Image source: RPM International.

Investors often choose stocks based on the products that companies make, and RPM International (NYSE:RPM) is known for its Rust-Oleum and DAP lines. Yet like other small product-focused companies like WD-40 (NASDAQ:WDFC), RPM relies on ongoing customer loyalty to produce growth, and coming into Wednesday's fiscal third-quarter financial report, RPM shareholders were concerned that the company would see adjusted earnings drop despite an uptick in sales. For its part, RPM didn't live up even to those reduced expectations. Let's take a closer look at the latest from RPM International and what it says about the company's prospects going forward.

RPM International trips up
RPM International's fiscal third-quarter results continued a roller-coaster ride that we've seen in past quarters, some of which have been strong and others weak. This quarter, sales were up 4.5% to $988.6 million, missing the $995 million in revenue that investors had expected to see. Net income reversed a year-earlier GAAP loss, coming in at $18.6 million and producing earnings of $0.14 per share. But that figure was down 30% from adjusted earnings in the year-ago quarter, and it also missed the consensus forecast by a penny per share.

A closer look at RPM's results reveals many of the same factors that investors have seen for a while now. Revenue took about four percentage points of damage from foreign currency weakness, and focusing on the industrial segment, a six percentage point sales hit weighed on that division even more. Yet on an organic basis, both of RPM's main businesses held up pretty well. Industrial segment organic sales were up 2.6%, and the specialty segment posted even stronger 7.5% growth in the top line.

pretax operating profits gave RPM a mixed bag. In the industrial arena, pretax earnings were down by about three-quarters, with a nearly $7 million rise in warranty expenses and severance-related charges taking away what would have been a slight gain otherwise. For the specialty segment, pretax profits more than doubled to $21.4 million, and the reconsolidation of some formerly separate businesses into the income statement helped RPM make the most of solid market-share gains. In the consumer segment, sales were up almost 4%, and a 10% rise in pretax earnings came despite some negative impacts from the dollar.

CEO Frank Sullivan put a positive spin on what has historically been a tough quarter for RPM. "We were pleased with RPM's performance during our seasonally slow third quarter," Sullivan said, "considering the headwinds posed by foreign currency translation." The CEO went on to highlight the gains in pretax profits and played down GAAP bottom-line results.

What's ahead for RPM International?
RPM is starting to look somewhat more optimistic about its near-term future. The company expects a mid-single-digit percentage rise for its consumer business in the fiscal fourth quarter, and market-share gains and product placements should help RPM improve its performance in fiscal 2017. For the industrial segment, weakness in global energy markets will weigh on growth, but RPM believes that strength in U.S. commercial construction should be able to offset that weakness. Mid- to upper-single-digit percentage growth in the specialty segment should come largely from organically derived gains.

One nice thing is that RPM is starting to see the currency-based hit to its results let up slightly, citing sequential declines in the magnitude of the pressure on the company's financials. Even though it expects ongoing challenges from the dollar, RPM still thinks it will earn $2.50 per share for the full fiscal year.

Nevertheless, RPM investors should watch closely at what WD-40 reports later in the week. WD-40 stock currently trades near its all-time highs, and investors believe that it should be able to produce double-digit percentage gains in earnings despite minimal sales growth. If that proves to be the case, then WD-40's results should spur RPM investors to expect more from their company as well.

RPM shareholders didn't react much to the company's news, and the stock traded on both sides of unchanged in the first hour of trading following the announcement. As long as RPM can stay on course with its plans for steady growth, then investors should be willing to forgive sluggish performance in its slow season.