Please ensure Javascript is enabled for purposes of website accessibility

RPM International Overcomes Tough Industry Conditions

By Dan Caplinger – Apr 5, 2018 at 11:55AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Learn how much the coatings and sealants specialist benefited from tax reform.

RPM International (RPM -0.84%) makes it its business to help its customers protect their vital assets from the effects of age, with products that help prevent rust and corrosion, as well as other lines of chemicals with specialized purposes. The company has gotten into the habit of setting record results quarter after quarter, with customers making every effort to extend the life of essential equipment as long as possible.

Coming into Thursday's fiscal third-quarter financial report, RPM shareholders were looking to see a nice boost from tax reform on top of already impressive financial results, and RPM was able to deliver on those expectations. Even though tough industry conditions have persisted, RPM sees better times ahead. Let's look more closely at RPM International to see how its latest numbers were.

Circle chart with all of RPM's business units.

Image source: RPM International.

RPM keeps climbing higher

RPM International's fiscal third-quarter results showed few signs of slowing growth. Net sales were up 8% to $1.10 billion, which was slightly better than the consensus forecast among those following the stock. GAAP net income of $40.2 million was more than triple the year-ago period, and even after allowing for one-time items, adjusted earnings of $0.21 per share were better than the $0.18 per share that most investors had expected to see.

Tax reform had a positive benefit on RPM. The company said that earnings were higher by $0.01 per share because of the revaluation of deferred tax liabilities, and it claimed an additional benefit of $0.08 per share because of the lower corporate rate of 21% that prevailed during most of the fiscal third quarter.

Fundamentally, RPM remained solid. Organic sales growth slowed to just under 2%, with acquisitions adding three percentage points of growth, and favorable foreign currency moves contributing the remaining three percentage points. Balanced segment performance helped RPM, including a 9% rise in industrial segment sales and a 6% gain in consumer segment revenue. The specialty segment saw revenue rise 6.5%. Pre-tax profit was dramatically higher in the industrial and specialty segments, although the consumer segment lagged with a 2% drop in its bottom line.

Different factors drove RPM's success. In the industrial segment, roofing and flooring businesses did well, and the specialty segment benefited from greater demand for restoration and marine coatings. Yet RPM saw some pressure from sluggish consumer activity, and the company hopes that it can use better marketing techniques to help the segment recover in the coming year.

CEO Frank Sullivan was generally pleased with how well the company did under tough conditions. "RPM's operating performance for the third quarter was outstanding," Sullivan said, "despite severe, continued industrywide headwinds from higher raw material costs." The CEO pointed to cost-savings initiatives in helping to keep its earnings up and said that he expects those efforts to continue.

Can RPM pick up more speed?

RPM still believes that it can squeeze more sales and revenue growth from its operations for the remainder of the fiscal year. In particular, industrial sales should climb in mid- to upper-single-digit percentages, with mid-single-digit percentage gains in the consumer business and low-single-digit percentage increases in specialty products. Cost containment should generate double-digit-percentage gains in pre-tax income.

RPM narrowed its earnings guidance to the upper portion of its previous range. The chemicals specialist took the bottom end of its guidance up $0.05, making a new range of $3.05 to $3.10 per share.

RPM shareholders reacted favorably to the news, and the stock was higher by about 1% in morning trading following the announcement. If the company can do this well even with continued headwinds from raw materials costs, then the future for RPM could look even brighter if the cyclical uptick in commodities prices gives way to more favorable conditions in the near term.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool recommends RPM International. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

RPM International Inc. Stock Quote
RPM International Inc.
$83.31 (-0.84%) $0.71

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/30/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.