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MAP 2025 Growth Move Aids RPM International (RPM), Costs Ail

RPM International Inc. RPM has been riding high on its strategically balanced business model. Its focus on MAP 2025 (Margin Achievement Plan) operational improvement initiative and bolt-on acquisitions are commendable.

Strong industrial maintenance activity and accelerated in-house resin production add to the positive. The stock has returned 8.9% in the past year against the Zacks Paints and Related Products industry’s 21.3% fall. The company performed pretty well in the past few quarters. It topped analysts’ expectations in 12 of the trailing 14 quarters.

Again, it is expected to witness growth in the next quarter and this year. This Zacks Rank #3 (Hold) company’s profitability is likely to remain intact, thanks to its focus on market opportunities and industry trends, like rebounding restoration and energy markets. Increased investment in growth initiatives and manufacturing capacity, price increases to offset cost woes and Consumer Group turnaround bode well.

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Zacks Investment Research


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However, RPM is continuously witnessing raw material, freight and wage inflation, supply chain disruption, higher interest rates and currency headwinds and Russia-Ukraine war impacts.

Let’s check out the influencing factors of this performance coatings, sealants and specialty chemicals producer. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Focus on MAP 2025: After completing the 2020 Margin Acceleration Plan or MAP to Growth Plan (launched in fiscal 2018 and formally concluded on May 31, 2021), RPM recently unveiled a MAP 2025 (Margin Achievement Plan) operational improvement initiative.

RPM International expects to accelerate growth, maximize operational efficiencies and generate superior value for its customers, associates and shareholders via MAP 2025. By May 2025 end, RPM projects to achieve $8.5 billion of annual revenues, 42% gross margin and 16% adjusted EBIT margin.

Buyout Synergies: Acquisitions have been an important part of RPM’s growth strategy. During fiscal 2022, the company increased the cash for investment activities by $66.9 million to $259.5 million. During fiscal 2022, the company completed eight acquisitions in three segments. Most notably, it acquired a chemical manufacturing facility in Corsicana, TX, within the CPG segment. Also, it acquired a Clearwater, FL-based indoor air quality solutions provider.

The company made four buyouts in fiscal 2021, three in fiscal 2020, five in fiscal 2019 and seven in fiscal 2018. Acquisitions added 1.4% to net sales in fiscal 2022.

Solid Prospect: RPM International has been performing pretty well. Its adjusted earnings increased 10.9% and net sales rose 13.7% from the prior-year level as all four segments generated record fourth-quarter sales. Adjusted EBIT for the reported quarter also moved up 11.7% from the prior-year period’s levels. Of the four segments, three produced record quarterly adjusted EBIT driven by pricing adjustments and operational efficiencies.

For first-quarter fiscal 2023, RPM International expects total net sales to increase in the mid-teens. The company also expects sales growth in the mid-teens for all its operating segments. Particularly, the Consumer Group is likely to generate the highest growth of the four segments, backed by selling price increases, improved alkyd resin supply and investments in operations. Consolidated adjusted EBIT is expected to increase 20-25% year over year.

The Zacks Consensus Estimates for the first quarter and fiscal 2023 suggest 23.2% and 17.2% yearly growth in adjusted earnings, respectively. The same for net sales reflects 14.5% and 7.3% year-over-year growth in the first quarter and fiscal 2023, respectively.

Inflationary Hurdles to Cross

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 incurred $6.3 million and $25.8 million of restructuring and other charges and acquisition-related expenses during fiscal 2022, respectively. Rapidly escalating material costs and insufficient supply of raw materials are compressing margins.

During fiscal 2022, the company incurred $4.27 billion in cost of sales, up 15.5% from the year-ago period. Gross margin declined 310 bps, primarily resulting from these headwinds. For the first half of fiscal 2023, the company expects raw material inflation to continue impacting its bottom-line performance.

Key Picks

Some better-ranked stocks in the Zacks Construction sector are Arcosa, Inc. ACA, Gibraltar Industries, Inc. ROCK and Primoris Services Corporation PRIM.

Arcosa, currently sporting a Zacks Rank #1, is a manufacturer of infrastructure-related products and services, serving construction, energy and transportation markets.

ACA’s expected earnings growth rate for 2022 is 19.7%. The Zacks Consensus Estimate for current-year earnings has improved 11.1% in the past 30 days.

Gibraltar, currently carrying a Zacks Rank of 2 (Buy), is benefiting from its three-pillar value creation strategy, the strong housing market and solid demand for legacy and TerraSmart businesses.

ROCK’s expected earnings growth rate for 2022 is 19.4%. The Zacks Consensus Estimate for current-year earnings has improved 0.6% in the past 60 days.

Primoris, a Zacks Rank #2 company, is a specialty contractor company operating in the United States and Canada. A robust backlog of more than $4 billion and solid contract awards in the Energy/Renewables and Utilities segments suggest incredible momentum in the future despite supply-chain and permitting challenges. Utility-scale solar projects continued to drive progress in the Energy/Renewables segment.

PRIM’s earnings for 2022 are expected to grow 18.4%. The Zacks Consensus Estimate for current-year earnings rose 4% in the past 60 days.


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