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RPM Inc (RPM +6%), a specialty coating, sealants, and building materials supplier, is being painted in a positive light today despite missing Q1 (Aug) revenue estimates and projecting downbeat Q2 (Nov) revenue growth. The operating environment remains challenging. Inflation has been sticky, commercial construction has been sluggish, DIY activity has softened, and large construction projects are experiencing delays.

Against this dismal backdrop, investors were likely not wagering on exceptional revenue growth in Q1. Similarly, while short of consensus, RPM's flat revenue growth outlook for Q2 is not alarming. In fact, flat growth would mark a decent improvement over the 2.1% decline RPM endured in Q1 to $1.97 bln. Meanwhile, RPM continues to expect a back-half weighted year, reiterating its FY25 revenue growth forecast of low-single-digits despite the shortfalls in the year's first half.

• There were also several promising developments during the quarter. For starters, RPM delivered its third straight quarter of earnings upside, expanding its bottom line by 12.2% yr/yr to $1.84 despite the pressure on its top line. This outperformance showcased RPM's MAP 2025 initiatives, which center on streamlining its SG&A structure, pivoting to growing end markets, and investing in targeted growth opportunities. The benefits rolled in nicely to start FY25, resulting in a Q1 record for adjusted operating margins.
• RPM's Construction Products Group (CPG) and Performance Coatings Group (PCG) were the leaders in Q1. CPG was the only segment to deliver positive yr/yr sales growth at 1.4%, led by roofing and wall systems. PCG fell by 1.8%, which still outpaced RPM's overall sales contraction, aided by a focus on maintenance and restoration projects. Helping both segments has been RPM's smart move to shift from distribution centers and EV manufacturing to the now lucrative data center market.
  • RPM's fluidity in adapting to the most lucrative markets over time is a testament to management's focus on constantly extracting the most out of its current environment.
• Conversely, Specialty Products Group (SPG) and Consumer Group trailed in Q1, registering 3.5% and 6.1% drops in revenue yr/yr, respectively. The overarching issue is that these two segments are heavily exposed to residential end markets, where demand remains lackluster. Management mentioned that it was encouraged by declining interest rates but cautioned that it was too early to determine when this would translate into increased housing turnover.
  • Also worth pointing out are the strikes at East Coast ports. At this time, RPM was unsure whether it would encounter a material impact from the strikes. However, it is worth keeping an eye on.
• Still, RPM reiterated its guidance because of the bright spots within its other segments. CPG is expected to remain resilient, supported by the demand for roofing and wall systems. Meanwhile, PCG growth is steadily improving, reflecting the positive impact of more effective sales management systems.

RPM's Q1 report may have contained some weaknesses. However, investors had already anticipated this ahead of time, making the silver linings from the quarter that much brighter and ultimately fueling all-time highs in the stock today.