RPM04.08.20
RPM International Inc. reported financial results for its fiscal 2020 third quarter ended Feb. 29, 2020.
“Our financial performance was strong during the third quarter and was achieved prior to the global COVID-19 pandemic when underlying market conditions were robust. We are doing our part to control the spread of the virus, with our priorities being to protect the health and well-being of our associates and their family members, support our local communities to control the spread of the virus, and serve our customers by maintaining the continuity and success of our business operations,” said RPM chairman and CEO Frank C. Sullivan. “We are taking actions to adjust our business activities during this period of uncertainty and are well-positioned with a strong balance sheet and $1.14 billion in liquidity.”
Third-Quarter Consolidated Results
Fiscal 2020 third-quarter net sales were $1.17 billion, an increase of 2.9 percent over the $1.14 billion reported a year ago. Third-quarter net income was $11.9 million, compared to the $14.2 million reported in the year-ago period, and diluted earnings per share (EPS) were $0.09, compared to $0.11 in the year-ago quarter. Income before income taxes (IBT) was $16.3 million compared to $4.5 million reported in the fiscal 2019 third quarter. RPM’s consolidated earnings before interest and taxes (EBIT) were up 68 percent to $44.1 million compared to $26.3 million reported in the fiscal 2019 third quarter.
The third quarter included restructuring-related charges and acquisition expenses of $16.3 million during fiscal 2020 and $20.1 million in fiscal 2019. Excluding these charges, RPM’s adjusted EBIT was up 30.4 percent to $60.5 million compared to $46.4 million during the year-ago period.
Also, the company has continued to exclude the impact of all gains and losses from marketable securities from adjusted EPS, 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 $4.9 million for the third quarter of fiscal 2020 and a net after-tax benefit of $1.5 million during the same quarter last year. Excluding the restructuring and other adjustments, as well as investment losses and gains, fiscal 2020 third-quarter adjusted diluted EPS increased 76.9 percent to $0.23 compared to $0.13 in fiscal 2019.
“Initiatives under our MAP to Growth operating improvement program continued to gain momentum during the third quarter, fueling our excellent bottom-line performance and enabling us to continue to outpace the earnings growth of our peers. These initiatives included enacting operational improvements at our production facilities, consolidating manufacturing plants, delayering management and rationalizing product lines. Also, positively impacting results were the benefits of pricing and moderating raw material costs,” said Sullivan. “We are pleased with our top-line growth during the third quarter, which typically generates our most modest results each year because it falls during the winter months when painting and construction activity slow. Market share gains and pricing contributed to organic sales growth of 3 percent. This was partially offset by foreign currency translation of 0.8 percent, while acquisitions contributed 0.7 percent to sales. Our year-to-date cash flow from operations improved by $236 million over last year due to better working capital management and margin improvement from our MAP to Growth program.”
Third-Quarter Segment Sales and Earnings
Construction Products Group net sales increased 4.7 percent, to $372.1 million during the fiscal 2020 third quarter, compared to fiscal 2019 third-quarter net sales of $355.3 million, reflecting organic growth of 5.1 percent and acquisitions contributing an additional 1 percent. Foreign currency translation reduced sales by 1.4 percent. Segment IBT was a loss of $0.5 million compared with a loss of $4 million a year ago. EBIT was $1.7 million, up 207.6 percent compared to an EBIT loss of $1.5 million in the fiscal 2019 third quarter. The segment incurred $4.4 million in restructuring-related expenses during the third quarter of fiscal 2020 and $1.2 million in restructuring-related and other expenses during the same period of fiscal 2019. Excluding these charges, fiscal 2020 adjusted EBIT increased to $6 million compared to an adjusted EBIT loss of $0.3 million reported during the year-ago period.
“In the Construction Products Group, we registered strong sales growth from market share gains and the introduction of innovative new products, with the fastest growth being generated in our roofing, below-grade waterproofing and concrete admixtures businesses,” said Sullivan. “Driving earnings growth were pricing, moderating raw material costs, MAP to Growth savings and the favorable leverage impact of higher sales volume.”
Performance Coatings Group net sales increased 1 percent to $255.7 million during the fiscal 2020 third quarter as compared to net sales of $253.2 million reported a year ago. Organic growth was 1.6 percent and acquisitions contributed an additional 0.2 percent. Foreign currency translation reduced sales by 0.8 percent. Segment IBT was $22.2 million compared with IBT of $14.4 million reported a year ago. EBIT was $22.1 million, an increase of 53.3 percent compared to EBIT of $14.4 million in the fiscal 2019 third quarter. The segment reported third-quarter restructuring-related charges and acquisition costs of $2.1 million in fiscal 2020 and restructuring-related charges of $3.7 million in fiscal 2019. Adjusted EBIT, which excludes these charges, increased 33.2 percent to $24.2 million during the third quarter of fiscal 2020 from adjusted EBIT of $18.2 million during the year-ago period.
“A focus on higher-margin product and service offerings, as well as MAP to Growth business rationalization initiatives, drove a significant adjusted EBIT margin improvement of 230 basis points in the Performance Coatings Segment,” said Sullivan. “On the top line, sales growth in the segment was mixed. Its highway and bridge maintenance businesses were slowed by government budget constraints, particularly in the U.K. However, its protective and marine coatings business unit increased market share and its continental European operations grew solidly, driven by a new global management structure.”
Consumer Group net sales were $398.7 million during the third quarter of fiscal 2020, an increase of 5.4 percent compared to net sales of $378.3 million reported in the third quarter of fiscal 2019. Organic sales increased 6 percent. There was no impact from acquisitions. Foreign currency translation reduced sales by 0.6 percent. Consumer Group IBT was $29.8 million compared with IBT of $25.3 million in the prior-year period. EBIT was up 17.6 percent to $29.9 million compared to EBIT of $25.4 million in the fiscal 2019 third quarter. The segment incurred restructuring-related expenses of $2.3 million during fiscal 2020 and $1.6 million during fiscal 2019. Excluding these charges, fiscal 2020 third-quarter adjusted EBIT was $32.1 million, an increase of 19.2 percent over adjusted EBIT of $27 million reported during the prior period.
“Third-quarter sales growth in the Consumer Group was up solidly during what is typically a seasonally modest growth period, aided by market share gains and unseasonably warm winter weather in North America that enabled consumers to complete more DIY home improvement projects. The fastest growth was achieved in our caulks, sealants, and patch and repair product lines,” said Sullivan. “On the bottom line, savings from the MAP to Growth operating improvement plan were partially offset by inflation in certain raw materials and channel mix.”
The Specialty Products Group reported net sales of $147.5 million during the third quarter of fiscal 2020, compared to net sales of $153.8 million in the fiscal 2019 third quarter. Organic sales decreased 7.1 percent, while acquisitions contributed 3.3 percent to sales. Foreign currency translation reduced sales by 0.3 percent. Segment IBT was $12.9 million compared with $16.1 million in the prior-year period. EBIT was $13 million compared to EBIT of $16 million in the fiscal 2019 third quarter. The segment reported third-quarter restructuring-related charges and acquisition costs of $4.6 million in fiscal 2020 and restructuring-related charges of $4.2 million in fiscal 2019. Adjusted EBIT, which excludes these charges, was $17.5 million in the fiscal 2020 third quarter, compared to adjusted EBIT of $20.2 million in fiscal 2019.
“On the top line, the Specialty Products Group’s wood coatings business successfully outperformed its peers in a challenging market. However, sales of the segment’s water damage restoration products faced a difficult comparison to the prior year when demand was exceptionally high due to significant weather events in North America. Sales were down in our OEM fluorescent pigments, nail polish and edible coatings businesses,” Sullivan said. “Savings from our operating improvement program helped to mitigate the impact of declining sales volume on earnings. In addition, we have new management in place and are implementing cost-cutting measures and new processes to reignite growth, which will benefit the segment in the coming quarters.”
Nine-Month Results
Fiscal 2020 nine-month net sales increased 2.1 percent to $4.05 billion from $3.96 billion during the first nine months of fiscal 2020. Organic growth was 2 percent, with acquisitions adding 1.3 percent and foreign currency translation reducing sales by 1.2 percent. Net income was $195.1 million, an increase of 46.5 percent compared to $133.2 million in the fiscal 2019 nine-month period. Diluted EPS increased 50 percent to $1.50 versus $1.00 a year ago. IBT was $260.9 million compared to $163 million reported in the fiscal 2019 nine-month period. EBIT was $329.2 million, an increase of 38.9 percent versus the $236.9 million reported last year.
The fiscal 2020 nine-month period included restructuring and other charges related to the company’s 2020 MAP to Growth and acquisition-related charges of $77.5 million. The same period during fiscal 2019 included the impact of charges of $89.1 million primarily for restructuring, acquisitions, convertible debt extinguishment and other expenses. Excluding these charges, RPM’s nine-month adjusted EBIT was up 24.7 percent to $406.7 million compared to adjusted EBIT of $326.1 million during the year-ago period. Investments resulted in a net after-tax gain of $3.1 million for the nine-month period of fiscal 2020 and an after-tax loss of $6 million during the same period last year. Excluding the restructuring and other charges, as well as investment gains and losses, adjusted diluted EPS increased 30.2 percent to $1.94 compared to $1.49 in fiscal 2019.
Nine-Month Segment Sales and Earnings
Construction Products Group's fiscal 2020 nine-month sales increased 5 percent to $1.41 billion from $1.34 billion during the fiscal 2019 first nine months. Organic sales increased 4.2 percent, while acquisitions added 2.4 percent. Foreign currency translation reduced sales by 1.6 percent. IBT was $139.3 million versus year-ago IBT of $96.4 million. Segment EBIT was $145.6 million, an increase of 40.8 percent over EBIT of $103.3 million during the first nine months of fiscal 2019. The segment incurred restructuring- and acquisition-related expenses of $9.3 million during the first nine months of fiscal 2020 and $10.1 million during the same period of fiscal 2019. Excluding these charges, fiscal 2020 adjusted EBIT increased 36.5 percent to $154.8 million from adjusted EBIT of $113.4 million reported during the year-ago period.
Performance Coatings Group fiscal 2020 nine-month sales increased 0.5 percent to $845.6 million from $841.6 million during the fiscal 2019 first nine months. Organic sales increased 1.2 percent, while acquisitions added 0.7 percent. Foreign currency translation reduced sales by 1.4 percent. IBT was $83.6 million versus year-ago IBT of $45 million.
Segment EBIT was $83.6 million, an increase of 84.2 percent over EBIT of $45.4 million during the first nine months of fiscal 2019. The segment reported nine-month restructuring-related charges and acquisition costs of $14.5 million in fiscal 2020 and restructuring, acquisition and other charges of $33.8 million in fiscal 2019. Adjusted EBIT, which excludes these charges, increased 23.9 percent to $98.1 million during the first nine months of fiscal 2020 from adjusted EBIT of $79.2 million during the year-ago period.
In the Consumer Group, fiscal 2020 nine-month sales were up 3.8 percent to $1.33 billion from $1.28 billion during the first nine months of fiscal 2019. Organic sales improved 4 percent, while acquisitions added 0.7 percent. Foreign currency reduced sales by 0.9 percent. IBT was $123.4 million, compared to year-ago IBT of $118.1 million. Consumer Group fiscal 2020 nine-month EBIT was $123.6 million, an increase of 4.3 percent compared to $118.5 million reported during the first nine months a year ago. The segment incurred restructuring-related expenses of $24.9 million during fiscal 2020 and $3.6 million during fiscal 2019. Excluding these charges, fiscal 2020 nine-month adjusted EBIT was $148.5 million, an increase of 21.6 percent over adjusted EBIT of $122.1 million reported during the prior period.
Specialty Products Group fiscal 2020 nine-month sales were $465.7 million compared to $500.5 million during the first nine months a year ago. Organic sales decreased by 7.4 percent. Acquisitions added 1 percent, while foreign currency translation reduced sales by 0.6 percent. IBT was $55 million versus year-ago IBT of $66 million. Fiscal 2020 nine-month EBIT in the segment was $55 million versus $65.7 million in the same period a year ago. The segment reported nine-month restructuring-related charges and acquisition costs of $14.3 million in fiscal 2020 and restructuring-related charges of $9.6 million in fiscal 2019. Adjusted EBIT, which excludes these charges, was $69.3 million during the first nine months of fiscal 2020 and $75.4 million during the same period of fiscal 2019.
Cash Flow and Financial Position
For the first nine months of fiscal 2020, cash from operations was $381.2 million, compared to $145.5 million during the first nine months of fiscal 2019. Capital expenditures during the current nine-month period of $105.4 million compared to $84.5 million over the same time in fiscal 2019. Total debt at the end of the first nine months of fiscal 2020 was $2.56 billion compared to $2.52 billion a year ago and $2.53 billion at the end of fiscal 2019. RPM’s net (of cash) debt-to-total capitalization ratio was 63.5 percent compared to 61.8 percent on Feb. 28, 2019, and 62.1 percent on May 31, 2019.
In February of this fiscal year, RPM took proactive measures to bolster its financial flexibility and improve the amount of available liquidity under its revolving credit facility by securing $400 million of term loans that mature on Feb. 21, 2023, and have a blended interest rate of approximately 0.6 percent. The proceeds were used to repay a portion of the outstanding borrowings under RPM’s revolving credit facility. On Feb. 29, 2020, RPM’s total liquidity, including cash and committed revolving credit facilities, was $1.14 billion.
“In March 2020, subsequent to the end of the third quarter, we repurchased approximately $25 million of our common shares. This is in addition to the $300 million we repurchased during fiscal 2019 and the first three quarters of fiscal 2020, coupled with the $200 million cash redemption of our convertible notes in November of 2018. Given recent macroeconomic uncertainty resulting from the COVID-19 pandemic, we have suspended our share buyback program,” said Sullivan.
Business Outlook
“The fourth quarter is seasonally our strongest and was off to a good start in March, with consolidated sales up approximately 5 percent over the prior year. Many of our products are used for construction, maintenance and repair projects, which are deemed essential in many cases and are relatively recession-resistant. A large number of our North American customers, such as those in construction and DIY home and hardware retail, are also considered essential and currently remain open for business. With people spending more time in their homes, there is potential for increased activity in DIY projects. Demand is strong for our professional and consumer cleaning and disinfectant brands, some of which are effective against Coronavirus. Raw material cost inflation seems to be moderating in a number of our key product categories. Our global supply chain remains strong, and our distribution and operations associates continue to work diligently to meet customer demand,” said Sullivan.
“However, like most companies, we expect our financial results to be impacted by the disruption and uncertainty COVID-19 is having on the global economy. As we cannot predict the duration or scope of the pandemic, the financial impact on our results cannot be reasonably estimated but could be material," he continued.
“COVID-19 is also disrupting our ability to implement new initiatives under our restructuring program. While there are some activities that can be carried out virtually, many require a physical presence that is being hindered by limits on travel and access to facilities. Because of this, we will be extending the timeline for achieving our MAP to Growth goals. As markets stabilize and we gain more clarity into business conditions, we will communicate our new MAP to Growth timeline," Sullivan said.
“According to current government projections, it appears that the crisis will reach its peak in April or May. This is a fluid situation, and the information available to us is rapidly changing. As of today, we anticipate that our consolidated fourth-quarter revenue will be down 10 percent to 15 percent year over year. This assumes that our strong March results are counterbalanced by sales drops in April and May of 15 percent to 20 percent. Given the uncertainties around this crisis, we are withdrawing our prior earnings guidance for the fourth quarter and full year of fiscal 2020,” Sullivan added.
“We continue to assess the situation and the long-term impact of COVID-19. In this environment, we are taking aggressive actions to manage cash flow by reducing working capital, capital expenditures and discretionary spending. The MAP to Growth program timing has been fortunate for us in this regard since we have improved margins and are starting to see the benefits of our working capital reduction program, resulting in improved cash flow this year. Additionally, we have significant liquidity and a strong balance sheet, which we anticipate will keep us in a solid financial position,” Sullivan concluded.
“Our financial performance was strong during the third quarter and was achieved prior to the global COVID-19 pandemic when underlying market conditions were robust. We are doing our part to control the spread of the virus, with our priorities being to protect the health and well-being of our associates and their family members, support our local communities to control the spread of the virus, and serve our customers by maintaining the continuity and success of our business operations,” said RPM chairman and CEO Frank C. Sullivan. “We are taking actions to adjust our business activities during this period of uncertainty and are well-positioned with a strong balance sheet and $1.14 billion in liquidity.”
Third-Quarter Consolidated Results
Fiscal 2020 third-quarter net sales were $1.17 billion, an increase of 2.9 percent over the $1.14 billion reported a year ago. Third-quarter net income was $11.9 million, compared to the $14.2 million reported in the year-ago period, and diluted earnings per share (EPS) were $0.09, compared to $0.11 in the year-ago quarter. Income before income taxes (IBT) was $16.3 million compared to $4.5 million reported in the fiscal 2019 third quarter. RPM’s consolidated earnings before interest and taxes (EBIT) were up 68 percent to $44.1 million compared to $26.3 million reported in the fiscal 2019 third quarter.
The third quarter included restructuring-related charges and acquisition expenses of $16.3 million during fiscal 2020 and $20.1 million in fiscal 2019. Excluding these charges, RPM’s adjusted EBIT was up 30.4 percent to $60.5 million compared to $46.4 million during the year-ago period.
Also, the company has continued to exclude the impact of all gains and losses from marketable securities from adjusted EPS, 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 $4.9 million for the third quarter of fiscal 2020 and a net after-tax benefit of $1.5 million during the same quarter last year. Excluding the restructuring and other adjustments, as well as investment losses and gains, fiscal 2020 third-quarter adjusted diluted EPS increased 76.9 percent to $0.23 compared to $0.13 in fiscal 2019.
“Initiatives under our MAP to Growth operating improvement program continued to gain momentum during the third quarter, fueling our excellent bottom-line performance and enabling us to continue to outpace the earnings growth of our peers. These initiatives included enacting operational improvements at our production facilities, consolidating manufacturing plants, delayering management and rationalizing product lines. Also, positively impacting results were the benefits of pricing and moderating raw material costs,” said Sullivan. “We are pleased with our top-line growth during the third quarter, which typically generates our most modest results each year because it falls during the winter months when painting and construction activity slow. Market share gains and pricing contributed to organic sales growth of 3 percent. This was partially offset by foreign currency translation of 0.8 percent, while acquisitions contributed 0.7 percent to sales. Our year-to-date cash flow from operations improved by $236 million over last year due to better working capital management and margin improvement from our MAP to Growth program.”
Third-Quarter Segment Sales and Earnings
Construction Products Group net sales increased 4.7 percent, to $372.1 million during the fiscal 2020 third quarter, compared to fiscal 2019 third-quarter net sales of $355.3 million, reflecting organic growth of 5.1 percent and acquisitions contributing an additional 1 percent. Foreign currency translation reduced sales by 1.4 percent. Segment IBT was a loss of $0.5 million compared with a loss of $4 million a year ago. EBIT was $1.7 million, up 207.6 percent compared to an EBIT loss of $1.5 million in the fiscal 2019 third quarter. The segment incurred $4.4 million in restructuring-related expenses during the third quarter of fiscal 2020 and $1.2 million in restructuring-related and other expenses during the same period of fiscal 2019. Excluding these charges, fiscal 2020 adjusted EBIT increased to $6 million compared to an adjusted EBIT loss of $0.3 million reported during the year-ago period.
“In the Construction Products Group, we registered strong sales growth from market share gains and the introduction of innovative new products, with the fastest growth being generated in our roofing, below-grade waterproofing and concrete admixtures businesses,” said Sullivan. “Driving earnings growth were pricing, moderating raw material costs, MAP to Growth savings and the favorable leverage impact of higher sales volume.”
Performance Coatings Group net sales increased 1 percent to $255.7 million during the fiscal 2020 third quarter as compared to net sales of $253.2 million reported a year ago. Organic growth was 1.6 percent and acquisitions contributed an additional 0.2 percent. Foreign currency translation reduced sales by 0.8 percent. Segment IBT was $22.2 million compared with IBT of $14.4 million reported a year ago. EBIT was $22.1 million, an increase of 53.3 percent compared to EBIT of $14.4 million in the fiscal 2019 third quarter. The segment reported third-quarter restructuring-related charges and acquisition costs of $2.1 million in fiscal 2020 and restructuring-related charges of $3.7 million in fiscal 2019. Adjusted EBIT, which excludes these charges, increased 33.2 percent to $24.2 million during the third quarter of fiscal 2020 from adjusted EBIT of $18.2 million during the year-ago period.
“A focus on higher-margin product and service offerings, as well as MAP to Growth business rationalization initiatives, drove a significant adjusted EBIT margin improvement of 230 basis points in the Performance Coatings Segment,” said Sullivan. “On the top line, sales growth in the segment was mixed. Its highway and bridge maintenance businesses were slowed by government budget constraints, particularly in the U.K. However, its protective and marine coatings business unit increased market share and its continental European operations grew solidly, driven by a new global management structure.”
Consumer Group net sales were $398.7 million during the third quarter of fiscal 2020, an increase of 5.4 percent compared to net sales of $378.3 million reported in the third quarter of fiscal 2019. Organic sales increased 6 percent. There was no impact from acquisitions. Foreign currency translation reduced sales by 0.6 percent. Consumer Group IBT was $29.8 million compared with IBT of $25.3 million in the prior-year period. EBIT was up 17.6 percent to $29.9 million compared to EBIT of $25.4 million in the fiscal 2019 third quarter. The segment incurred restructuring-related expenses of $2.3 million during fiscal 2020 and $1.6 million during fiscal 2019. Excluding these charges, fiscal 2020 third-quarter adjusted EBIT was $32.1 million, an increase of 19.2 percent over adjusted EBIT of $27 million reported during the prior period.
“Third-quarter sales growth in the Consumer Group was up solidly during what is typically a seasonally modest growth period, aided by market share gains and unseasonably warm winter weather in North America that enabled consumers to complete more DIY home improvement projects. The fastest growth was achieved in our caulks, sealants, and patch and repair product lines,” said Sullivan. “On the bottom line, savings from the MAP to Growth operating improvement plan were partially offset by inflation in certain raw materials and channel mix.”
The Specialty Products Group reported net sales of $147.5 million during the third quarter of fiscal 2020, compared to net sales of $153.8 million in the fiscal 2019 third quarter. Organic sales decreased 7.1 percent, while acquisitions contributed 3.3 percent to sales. Foreign currency translation reduced sales by 0.3 percent. Segment IBT was $12.9 million compared with $16.1 million in the prior-year period. EBIT was $13 million compared to EBIT of $16 million in the fiscal 2019 third quarter. The segment reported third-quarter restructuring-related charges and acquisition costs of $4.6 million in fiscal 2020 and restructuring-related charges of $4.2 million in fiscal 2019. Adjusted EBIT, which excludes these charges, was $17.5 million in the fiscal 2020 third quarter, compared to adjusted EBIT of $20.2 million in fiscal 2019.
“On the top line, the Specialty Products Group’s wood coatings business successfully outperformed its peers in a challenging market. However, sales of the segment’s water damage restoration products faced a difficult comparison to the prior year when demand was exceptionally high due to significant weather events in North America. Sales were down in our OEM fluorescent pigments, nail polish and edible coatings businesses,” Sullivan said. “Savings from our operating improvement program helped to mitigate the impact of declining sales volume on earnings. In addition, we have new management in place and are implementing cost-cutting measures and new processes to reignite growth, which will benefit the segment in the coming quarters.”
Nine-Month Results
Fiscal 2020 nine-month net sales increased 2.1 percent to $4.05 billion from $3.96 billion during the first nine months of fiscal 2020. Organic growth was 2 percent, with acquisitions adding 1.3 percent and foreign currency translation reducing sales by 1.2 percent. Net income was $195.1 million, an increase of 46.5 percent compared to $133.2 million in the fiscal 2019 nine-month period. Diluted EPS increased 50 percent to $1.50 versus $1.00 a year ago. IBT was $260.9 million compared to $163 million reported in the fiscal 2019 nine-month period. EBIT was $329.2 million, an increase of 38.9 percent versus the $236.9 million reported last year.
The fiscal 2020 nine-month period included restructuring and other charges related to the company’s 2020 MAP to Growth and acquisition-related charges of $77.5 million. The same period during fiscal 2019 included the impact of charges of $89.1 million primarily for restructuring, acquisitions, convertible debt extinguishment and other expenses. Excluding these charges, RPM’s nine-month adjusted EBIT was up 24.7 percent to $406.7 million compared to adjusted EBIT of $326.1 million during the year-ago period. Investments resulted in a net after-tax gain of $3.1 million for the nine-month period of fiscal 2020 and an after-tax loss of $6 million during the same period last year. Excluding the restructuring and other charges, as well as investment gains and losses, adjusted diluted EPS increased 30.2 percent to $1.94 compared to $1.49 in fiscal 2019.
Nine-Month Segment Sales and Earnings
Construction Products Group's fiscal 2020 nine-month sales increased 5 percent to $1.41 billion from $1.34 billion during the fiscal 2019 first nine months. Organic sales increased 4.2 percent, while acquisitions added 2.4 percent. Foreign currency translation reduced sales by 1.6 percent. IBT was $139.3 million versus year-ago IBT of $96.4 million. Segment EBIT was $145.6 million, an increase of 40.8 percent over EBIT of $103.3 million during the first nine months of fiscal 2019. The segment incurred restructuring- and acquisition-related expenses of $9.3 million during the first nine months of fiscal 2020 and $10.1 million during the same period of fiscal 2019. Excluding these charges, fiscal 2020 adjusted EBIT increased 36.5 percent to $154.8 million from adjusted EBIT of $113.4 million reported during the year-ago period.
Performance Coatings Group fiscal 2020 nine-month sales increased 0.5 percent to $845.6 million from $841.6 million during the fiscal 2019 first nine months. Organic sales increased 1.2 percent, while acquisitions added 0.7 percent. Foreign currency translation reduced sales by 1.4 percent. IBT was $83.6 million versus year-ago IBT of $45 million.
Segment EBIT was $83.6 million, an increase of 84.2 percent over EBIT of $45.4 million during the first nine months of fiscal 2019. The segment reported nine-month restructuring-related charges and acquisition costs of $14.5 million in fiscal 2020 and restructuring, acquisition and other charges of $33.8 million in fiscal 2019. Adjusted EBIT, which excludes these charges, increased 23.9 percent to $98.1 million during the first nine months of fiscal 2020 from adjusted EBIT of $79.2 million during the year-ago period.
In the Consumer Group, fiscal 2020 nine-month sales were up 3.8 percent to $1.33 billion from $1.28 billion during the first nine months of fiscal 2019. Organic sales improved 4 percent, while acquisitions added 0.7 percent. Foreign currency reduced sales by 0.9 percent. IBT was $123.4 million, compared to year-ago IBT of $118.1 million. Consumer Group fiscal 2020 nine-month EBIT was $123.6 million, an increase of 4.3 percent compared to $118.5 million reported during the first nine months a year ago. The segment incurred restructuring-related expenses of $24.9 million during fiscal 2020 and $3.6 million during fiscal 2019. Excluding these charges, fiscal 2020 nine-month adjusted EBIT was $148.5 million, an increase of 21.6 percent over adjusted EBIT of $122.1 million reported during the prior period.
Specialty Products Group fiscal 2020 nine-month sales were $465.7 million compared to $500.5 million during the first nine months a year ago. Organic sales decreased by 7.4 percent. Acquisitions added 1 percent, while foreign currency translation reduced sales by 0.6 percent. IBT was $55 million versus year-ago IBT of $66 million. Fiscal 2020 nine-month EBIT in the segment was $55 million versus $65.7 million in the same period a year ago. The segment reported nine-month restructuring-related charges and acquisition costs of $14.3 million in fiscal 2020 and restructuring-related charges of $9.6 million in fiscal 2019. Adjusted EBIT, which excludes these charges, was $69.3 million during the first nine months of fiscal 2020 and $75.4 million during the same period of fiscal 2019.
Cash Flow and Financial Position
For the first nine months of fiscal 2020, cash from operations was $381.2 million, compared to $145.5 million during the first nine months of fiscal 2019. Capital expenditures during the current nine-month period of $105.4 million compared to $84.5 million over the same time in fiscal 2019. Total debt at the end of the first nine months of fiscal 2020 was $2.56 billion compared to $2.52 billion a year ago and $2.53 billion at the end of fiscal 2019. RPM’s net (of cash) debt-to-total capitalization ratio was 63.5 percent compared to 61.8 percent on Feb. 28, 2019, and 62.1 percent on May 31, 2019.
In February of this fiscal year, RPM took proactive measures to bolster its financial flexibility and improve the amount of available liquidity under its revolving credit facility by securing $400 million of term loans that mature on Feb. 21, 2023, and have a blended interest rate of approximately 0.6 percent. The proceeds were used to repay a portion of the outstanding borrowings under RPM’s revolving credit facility. On Feb. 29, 2020, RPM’s total liquidity, including cash and committed revolving credit facilities, was $1.14 billion.
“In March 2020, subsequent to the end of the third quarter, we repurchased approximately $25 million of our common shares. This is in addition to the $300 million we repurchased during fiscal 2019 and the first three quarters of fiscal 2020, coupled with the $200 million cash redemption of our convertible notes in November of 2018. Given recent macroeconomic uncertainty resulting from the COVID-19 pandemic, we have suspended our share buyback program,” said Sullivan.
Business Outlook
“The fourth quarter is seasonally our strongest and was off to a good start in March, with consolidated sales up approximately 5 percent over the prior year. Many of our products are used for construction, maintenance and repair projects, which are deemed essential in many cases and are relatively recession-resistant. A large number of our North American customers, such as those in construction and DIY home and hardware retail, are also considered essential and currently remain open for business. With people spending more time in their homes, there is potential for increased activity in DIY projects. Demand is strong for our professional and consumer cleaning and disinfectant brands, some of which are effective against Coronavirus. Raw material cost inflation seems to be moderating in a number of our key product categories. Our global supply chain remains strong, and our distribution and operations associates continue to work diligently to meet customer demand,” said Sullivan.
“However, like most companies, we expect our financial results to be impacted by the disruption and uncertainty COVID-19 is having on the global economy. As we cannot predict the duration or scope of the pandemic, the financial impact on our results cannot be reasonably estimated but could be material," he continued.
“COVID-19 is also disrupting our ability to implement new initiatives under our restructuring program. While there are some activities that can be carried out virtually, many require a physical presence that is being hindered by limits on travel and access to facilities. Because of this, we will be extending the timeline for achieving our MAP to Growth goals. As markets stabilize and we gain more clarity into business conditions, we will communicate our new MAP to Growth timeline," Sullivan said.
“According to current government projections, it appears that the crisis will reach its peak in April or May. This is a fluid situation, and the information available to us is rapidly changing. As of today, we anticipate that our consolidated fourth-quarter revenue will be down 10 percent to 15 percent year over year. This assumes that our strong March results are counterbalanced by sales drops in April and May of 15 percent to 20 percent. Given the uncertainties around this crisis, we are withdrawing our prior earnings guidance for the fourth quarter and full year of fiscal 2020,” Sullivan added.
“We continue to assess the situation and the long-term impact of COVID-19. In this environment, we are taking aggressive actions to manage cash flow by reducing working capital, capital expenditures and discretionary spending. The MAP to Growth program timing has been fortunate for us in this regard since we have improved margins and are starting to see the benefits of our working capital reduction program, resulting in improved cash flow this year. Additionally, we have significant liquidity and a strong balance sheet, which we anticipate will keep us in a solid financial position,” Sullivan concluded.
