07.22.19
RPM International Inc. reported financial results for its fiscal 2019 fourth quarter ended May 31, 2019. The company also provided an update on the implementation of its 2020 MAP to Growth operating improvement plan.
Fourth-Quarter Consolidated Results
Net sales for the fourth quarter increased 2.8 percent to $1.6 billion from $1.56 billion a year ago. Net income in the quarter increased 55.7 percent to $133.4 million from $85.7 million reported in the fourth quarter of fiscal 2018. Diluted earnings per share (EPS) were up 61.9 percent to $1.02 compared with $0.63 in the year-ago quarter. Income before income taxes (IBT) was $176.9 million, up 50 percent versus $117.9 million reported a year ago. Consolidated earnings before interest and taxes (EBIT) were up 51.5 percent to $204.6 million compared with $135 million a year ago.
The fourth quarters of fiscal 2019 and 2018 included restructuring and other charges of $36.8 million and $62.2 million, respectively. Excluding the charges in both periods, adjusted EBIT increased 22.4 percent to $241.4 million from $197.3 million a year ago. Additionally, due to changes in the accounting standards for marketable equity securities in the current year, the company has also excluded the impact of all unrealized net gains and losses from marketable equity securities as well as realized net gains and losses on sales of all marketable securities from adjusted EPS for both fiscal 2019 and 2018, as their inherent volatility is outside of management’s control and cannot be predicted with any level of certainty. These investments resulted in a net after-tax loss of $1.7 million for the fourth quarter of fiscal 2019 and an after-tax gain of $3.2 million during the same quarter last year. Excluding the restructuring and other charges, as well as investment gains and losses, adjusted diluted EPS increased 21.6 percent to $1.24 from $1.02 a year ago. Share repurchases during fiscal 2019 and the retirement of RPM’s 2.25 percent convertible senior notes due in 2020 resulted in $0.05 per diluted share accretion for the quarter.
“We are very pleased with our significant earnings leverage for the quarter, which was bolstered by our 2020 MAP to Growth operating improvement plan, the benefits of which are beginning to be realized. Also contributing to the bottom line were recently implemented price increases and stabilizing raw material cost inflation. These gains were partially offset by continuing increases in costs for distribution and labor,” RPM Chairman and CEO Frank C. Sullivan said.
“Sales grew organically by 3.5 percent, while acquisitions contributed 1.9 percent. This sales growth was offset by unfavorable foreign exchange of 2.6 percent. Sales in North America, our largest market, were slowed by some of the wettest spring months on record, which caused delays in painting and construction projects. In addition, conditions in Europe, our second largest market, remained soft. Despite these challenges, our operating units were able to drive top-line growth and gain market share,” Sullivan added.
Fourth-Quarter Segment Sales and Earnings
Industrial segment sales for the fiscal 2019 fourth quarter were relatively flat at $809 million from $812.9 million a year ago. Organic sales improved 2 percent, while acquisition growth added 1 percent. Foreign currency translation reduced sales by 3.5 percent. Industrial segment IBT increased 12.5 percent to $108.4 million from $96.4 million a year ago. Industrial segment EBIT was up 10.6 percent to $109.9 million from $99.3 million in the fiscal 2018 fourth quarter. The industrial segment incurred restructuring and related charges of $5.9 million during the fourth quarter of fiscal 2019 and $10 million in the same quarter of fiscal 2018. Excluding these charges, industrial segment adjusted EBIT was $115.7 million, up 5.9 percent from $109.3 million a year ago.
“Leading the industrial segment’s organic sales growth were our businesses providing corrosion control coatings, fiberglass reinforced grating, commercial sealants and concrete admixtures. Top-line growth in the segment, which has our largest international exposure, was more than offset by the headwinds of translational foreign exchange,” Sullivan said. “Sales were also impacted by extremely wet weather during the quarter that slowed construction projects and strategic decisions, made as part of 2020 MAP to Growth, to exit several product offerings with low margins and high working capital requirements. Also, as part of 2020 MAP to Growth, we closed a business in Saudi Arabia and exited several European locations. Despite flat sales, we were able to leverage our 2020 MAP to Growth savings to the bottom line, resulting in an increase in adjusted EBIT of $6.4 million.”
Fiscal 2019 fourth-quarter net sales in RPM’s consumer segment increased 6.7 percent to $585.0 million from $548.4 million reported in the fiscal 2018 fourth quarter. Organic sales were up 7 percent, while acquisition growth added 1.5 percent and foreign exchange translation reduced sales by 1.8 percent. Consumer segment IBT was $99.3 million compared with $25.3 million in the prior year. Consumer segment EBIT in the fiscal 2019 fourth quarter was $99.4 million versus $25.5 million in fiscal 2018. The consumer segment incurred restructuring and inventory-related charges of $10.2 million in the fiscal 2019 fourth quarter and $47.3 million in the prior-year period. Excluding these charges, consumer segment adjusted EBIT was $109.6 million, up 50.6 percent over $72.8 million a year ago.
“Both our Rust-Oleum and DAP businesses experienced strong sales growth in North America, despite the wet weather, as a result of market share gains and price increases, while sales in Europe were soft,” Sullivan said. “During the quarter, our Rust-Oleum business secured significant customer wins by regaining business in the home center channel and a major market share win within the hardware channel as part of a small project paint line review.
“The initial focus of our 2020 MAP to Growth, which was initiated about a year ago, was directed toward our consumer segment and resulted in the elimination of 221 positions and closure of four manufacturing facilities to date,” Sullivan continued. “The consumer segment is now starting to experience the benefits of those difficult early actions taken under our operating improvement plan. Additionally, recent price increases have finally begun to ease the negative impact of significant raw material cost escalation over the last 24 months. These factors helped to drive an increase in consumer segment adjusted EBIT of $36.8 million.”
Fourth-quarter sales in the company’s specialty segment increased 5.3 percent to $207.4 million from $196.9 million in the fiscal 2018 fourth quarter. Organic sales were relatively flat. Acquisitions contributed 6.7 percent to sales, which was offset by a decrease in sales of 1.2 percent due to foreign currency translation. Specialty segment IBT was $26.5 million, down from $32.9 million last year. Specialty segment EBIT was $26.4 million versus $32.3 million in the prior period. The specialty segment reported restructuring and other charges, including costs related to enterprise resource planning (ERP) consolidation and executive compensation, of $5.9 million in the fourth quarter of fiscal 2019 and a $1.4 million charge in fiscal 2018 for restructuring and ERP consolidation. Excluding these charges, specialty segment adjusted EBIT was $32.3 million versus $33.7 million in the prior year.
“Specialty segment sales were driven by the acquisition of insulated concrete forms manufacturer Nudura, as well as strong performances by our diesel additives and edible coatings businesses. Specialty segment adjusted EBIT declined $1.4 million primarily due to an intangible write-off triggered by a change in international business regulations and additional start-up investments for our NewBrick exterior cladding product, which were partially offset by operating improvements and cost control measures,” said Sullivan.
Fourth-Quarter Consolidated Results
Net sales for the fourth quarter increased 2.8 percent to $1.6 billion from $1.56 billion a year ago. Net income in the quarter increased 55.7 percent to $133.4 million from $85.7 million reported in the fourth quarter of fiscal 2018. Diluted earnings per share (EPS) were up 61.9 percent to $1.02 compared with $0.63 in the year-ago quarter. Income before income taxes (IBT) was $176.9 million, up 50 percent versus $117.9 million reported a year ago. Consolidated earnings before interest and taxes (EBIT) were up 51.5 percent to $204.6 million compared with $135 million a year ago.
The fourth quarters of fiscal 2019 and 2018 included restructuring and other charges of $36.8 million and $62.2 million, respectively. Excluding the charges in both periods, adjusted EBIT increased 22.4 percent to $241.4 million from $197.3 million a year ago. Additionally, due to changes in the accounting standards for marketable equity securities in the current year, the company has also excluded the impact of all unrealized net gains and losses from marketable equity securities as well as realized net gains and losses on sales of all marketable securities from adjusted EPS for both fiscal 2019 and 2018, as their inherent volatility is outside of management’s control and cannot be predicted with any level of certainty. These investments resulted in a net after-tax loss of $1.7 million for the fourth quarter of fiscal 2019 and an after-tax gain of $3.2 million during the same quarter last year. Excluding the restructuring and other charges, as well as investment gains and losses, adjusted diluted EPS increased 21.6 percent to $1.24 from $1.02 a year ago. Share repurchases during fiscal 2019 and the retirement of RPM’s 2.25 percent convertible senior notes due in 2020 resulted in $0.05 per diluted share accretion for the quarter.
“We are very pleased with our significant earnings leverage for the quarter, which was bolstered by our 2020 MAP to Growth operating improvement plan, the benefits of which are beginning to be realized. Also contributing to the bottom line were recently implemented price increases and stabilizing raw material cost inflation. These gains were partially offset by continuing increases in costs for distribution and labor,” RPM Chairman and CEO Frank C. Sullivan said.
“Sales grew organically by 3.5 percent, while acquisitions contributed 1.9 percent. This sales growth was offset by unfavorable foreign exchange of 2.6 percent. Sales in North America, our largest market, were slowed by some of the wettest spring months on record, which caused delays in painting and construction projects. In addition, conditions in Europe, our second largest market, remained soft. Despite these challenges, our operating units were able to drive top-line growth and gain market share,” Sullivan added.
Fourth-Quarter Segment Sales and Earnings
Industrial segment sales for the fiscal 2019 fourth quarter were relatively flat at $809 million from $812.9 million a year ago. Organic sales improved 2 percent, while acquisition growth added 1 percent. Foreign currency translation reduced sales by 3.5 percent. Industrial segment IBT increased 12.5 percent to $108.4 million from $96.4 million a year ago. Industrial segment EBIT was up 10.6 percent to $109.9 million from $99.3 million in the fiscal 2018 fourth quarter. The industrial segment incurred restructuring and related charges of $5.9 million during the fourth quarter of fiscal 2019 and $10 million in the same quarter of fiscal 2018. Excluding these charges, industrial segment adjusted EBIT was $115.7 million, up 5.9 percent from $109.3 million a year ago.
“Leading the industrial segment’s organic sales growth were our businesses providing corrosion control coatings, fiberglass reinforced grating, commercial sealants and concrete admixtures. Top-line growth in the segment, which has our largest international exposure, was more than offset by the headwinds of translational foreign exchange,” Sullivan said. “Sales were also impacted by extremely wet weather during the quarter that slowed construction projects and strategic decisions, made as part of 2020 MAP to Growth, to exit several product offerings with low margins and high working capital requirements. Also, as part of 2020 MAP to Growth, we closed a business in Saudi Arabia and exited several European locations. Despite flat sales, we were able to leverage our 2020 MAP to Growth savings to the bottom line, resulting in an increase in adjusted EBIT of $6.4 million.”
Fiscal 2019 fourth-quarter net sales in RPM’s consumer segment increased 6.7 percent to $585.0 million from $548.4 million reported in the fiscal 2018 fourth quarter. Organic sales were up 7 percent, while acquisition growth added 1.5 percent and foreign exchange translation reduced sales by 1.8 percent. Consumer segment IBT was $99.3 million compared with $25.3 million in the prior year. Consumer segment EBIT in the fiscal 2019 fourth quarter was $99.4 million versus $25.5 million in fiscal 2018. The consumer segment incurred restructuring and inventory-related charges of $10.2 million in the fiscal 2019 fourth quarter and $47.3 million in the prior-year period. Excluding these charges, consumer segment adjusted EBIT was $109.6 million, up 50.6 percent over $72.8 million a year ago.
“Both our Rust-Oleum and DAP businesses experienced strong sales growth in North America, despite the wet weather, as a result of market share gains and price increases, while sales in Europe were soft,” Sullivan said. “During the quarter, our Rust-Oleum business secured significant customer wins by regaining business in the home center channel and a major market share win within the hardware channel as part of a small project paint line review.
“The initial focus of our 2020 MAP to Growth, which was initiated about a year ago, was directed toward our consumer segment and resulted in the elimination of 221 positions and closure of four manufacturing facilities to date,” Sullivan continued. “The consumer segment is now starting to experience the benefits of those difficult early actions taken under our operating improvement plan. Additionally, recent price increases have finally begun to ease the negative impact of significant raw material cost escalation over the last 24 months. These factors helped to drive an increase in consumer segment adjusted EBIT of $36.8 million.”
Fourth-quarter sales in the company’s specialty segment increased 5.3 percent to $207.4 million from $196.9 million in the fiscal 2018 fourth quarter. Organic sales were relatively flat. Acquisitions contributed 6.7 percent to sales, which was offset by a decrease in sales of 1.2 percent due to foreign currency translation. Specialty segment IBT was $26.5 million, down from $32.9 million last year. Specialty segment EBIT was $26.4 million versus $32.3 million in the prior period. The specialty segment reported restructuring and other charges, including costs related to enterprise resource planning (ERP) consolidation and executive compensation, of $5.9 million in the fourth quarter of fiscal 2019 and a $1.4 million charge in fiscal 2018 for restructuring and ERP consolidation. Excluding these charges, specialty segment adjusted EBIT was $32.3 million versus $33.7 million in the prior year.
“Specialty segment sales were driven by the acquisition of insulated concrete forms manufacturer Nudura, as well as strong performances by our diesel additives and edible coatings businesses. Specialty segment adjusted EBIT declined $1.4 million primarily due to an intangible write-off triggered by a change in international business regulations and additional start-up investments for our NewBrick exterior cladding product, which were partially offset by operating improvements and cost control measures,” said Sullivan.
