- Sales increase 7.8% to a third-quarter
record of $1.1 billion
- Record diluted EPS of $0.30 versus
$0.09 a year ago includes non-recurring $0.01 per share net tax
benefit with the enactment of tax reform and an additional $0.08
per share benefit from lower corporate tax rate that was previously
included in the company’s earnings guidance
- Record third-quarter net income of
$40.2 million versus $11.9 million a year ago
- Record third-quarter EBIT of $56.7
million
RPM International Inc. (NYSE:RPM) today reported record sales,
net income and diluted earnings per share for its fiscal 2018 third
quarter ended February 28, 2018.
Third-Quarter Results
Net sales grew 7.8% to $1.1 billion in the fiscal 2018 third
quarter from $1.0 billion in the fiscal 2017 third quarter. Organic
sales improved 1.8%, while acquisitions added 3.1%. Foreign
currency translation positively affected sales by 2.9%. Net income
was $40.2 million versus $11.9 million in the fiscal 2017 third
quarter. Third-quarter earnings per diluted share were $0.30
compared to $0.09 reported last year. Third-quarter net income
included an income tax benefit of $5.9 million, compared to
year-ago income tax expense of $4.3 million.
Income before income taxes (IBT) was $34.7 million versus
year-ago IBT of $17.0 million. Consolidated earnings before
interest and taxes (EBIT) were $56.7 million, up 52.6% from
year-ago EBIT of $37.1 million.
During the quarter, the company recognized a non-recurring $0.01
per share net tax benefit as a result of the enactment of the Tax
Cuts and Jobs Act on December 22, 2017, and an additional $0.08 per
share benefit from the resulting lower U.S. statutory tax rate. In
January, the full-year guidance that was communicated included a
$0.10 per share benefit from the lower corporate tax rate, of which
$0.08 per share was recognized in the third quarter.
“RPM’s operating performance for the third quarter was
outstanding, despite severe, continued industry-wide headwinds from
higher raw material costs. We continue to generate exceptional EBIT
leverage, reflecting the early success of cost savings initiatives
we began implementing last year and rigorous SG&A spending
discipline we have exercised throughout this year,” stated Frank C.
Sullivan, RPM chairman and chief executive officer.
Third-Quarter Segment Sales and Earnings
Industrial segment sales increased 9.2% to $569.2 million from
$521.4 million in the fiscal 2017 third quarter. Organic sales
improved 2.2%, while acquisitions added 2.8%. Foreign currency
translation positively affected sales by 4.2%. IBT increased 52.1%
to $17.8 million, compared to year-ago IBT of $11.7 million.
Industrial segment EBIT for the quarter of $20.3 million was
up 38.8% from last year’s EBIT of $14.6 million.
“Our industrial segment, representing over 50% of consolidated
sales, increased EBIT by nearly 40% through greater SG&A cost
leverage, despite higher raw materials costs. Our Tremco Roofing
and international polymer flooring businesses did extremely well,
partially offset by continued weakness in Brazil and mixed results
in Europe,” stated Sullivan.
Sales in RPM’s consumer segment increased 6.4% to $363.4 million
from $341.4 million in the fiscal 2017 third quarter. Organic sales
improved 0.7%, while acquisitions added 4.2%. Foreign currency
translation positively affected sales by 1.5%. IBT was $29.1
million, down 2.3% from year-ago IBT of $29.8 million. Consumer
segment EBIT declined 2.1% to $29.3 million from $29.9 million
in the fiscal 2017 third quarter. Last year’s consumer EBIT
included a $4.9 million intangible impairment charge on the Synta
product line.
“In our consumer segment, prior-year acquisitions continue to
drive incremental sales and our organic growth has outperformed
that of our peers in the consumer space. However, the overall
sluggishness in consumer point-of-sale takeaway over the last
several quarters continued. We expect a robust advertising schedule
in the fourth quarter to position the consumer segment for
accelerated growth in fiscal 2019,” stated Sullivan.
Third-quarter sales in the company’s specialty segment increased
6.5% to $170.1 million from $159.7 million a year ago. Organic
sales increased 2.7% and acquisitions added 2.2%. Foreign currency
translation positively affected sales by 1.6%. IBT was $22.8
million, up 51.9% from year-ago IBT of $15.0 million. Specialty
segment EBIT improved 52.6% to $22.7 million from $14.9 million a
year ago. Last year’s specialty EBIT included a European facility
closure charge of $4.2 million.
“Sales were brisk in our restoration, OEM and pleasure marine
coatings businesses, which were partially offset by expected
declines in our edible coatings business as a result of a patent
expiration. Specialty generated very strong improvement in EBIT,
largely as a result of SG&A cost savings actions we began
implementing last year, including a plant closure in Europe, and
tight spending controls this year,” stated Sullivan.
Nine-Month Results
Nine-month net sales grew 8.6% to $3.76 billion from $3.47
billion a year ago. Net income was $252.1 million compared to $53.8
million in the year-ago period. Diluted earnings per share improved
to $1.87 from $0.41 in the first nine months of fiscal 2017. IBT
was $299.2 million versus year-ago IBT of $58.6 million.
Consolidated EBIT was $366.1 million compared to year-ago EBIT
of $118.2 million. Prior-year results included pre-tax
impairment charges of $193.2 million, a pre-tax charge of $12.3
million for exiting a business in the Middle East, and a pre-tax
charge of $4.2 million for a plant closure in Europe.
Nine-Month Segment Sales and Earnings
Sales for RPM’s industrial segment increased 9.4% to $2.0
billion from $1.83 billion in the fiscal 2017 first nine months.
Organic sales increased 3.7%, while acquisitions added 3.5%.
Foreign currency translation positively affected sales by 2.2%. IBT
was $174.4 million, up 15.3% from year-ago IBT of $151.3 million.
Industrial segment EBIT of $182.0 million was up 15.2% from EBIT of
$157.9 million in the first nine months of fiscal 2017, which
included a charge for exiting a business in the Middle East.
In the consumer segment, nine-month sales were up 8.1% to $1.21
billion from $1.12 billion in the first nine months of fiscal 2017.
Organic sales improved 0.2%, while acquisitions added 7.2%. Foreign
currency positively affected sales by 0.7%. IBT was $146.6 million,
compared to a year-ago loss before income taxes of $40.7 million.
Consumer segment EBIT was $147.1 million compared to a loss of
$40.6 million in the first nine months a year ago, as a result of
impairment charges.
Specialty segment sales increased 6.9% to $555.7 million from
$519.6 million in the first nine months a year ago. Organic sales
increased 2.8% and acquisitions added 3.4%. Foreign currency
translation positively affected sales by 0.7%. IBT was $90.4
million, up 17.9% from year-ago IBT of $76.7 million. Specialty
segment EBIT improved 18.2% to $90.1 million from $76.3 million in
the same period a year ago, which included the charge for a plant
closure in Europe.
Cash Flow and Financial Position
For the first nine months of fiscal 2018, cash from operations
was $140.7 million, compared to $173.5 million in the first
nine months of fiscal 2017. Capital expenditures during the current
nine-month period of $72.8 million compare to $80.1 million over
the same time in fiscal 2017. Total debt at the end of the first
nine months of fiscal 2018 was $2.18 billion, compared to $1.98
billion a year ago and $2.09 billion at the end of fiscal
2017. RPM’s net (of cash) debt-to-total capitalization ratio was
54.0%, compared to 58.0% at February 28, 2017 and 54.8% at May 31,
2017.
At February 28, 2018, RPM’s total liquidity, including cash and
long-term committed available credit, was $966.9 million. “We
continue to aggressively pursue acquisitions and reinvest in our
existing businesses,” stated Sullivan.
Business Outlook
“On a consolidated basis in the fourth quarter, we expect RPM to
generate mid-to-upper-single-digit sales growth that will drive
double-digit EBIT growth, reflecting continued tight SG&A
spending controls, despite the challenging higher raw material
environment. Overall, these anticipated results are consistent with
what we communicated back in January,” stated Sullivan.
“As for the performance of our segments in the fourth quarter,
we expect sales growth in our industrial segment in the mid- to
upper-single digits, driven by continued strong performance in our
Tremco Roofing liquid applied products, as well as favorable
foreign currency translation. For our consumer segment, we expect
sales growth in the mid-single-digit range and for the specialty
segment, sales growth in the low-single-digit range,” Sullivan
stated.
The company currently expects its income tax rate to be in the
26% to 27% range in the fourth quarter of fiscal 2018, which
includes the lower U.S. statutory income tax rate. The company
noted its tax rate could change as the IRS continues to issue
guidance on the new tax law.
“We are narrowing our fiscal 2018 earnings guidance upwards to a
range of $3.05 to $3.10 per diluted share from our previous
guidance of $3.00 to $3.10 per diluted share, reflecting our
expectation of a continuation of solid top-line sales and
double-digit EBIT growth,” stated Sullivan.
Webcast and Conference Call Information
Management will host a conference call to discuss these results
beginning at 10:00 a.m. EDT today. The call can be accessed by
dialing 888-771-4371 or 847-585-4405 for international callers.
Participants are asked to call the assigned number approximately 10
minutes before the conference call begins. The call, which will
last approximately one hour, will be open to the public, but only
financial analysts will be permitted to ask questions. The media
and all other participants will be in a listen-only mode.
For those unable to listen to the live call, a replay will be
available from approximately 12:30 p.m. EDT on April 5, 2018
until 11:59 p.m. EDT on April 12, 2018. The replay can be accessed
by dialing 888-843-7419 or 630-652-3042 for international callers.
The access code is 46126364. The call also will be available both
live and for replay, and as a written transcript, via the RPM web
site at www.RPMinc.com.
About RPM
RPM International Inc. owns subsidiaries that are world leaders
in specialty coatings, sealants, building materials and related
services across three segments. RPM’s industrial products include
roofing systems, sealants, corrosion control coatings, flooring
coatings and other construction chemicals. Industrial companies
include Stonhard, Tremco, illbruck, Carboline, Flowcrete, Euclid
Chemical and RPM Belgium Vandex. RPM's consumer products 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’s specialty products
include industrial cleaners, colorants, exterior finishes,
specialty OEM coatings, edible coatings, restoration services
equipment and specialty glazes for the pharmaceutical and food
industries. Specialty segment companies include Day-Glo, Dryvit,
RPM Wood Finishes, Mantrose-Haeuser, Legend Brands, Kop-Coat and
TCI. Additional details can be found at www.rpminc.com and by
following RPM on Twitter at www.twitter.com/RPMintl.
For more information, contact Barry M. Slifstein, vice president
– investor relations, at 330-273-5090 or bslifstein@rpminc.com.
Use of Non-GAAP Financial Information
To supplement the financial information presented in accordance
with Generally Accepted Accounting Principles in the United States
(“GAAP”) in this earnings release, we use EBIT, a non-GAAP
financial measure. EBIT is defined as earnings (loss) before
interest and taxes. We evaluate the profit performance of our
segments based on income before income taxes, but also look to EBIT
as a performance evaluation measure because interest expense is
essentially related to acquisitions, as opposed to segment
operations. For that reason, we believe EBIT is also useful to
investors as a metric in their investment decisions. EBIT should
not be considered an alternative to, or more meaningful than,
income before income taxes as determined in accordance with GAAP,
since EBIT omits the impact of interest in determining operating
performance, which represent items necessary to our continued
operations, given our level of indebtedness. Nonetheless, EBIT is a
key measure expected by and useful to our fixed income investors,
rating agencies and the banking community all of whom believe, and
we concur, that this measure is critical to the capital markets'
analysis of our segments' core operating performance. We also
evaluate EBIT because it is clear that movements in EBIT impact our
ability to attract financing. Our underwriters and bankers
consistently require inclusion of this measure in offering
memoranda in conjunction with any debt underwriting or bank
financing. EBIT may not be indicative of our historical operating
results, nor is it meant to be predictive of potential future
results. See the financial statement section of this earnings
release for a reconciliation of EBIT to income before income
taxes.
Forward-Looking Statements
This press release contains “forward-looking statements”
relating to our business. These forward-looking statements, or
other statements made by us, are made based on our expectations and
beliefs concerning future events impacting us, and are subject to
uncertainties and factors (including those specified below) which
are difficult to predict and, in many instances, are beyond our
control. As a result, our actual results could differ materially
from those expressed in or implied by any such forward-looking
statements. These uncertainties and factors include (a) global
markets and general economic conditions, including uncertainties
surrounding the volatility in financial markets, the availability
of capital and the effect of changes in interest rates, and the
viability of banks and other financial institutions; (b) the
prices, supply and capacity of raw materials, including assorted
pigments, resins, solvents and other natural gas- and oil-based
materials; packaging, including plastic containers; and
transportation services, including fuel surcharges; (c) continued
growth in demand for our products; (d) legal, environmental and
litigation risks inherent in our construction and chemicals
businesses and risks related to the adequacy of our insurance
coverage for such matters; (e) the effect of changes in interest
rates; (f) the effect of fluctuations in currency exchange rates
upon our foreign operations; (g) the effect of non-currency risks
of investing in and conducting operations in foreign countries,
including those relating to domestic and international political,
social, economic and regulatory factors; (h) risks and
uncertainties associated with our ongoing acquisition and
divestiture activities; (i) risks related to the adequacy of our
contingent liability reserves; and (j) other risks detailed in our
filings with the Securities and Exchange Commission, including the
risk factors set forth in our Annual Report on Form 10-K for the
year ended May 31, 2017, as the same may be updated from
time to time. We do not undertake any obligation to publicly update
or revise any forward-looking statements to reflect future events,
information or circumstances that arise after the date of this
release.
CONSOLIDATED STATEMENTS OF
INCOME IN THOUSANDS, EXCEPT PER SHARE DATA (Unaudited)
Three
Months Ended Nine Months Ended February 28,
February 28, 2018 2017 2018 2017
Net Sales $ 1,102,677 $ 1,022,496 $ 3,763,487 $
3,465,329 Cost of sales 663,184 593,923
2,200,971 1,963,033 Gross profit
439,493 428,573 1,562,516 1,502,296 Selling, general &
administrative expenses 382,972 386,032 1,196,980 1,189,611
Goodwill and other intangible asset impairments 4,900 193,198
Interest expense 27,459 23,769 80,628 69,452 Investment (income),
net (5,471 ) (3,627 ) (13,663 ) (9,881 ) Other (income) expense,
net (165 ) 502 (592 ) 1,301
Income before income taxes 34,698 16,997 299,163 58,615
(Benefit) provision for income taxes (5,890 ) 4,313
45,814 2,793
Net income
40,588 12,684 253,349 55,822 Less: Net income attributable to
noncontrolling interests 361 756
1,243 2,051
Net income attributable
to RPM International Inc. Stockholders $ 40,227 $ 11,928
$ 252,106 $ 53,771
Earnings per
share of common stock attributable to RPM International Inc.
Stockholders: Basic $ 0.30 $ 0.09 $ 1.90
$ 0.41
Diluted $ 0.30 $ 0.09 $
1.87 $ 0.41 Average shares of common stock
outstanding - basic 131,178 130,677
131,195 130,657 Average shares of
common stock outstanding - diluted 131,178
130,677 135,657 130,657
SUPPLEMENTAL SEGMENT
INFORMATION IN THOUSANDS (Unaudited)
Three Months Ended
Nine Months Ended February 28, February 28,
2018 2017 2018 2017 Net Sales:
Industrial Segment $ 569,210 $ 521,403 $ 2,001,883 $ 1,830,672
Consumer Segment 363,370 341,434 1,205,945 1,115,095 Specialty
Segment 170,097 159,659 555,659
519,562
Total $ 1,102,677 $
1,022,496 $ 3,763,487 $ 3,465,329
Income Before Income Taxes: Industrial Segment Income Before
Income Taxes (a) $ 17,804 $ 11,705 $ 174,402 $ 151,262 Interest
(Expense), Net (b) (2,505 ) (2,929 ) (7,572 )
(6,672 ) EBIT (c) 20,309 14,634 181,974 157,934 Charge to
exit Flowcrete Middle East (d) 12,275
Adjusted EBIT $ 20,309 $ 14,634 $ 181,974
$ 170,209 Consumer Segment Income (Loss)
Before Income Taxes (a) $ 29,123 $ 29,802 $ 146,576 $ (40,685 )
Interest (Expense), Net (b) (154 ) (92 ) (493
) (114 ) EBIT (c) 29,277 29,894 147,069 (40,571 ) Goodwill
and other intangible asset impairments (e)
188,298 Adjusted EBIT $ 29,277 $ 29,894
$ 147,069 $ 147,727 Specialty Segment Income
Before Income Taxes (a) $ 22,792 $ 15,000 $ 90,398 $ 76,664
Interest Income, Net (b) 86 116
284 406 EBIT (c) $ 22,706 $ 14,884
$ 90,114 $ 76,258 Corporate/Other
(Expense) Before Income Taxes (a) $ (35,021 ) $ (39,510 ) $
(112,213 ) $ (128,626 ) Interest (Expense), Net (b) (19,415
) (17,237 ) (59,184 ) (53,191 ) EBIT (c) $
(15,606 ) $ (22,273 ) $ (53,029 ) $ (75,435 )
Consolidated Income Before Income Taxes (a) $ 34,698 $
16,997 $ 299,163 $ 58,615 Interest (Expense), Net (b)
(21,988 ) (20,142 ) (66,965 ) (59,571 ) EBIT
(c) 56,686 37,139 366,128 118,186 Charge to exit Flowcrete Middle
East (d) 12,275 Goodwill and other intangible asset impairments (e)
188,298 Adjusted EBIT $ 56,686
$ 37,139 $ 366,128 $ 318,759 (a)
The presentation includes a reconciliation of Income (Loss)
Before Income Taxes, a measure defined by Generally Accepted
Accounting Principles in the United States (GAAP), to EBIT. (b)
Interest income (expense), net includes the combination of interest
income (expense) and investment income (expense), net. (c)
EBIT is defined as earnings (loss) before
interest and taxes. We evaluate the profit performance
of our segments based on income before income taxes, but also look
to EBIT as a performance evaluation measure because interest
expense is essentially related to acquisitions, as opposed to
segment operations. For that reason, we believe EBIT is
also useful to investors as a metric in their investment decisions.
EBIT should not be considered an alternative to, or more meaningful
than, income before income taxes as determined in accordance with
GAAP, since EBIT omits the impact of interest in determining
operating performance, which represent items necessary to our
continued operations, given our level of
indebtedness. Nonetheless, EBIT is a key measure
expected by and useful to our fixed income investors, rating
agencies and the banking community all of whom believe, and we
concur, that this measure is critical to the capital markets'
analysis of our segments' core operating performance. We
also evaluate EBIT because it is clear that movements in EBIT
impact our ability to attract financing. Our
underwriters and bankers consistently require inclusion of this
measure in offering memoranda in conjunction with any debt
underwriting or bank financing. EBIT may not be
indicative of our historical operating results, nor is it meant to
be predictive of potential future results.
(d) Reflects the charges related to Flowcrete decision to exit the
Middle East. (e) Reflects the impact of goodwill and other
intangible asset impairment charges of $188.3 million related to
our Kirker reporting unit.
CONSOLIDATED BALANCE SHEETS IN THOUSANDS (Unaudited)
February 28, 2018 February 28, 2017 May 31,
2017 Assets Current Assets Cash and cash
equivalents $ 264,386 $ 210,796 $ 350,497 Trade accounts receivable
926,539 829,632 1,039,468 Allowance for doubtful accounts
(42,244)
(41,357)
(44,138)
Net trade accounts receivable 884,295 788,275 995,330 Inventories
930,594 856,461 788,197 Prepaid expenses and other current assets
278,069 224,347 263,412
Total current assets 2,357,344
2,079,879 2,397,436
Property, Plant
and Equipment, at Cost 1,570,597 1,433,413 1,484,579 Allowance
for depreciation (797,610 ) (731,279 )
(741,893 )
Property, plant and equipment, net 772,987
702,134 742,686
Other
Assets Goodwill 1,185,890 1,133,013 1,143,913 Other intangible
assets, net of amortization 577,861 579,237 573,092 Deferred income
taxes, non-current 21,042 25,872 19,793 Other 220,801
212,084 213,529
Total other
assets 2,005,594 1,950,206
1,950,327
Total Assets $ 5,135,925 $
4,732,219 $ 5,090,449
Liabilities and
Stockholders' Equity Current Liabilities Accounts
payable $ 433,372 $ 417,730 $ 534,718 Current portion of long-term
debt 3,767 383,980 253,645 Accrued compensation and benefits
139,243 133,588 181,084 Accrued losses 21,107 37,123 31,735 Other
accrued liabilities 324,624 258,102
234,212
Total current liabilities
922,113 1,230,523 1,235,394
Long-Term Liabilities Long-term debt, less current
maturities 2,179,658 1,597,553 1,836,437 Other long-term
liabilities 334,913 569,859 482,491 Deferred income taxes
63,219 48,557 97,427
Total
long-term liabilities 2,577,790 2,215,969
2,416,355
Total liabilities
3,499,903 3,446,492 3,651,749
Commitments and contingencies
Stockholders' Equity Preferred
stock; none issued Common stock (outstanding 133,730; 133,583;
133,563) 1,337 1,336 1,336 Paid-in capital 972,187 946,955 954,491
Treasury stock, at cost (233,288 ) (216,366 ) (218,222 )
Accumulated other comprehensive (loss) (405,734 ) (533,165 )
(473,986 ) Retained earnings 1,298,876
1,084,462 1,172,442
Total RPM International
Inc. stockholders' equity 1,633,378 1,283,222 1,436,061
Noncontrolling interest 2,644 2,505
2,639
Total equity 1,636,022
1,285,727 1,438,700
Total
Liabilities and Stockholders' Equity $ 5,135,925 $
4,732,219 $ 5,090,449
CONSOLIDATED STATEMENTS OF CASH FLOWS IN THOUSANDS
(Unaudited)
Nine Months Ended
February 28,
2018 2017 Cash Flows From Operating
Activities: Net income $ 253,349 $ 55,822 Adjustments to
reconcile net income to net cash provided by (used for) operating
activities: Depreciation 61,078 53,343 Amortization 35,123 33,497
Goodwill and other intangible asset impairments 193,198 Deferred
income taxes (42,885 ) (26,996 ) Stock-based compensation expense
17,698 25,005 Other non-cash interest expense 4,275 7,149 Realized
(gain) on sales of marketable securities (6,833 ) (5,338 ) Other
(71 ) 136 Changes in assets and liabilities, net of effect from
purchases and sales of businesses: Decrease in receivables 138,942
190,423 (Increase) in inventory (121,095 ) (143,409 ) Decrease
(increase) in prepaid expenses and other current and long-term
assets 14,307 (26,698 ) (Decrease) in accounts payable (112,888 )
(95,727 ) (Decrease) in accrued compensation and benefits (45,873 )
(50,425 ) (Decrease) increase in accrued losses (11,001 ) 2,247
(Decrease) in other accrued liabilities (42,895 ) (35,135 ) Other
(483 ) (3,613 ) Cash Provided By Operating Activities
140,748 173,479
Cash Flows From
Investing Activities: Capital expenditures (72,769 ) (80,110 )
Acquisition of businesses, net of cash acquired (59,991 ) (246,874
) Purchase of marketable securities (139,641 ) (36,418 ) Proceeds
from sales of marketable securities 97,624 36,696 Other
6,766 1,493 Cash (Used For) Investing
Activities (168,011 ) (325,213 )
Cash Flows From
Financing Activities: Additions to long-term and short-term
debt 340,106 422,521 Reductions of long-term and short-term debt
(264,051 ) (78,654 ) Cash dividends (125,672 ) (116,680 ) Shares of
common stock repurchased and returned for taxes (15,065 ) (20,092 )
Payments of acquisition-related contingent consideration (3,825 )
(4,206 ) Payments for 524(g) trust (102,500 ) Other (1,911 )
(2,009 ) Cash (Used For) Provided By Financing Activities
(70,418 ) 98,380
Effect of Exchange
Rate Changes on Cash and Cash Equivalents 11,570
(1,002 )
Net Change in Cash and Cash
Equivalents (86,111 ) (54,356 )
Cash and Cash
Equivalents at Beginning of Period 350,497
265,152
Cash and Cash Equivalents at End of
Period $ 264,386 $ 210,796
View source
version on businesswire.com: https://www.businesswire.com/news/home/20180405005300/en/
RPM International Inc.Barry M. Slifstein, 330-273-5090vice
president – investor relationsbslifstein@rpminc.com.
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