RPM International's (RPM 1.23%) fiscal fourth quarter was a bit of a mixed bag. While the company reported record sales, earnings didn't rise as much as expected due to a couple of headwinds. However, the company is working on several initiatives to address those issues, which should put it in a better position to deliver long-term growth.
RPM International Inc. results: The raw numbers
|
Metric |
Fiscal Q4 2018 |
Fiscal Q4 2017 |
Year-Over-Year Change |
|---|---|---|---|
|
Net sales |
$1.56 billion |
$1.49 billion |
4.4% |
|
Adjusted net income |
$142.1 million |
$138.3 million |
2.7% |
|
Adjusted earnings per share |
$1.05 |
$1.02 |
2.9% |
Data source: RPM International Inc.
The weather hurt RPM's sales this quarter. Image source: Getty Images.
What happened with RPM International Inc. this quarter?
Industrial sales led the way:
- Sales from RPM International's industrial segment jumped 10.8% versus the year-ago period to $812.9 million, driven by a 6.2% increase in organic sales due primarily to its North American waterproofing business. Meanwhile, acquisitions added 1.7% to the top line, while positive foreign exchange rates provided an additional 2.9% boost.
- The company's consumer segment experienced a slight dip in sales, which slipped 3% to $548 million. While organic sales dropped 5.4% year over year due to unfavorable weather conditions, the company was able to partially offset that decline with an incremental 1.2% in revenue from acquisitions and a 1.2% benefit from positive foreign exchange rates.
- Sales from RPM's specialty segment rose 1.5% to $196.9 million. While organic sales declined 0.6% due to the expiration of a patent on its food coatings business, the company completely offset that with an incremental 0.6% in sales from acquisitions while also benefiting from the positive impact of foreign exchange rates, which added 1.5% to the top line.
- For the full fiscal year, RPM International's sales rose 7.3% to $5.32 billion, led by the industrial segment, where sales jumped 9.8% to $2.81 billion thanks to a combination of solid organic sales growth, acquisitions, and positive exchange rates. Adjusted earnings, meanwhile, rose 18.2% year over year to $2.92 per share. However, that was below the company's $3.05 to $3.10 per share guidance range.
What management had to say
CEO Frank Sullivan, commenting on the company's results, said:
We achieved respectable top-line sales growth in the fourth quarter, particularly in light of the unseasonably cold and rainy spring in North America that delayed coating and construction projects. Bottom-line results were adversely affected by rising raw material costs, as well as the decline in sales in the consumer segment and the resulting lack of leverage, exacerbated by strategic restructuring initiatives introduced by new management at Rust-Oleum.
While RPM International delivered solid revenue growth to end its fiscal year, two notable headwinds impacted profitability: the weather and rising material costs. Sullivan noted that "extremely unfavorable weather conditions in North America" affected sales in its consumer segment because it inhibited outdoor projects. Retailers compounded that issue by reducing inventory levels.
Meanwhile, rising raw material costs impacted margins in its industrial segment. The company is working to offset this headwind by closing facilities and rightsizing its workforce. During the quarter, the company closed a polymer-flooring facility in North America and an unprofitable business in China in its industrial segment, and it reorganized its global legal group by reducing headcount at its operating companies and consolidating those functions to its corporate headquarters. It also took some actions within its consumer segment by closing two factories and eliminating 150 jobs at its Rust-Oleum business to better optimize its operations. These actions are all part of RPM International's focus on improving its operating performance and margins to enhance the value of the company.
Looking forward
RPM International expects its raw-material challenges to continue, which will keep the pressure on margins. However, the company said that it would aggressively pursue price increases and continue to optimize its operations to improve profitability. These factors drive its forecast that sales will grow at a mid-single-digit clip in fiscal 2019, though management has elected not to provide earnings guidance as it "navigate[s] though this transitional period."
