RPM International (RPM 61.36, -2.59, -4.05%) is trading lower today after reporting Q1
(Aug) results this morning. RPM is a supplier of coatings, sealants, building
materials, and related services. Its largest segment is the Industrial segment,
which sells roofing systems, sealants, corrosion control coatings, flooring
coatings and other construction chemicals. RPM also has a Consumer segment,
which are used by professionals and do-it-yourselfers for home maintenance and
improvement and by hobbyists. Consumer brands include Rust-Oleum, DAP, Zinsser,
Varathane, and Testors.
RPM also has a fairly small specialty products segment. This segment includes industrial cleaners, colorants, exterior finishes, specialty OEM coatings, edible coatings, restoration services equipment and specialty glazes for the pharmaceutical and food industries. Its specialty segment companies include Day-Glo, Dryvit, RPM Wood Finishes, Mantrose-Haeuser, Legend Brands, Kop-Coat, and TCI.
Turning to the Q1 (Aug) results, adjusted EPS fell to $0.76 from $0.86 in the prior year period. This was below market expectations. Revenue rose 8.5% year/year to $1.46 bln, which was above market expectations.
Breaking it down by segment, RPM's industrial segment saw revenue grow 7.2% year/year to $782.0 mln, reflecting organic growth of 6.7% and acquisitions contributing an additional 1.6%. The industrial segment benefited from especially strong performance in North American waterproofing and a healthy recovery in its businesses which serve the oil & gas sector. However, FX headwinds hurt on the bottom line. In the process of realigning its global brands, RPM adjusted its leadership structure, initiated the closure of two plants and discontinued certain international product lines.
Turning to its consumer segment, revenue grew 13.6% year/year to $485.2 mln. Organic sales increased 12.4%, while acquisition growth contributed 1.7%. Consumer segment sales were strong due to new accounts and market share gains, particularly in wood stains and automotive finishes. As previously discussed, RPM says it expects Q1 (Aug) would be the high-water mark for margin erosion in the consumer segment. RPM responded with price increases late in AugQ to help address this.
Its specialty segment reported sales growth of 2.3%, to $192.8 mln. The Specialty segment was lapping strong results last year, which were elevated by RPM's water damage restoration businesses' response to Hurricane Harvey, which created tougher year/year comparisons. Also, this is the last quarter of negative comparisons related to the NatureSeal patent expiration last August.
In sum, this was a somewhat difficult quarter for RPM. While the top-line growth was strong, the EPS line was hurt by rising raw material costs and the impact of restructuring its consumer segment. Specifically, RPM eliminated more than 150 positions and announced the closure of four manufacturing facilities. FX headwinds also hurt on the EPS line. Since RPM does not guide, it's always a bit difficult for analysts to model how the numbers will end up. With that said, our sense is that investors were nervous heading into this report as the stock has been trending lower over the past week or so. It turns out the caution was warranted. Hopefully results improve later in the fiscal year.
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