Here's Why You Should Offload RPM International (RPM) Now
RPM International Inc. RPM is continuously witnessing soft demand in DIY and specialty OEM markets. Also, adverse weather conditions, along with higher costs and expenses related to restructuring, divestitures and labor inflation, are added concerns.
The stock has gained 4.9% in the past three months compared with the Zacks Paints and Related Products industry’s 8.9% growth. The company’s earnings estimates for fiscal 2024 has moved south to $4.97 per share from $4.98 in the past 30 days.
Let’s check out the impacting factors of this performance coatings, sealants and specialty chemicals producer.
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Inflationary Pressures Persist
RPM’s business has been witnessing higher costs and expenses related to restructuring, acquisitions, labor, distribution and freight. Also, persistent supply chain disruptions and acquisitions-related expenses are raising a concern. RPM International incurred $7.7 million of restructuring during the first six months of fiscal 2024 compared with $2.6 million in the year-ago comparable period.
The company expects to complete most MAP 2025 activities by the end of fiscal 2025. It also expects to incur $31.8 million in additional future expenditures related to MAP 2025 implementation, thanks to an increase in expected severance and benefit charges of $1 million and expected facility closure accompanied by other related costs of $15.5 million. The company expects wage inflation to continue into early fiscal 2024.
About 31.2% of RPM International’s net sales in second-quarter fiscal 2024 can be attributed to foreign manufacturing operations. A strengthening dollar or any other global economic uncertainty may affect its operating results. In the fiscal second quarter, currency headwinds reduced net sales in the Consumer Group by 0.1%.
Lower Sales Expectation
Due to demand softness in DIY and specialty OEM markets, RPM International has lowered its sales expectation for the fiscal year. The company now expects its fiscal 2024 sales growth in low-single digits compared with the prior expectation of mid-single digits. Also, it expects third-quarter fiscal 2024 sales to be flat year over year.
Inclement Weather & Customer Concentration Hurt
Adverse weather conditions have affected sales of paint, coatings, roofing, construction products and related products. Extreme cold and rainy weather, especially during the general construction and exterior painting season, could have an adverse effect on sales of such products. Historically, the company’s fiscal third quarter (December through February) faces weaker sales and net income compared with other quarters. The inconsistency in weather conditions impacts productivity adversely.
RPM’s Consumer segment faces a substantial amount of customer concentration as it has some large customers, which account for a significant portion of net sales. These customers accounted for approximately 67%, 64% and 65% of segment net sales for fiscal 2023, 2022 and 2021, respectively. Any delay or cancellation of a significant order or any other difficulty in purchasing an order may lead to a significant loss to the company.
Stocks to Consider
Some better-ranked stocks in the same space are:
Advanced Drainage Systems, Inc. WMS currently sports a Zacks Rank #1 (Strong Buy). WMS delivered a trailing four-quarter earnings surprise of a whopping 37.1%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Advanced Drainage Systems’ 2024 earnings per share (EPS) has increased to $6.19 from $5.88 over the past 30 days.
Knife River Corporation KNF, a Zacks Rank #1 company, has seen an upward estimate revision for 2024 EPS to $3.50 from $3.33 over the past 60 days.
KNF’s earnings surpassed the Zacks Consensus Estimate in the last reported quarter by 80%.
Armstrong World Industries, Inc. AWI currently sports a Zacks Rank of 1. AWI delivered a trailing four-quarter earnings surprise of 13.1%, on average.
The Zacks Consensus Estimate for Armstrong World Industries’ EPS for 2024 has increased to $5.74 from $5.52 over the past 30 days.
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Advanced Drainage Systems, Inc. (WMS) : Free Stock Analysis Report
Armstrong World Industries, Inc. (AWI) : Free Stock Analysis Report
RPM International Inc. (RPM) : Free Stock Analysis Report
Knife River Corporation (KNF) : Free Stock Analysis Report
