RPM's Slippery Results
By
Michael Goode
October 3, 2007
|
RPM International (NYSE: RPM) seemed to show few effects of the housing crunch in its earnings report released this morning. Sales were up 10.2%, and diluted earnings per share rose 8.2%.
Solid overall performance masked divergent results in RPM's industrial and consumer segments. Growth slowed almost to a standstill in its consumer segment, with organic sales growth, excluding foreign currency effects, of only 1.3%. However, this compares favorably to the sales declines that most other housing-related businesses have seen, including those for the carpets and floor coverings sold by Mohawk (NYSE: MHK).
The industrial segment drove overall growth, with 7.1% organic growth excluding currency effects. For a mature, specialty chemical manufacturer such as RPM, investors should not expect organic sales growth much above this number.
Like fellow coatings manufacturer OMNOVA (NYSE: OMN), which reported earnings two weeks ago, RPM has been able to improve profit margins slightly, despite increasing raw-material costs. Pricing power is a sign of a good business, and RPM's ability to increase prices shows why coatings are such a great business. Coatings are usually a small part of a product's overall cost, yet they improve its performance significantly.
Considering its strong pricing ability, modest growth, price-to-earnings ratio of 14, and a hefty dividend yield of 3%, RPM remains attractive to this Fool.
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