Many companies in the stock market are virtually unknown in their own right but have products that millions of consumers depend on every day. That's the case for RPM International (NYSE:RPM), the company behind popular products including DAP sealants and adhesives and Rust-Oleum protective coatings and paints. With a solid dividend yield and a stable business, RPM has steadily risen over the past several years, and coming into Wednesday morning's fiscal-third-quarter financial report, investors hoped the company would post further solid growth. RPM delivered on that hope, with record sales and solid earnings after accounting for a one-time charge. Let's take a closer look at how RPM International did and what's ahead for the company.
RPM International springs forward
RPM International's quarterly results were impressive, largely exceeding even the ambitious projections from those following the stock. Sales jumped 9.6% to $946.4 million, which was almost $10 million more than investor consensus. Adjusted earnings of $0.20 per share were well ahead of the $0.14 most had predicted, even though RPM weathered a roughly nickel-per-share hit from currency exposure.
RPM's two major segments each performed well, although the company distinguished between favorable domestic results and more challenging conditions abroad. Sales in the larger industrial segment, which makes up about two-thirds of RPM's overall revenue, jumped 10.6% as a combination of organic growth and acquisition-based gains overcame a 7-percentage-point headwind from the strong U.S. dollar. Currency issues drove down pre-tax operating income almost 20% from the year-ago level, however, as sluggishness in the European economy held back the business. For the consumer segment, sales rose a more modest 7.8%, with organic growth making up the bulk of the gains. Pre-tax operating income climbed 14%.
RPM executives were guardedly pleased with the company's performance. As CEO Frank Sullivan noted, "Results from our industrial segment have been mixed ... [but] our consumer segment performed well in the quarter, which is consistent with the gradual improvement in residential housing, consumer confidence, and discretionary spending." Sullivan also touted several new products for the spring season as potentially driving even better sales for RPM going forward.
What the rest of the year will hold for RPM International
RPM also gave positive guidance for the remainder of its fiscal year, saying earnings would likely land toward the top of its anticipated $2.25 to $2.30 per share range. More important for the long run, RPM reconsolidated its Specialty Products Holding Corp. subsidiary during the quarter; going forward, the company expects more than $400 million in annual sales from the subsidiary's operating units. With SPHC having emerged from bankruptcy with a trust created to address claims related to asbestos liability, RPM hopes it has put a big challenge behind it and can move ahead more aggressively with its growth plans.
The one negative from the SPHC deal is that the company had to take a tax-accrual charge of almost $100 million that sent generally accepted accounting principles results to a net loss for the quarter. Despite having paid $450 million into the asbestos liability fund in December, RPM anticipates possibly having to make future payments by repatriating cash from foreign operations.
Still, RPM looks poised to keep growing. A huge part of the company's strategy involves additional growth through buying out promising other businesses. Sullivan pointed to the acquisition of South Africa's Spraymate Group after the quarter ended as an example of "strong acquisition candidates that complement our existing product lines and expand RPM's geographic presence." By adding acquisition-based sales and income gains to its organic growth, RPM can accelerate its efforts to become a bigger and more important part of its industry.
RPM shareholders were reasonably pleased with the results, sending shares up about 1% in the first hour of pre-market trading after the announcement. With continuing improvement in economic conditions and an emphasis on providing products to help with household needs, RPM International has the capacity to give shareholders further gains over the long run.