 2018, and $2.12 billion at the end of last year’s first quarter. Net (of cash) debt-to-total capital was 56.2 percent, versus 54.7 percent at the end of last year’s first quarter and 54.2 percent at the end of the prior fiscal year. Total liquidity, including cash and long-term available credit, was $868.9 million, compared to $1.0 billion a year ago and $1.0 billion at May 31, 2018.
“Our businesses will continue to aggressively pursue price increases to protect our gross profit margins in the face of continued raw material cost escalation. With asbestos trust payments now behind us, we are implementing strategic initiatives to enhance shareholder value through operational improvements and improved capital allocation. The current phase of our restructuring program is proceeding as scheduled with recently announced plant closings and leadership realignment. We will share a comprehensive update on our plan at an investor day on Nov. 28, which will be webcast via the RPM website,” said Sullivan.
