Paint, sealant, and building-materials manufacturer RPM International (NYSE:RPM) recently reported record earnings for its fiscal second quarter. Building materials? Record earnings? In this economy? Yep.

Investors may not be familiar with RPM, but its brands probably fill their home workshops. RPM divides its business into consumer and industrial segments. Rust-Oleum, DAP, Zinsser, and Testors are some of the more popular consumer brands. Industrial products include Tremco roofing, Stonhard floor coatings, and Fibergrate composite products. Direct competitors include PPG Industries (NYSE:PPG) and Sherwin-Williams (NYSE:SHW).

Like many companies reporting recently, RPM's earnings growth owes to cost cutting, not revenue growth. Results compared to the same quarter last year are summarized below. Notice that while total revenue declined year over year, consumer revenue increased. Just what we needed -- more mixed economic signals:


Second Quarter

Second Quarter


Industrial Revenue




Consumer Revenue




Total Revenue




Net Income




Diluted EPS




*Dollar values in thousands except per share amounts. Source: RPM earnings report, 10-Q and author's calculations.

The "International" in RPM International is there for a reason. The quarterly report doesn't break out sales by global regions, but for FY2009, over 20% of sales were outside of North America.

RPM pays a quarterly dividend of $0.205, and it's raised its dividend every year for the past 36 years. That puts RPM in a select group of companies like 3M (NYSE:MMM) and Procter & Gamble (NYSE:PG), which have reliably given shareholders a raise every year through good times and bad.

RPM does have some risks beyond the economic cycle:

  • Commodity prices for its raw materials can be volatile, and there's no guarantee that a rise in those prices can be passed on to consumers.
  • As shown on RPM's CAPS page, the company carries a moderate amount of debt, with a total debt-to-equity ratio of 0.71. Debt has been paid down some over the past six months, but servicing the debt would be a drag on earnings if the economy weakens.
  • One of RPM's subsidiaries is exposed to asbestos claims. The company has set aside reserves to pay claims, but there is no way to accurately predict how extensive the payouts could be.

In summary, RPM is a well-managed company with a cyclical customer base that has managed to grow earnings in a weak economy. A broad mix of consumer and industrial products, many of which are used for routine maintenance and repair, along with global operations provide a diversified revenue base. A dividend yield around 4% should appeal to income investors and the payout is well covered with good prospects for continuing the long string of annual dividend hikes.

This mid-cap stock could be just what investors need to caulk the seams in a drafty portfolio.

More Foolishness on RPM:

Fool contributor Russ Krull has a tube of DAP caulk somewhere in the basement and owns shares of RPM. 3M is a Motley Fool Inside Value recommendation. Sherwin-Williams is a Motley Fool Stock Advisor pick. Procter & Gamble, PPG Industries, and RPM International are Motley Fool Income Investor recommendations. The Fool owns shares of Procter & Gamble. The Fool has a disclosure policy that seals up leaks and adds color to our lives.