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RPM International (RPM) Up 5.4% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for RPM International (RPM). Shares have added about 5.4% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is RPM International due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

RPM International Q4 Earnings Beat Estimates, Fall Y/Y

RPM International Inc. reported mixed fourth-quarter fiscal 2020 results, wherein earnings beat the Zacks Consensus Estimate, while revenues missed the same. However, both the metrics declined on a year-over-year basis.

Earnings & Revenue Discussion

The company reported adjusted earnings of $1.13 per share, beating the consensus mark of $1.01 by 11.9%. However, the reported figure declined 8.9% from the year-ago $1.24 per share.

Quarterly net revenues of $1,458.9 million missed the consensus mark of $1,493 million by 2.3% The top line also declined 8.9% year over year primarily because of temporary store closures owing to strict COVID-19 protocols. Also, interruptions in manufacturing and distribution operations as well as maintenance, repair and construction activities led to the downside. Adjusted EBIT fell 11.5% from the prior year to $213.6 million.

Segment Details

Construction Products Group (contributing 32.4% to fiscal fourth-quarter net sales): During the fiscal fourth quarter, sales at the segment declined 15.6% year over year to $472.4 million from $559.6 million reported in the year-ago quarter. The decline was primarily due to a 13.9% fall in organic sales and 2.4% impact of unfavorable foreign currency. However, a contribution of 0.7% from acquisitions partially offset the negatives. Although the segment fared comparatively well in the United States, International business was hampered significantly due to currency headwinds. Adjusted EBIT came in at $77.3 million, indicating a decline of 12.1% from $87.9 million reported in the year-ago quarter.

Performance Coatings Group (16.1%): Segment sales fell 20.2% from a year ago to $235.1 million, owing to a 18.3% drop in organic sales and 2% impact of unfavorable foreign currency. However, a contribution of 0.2% from acquisitions partially made up for the negatives. The downside can be primarily attributed to limited access to contractor facilities to contain the spread of coronavirus. Adjusted EBIT came in at $23.7 million, indicating a decline of 31.9% from $34.7 million reported in the year-ago quarter.

Consumer Group (42.2%): Sales of $616.2 million at the segment increased 6.7% from the prior-year period, backed by 7.7% organic growth. However, foreign currency translation impacted sales unfavorably by 1%. Adjusted EBIT came in at $104.5 million, indicating a decline of 4% from $108.8 million reported in the year-ago quarter. Notably, temporary shutdown of stores due to stricter lockdown orders negatively impacted the segment in the international markets.

Specialty Products Group (9.3%): The segment’s sales totaled $135.2 million, which declined 20.3% on a year-over-year basis, owing to a 23.1% fall in organic sales and 0.8% foreign currency impact. However, contribution of 3.6% from acquisitions partially offset the negatives. The dismal performance is primarily attributed to the sluggish environment in the OEM markets owing to the pandemic. Notably, Adjusted EBIT came in at $7.3 million, indicating a decline of 72% from $26.2 million reported in the year-ago quarter.

Balance Sheet

As of May 31, 2020, RPM’s cash and cash equivalents amounted to $233.4 million compared with $223.2 million as on May 31, 2019. Long-term debt (excluding current maturities) at the end of the fiscal fourth quarter totaled $2.46 billion compared with $1.97 billion recorded in the year-ago period. At the end of the fiscal fourth quarter, cash provided by operations totaled $549.9 million compared with $292.9 million in the year-ago period.

Fiscal 2020 Highlights

Net sales totaled $5.51 billion, down 1% from fiscal 2019 due to a 0.8% decline in organic sales and 1.3% impact of foreign currency translation. Fiscal 2020 adjusted EPS increased 13.3% to $3.07 from $2.71 a year ago. EBIT for fiscal 2020 was reported at $499 million, up 13% from $441.5 million reported last year. Fiscal 2020 adjusted EBIT was up 9.3% year over year.

2021 Outlook

After easing of lockdown restrictions, for the first quarter of fiscal 2021, RPM anticipates net sales growth in low single digits, while adjusted EBIT growth is expected at approximately 20%.

For fiscal 2021, the company anticipates Construction Products Group and Performance Coatings Group sales decline for the first three quarters and then growth in the fourth quarter. The Specialty Products Group is expected to face negative sales comparisons in the first two quarters, while Consumer Group is likely to continue its sales momentum.

RPM chairman and CEO Frank C. Sullivan, stated, “We remain laser-focused on advancing our MAP to Growth program and managing our businesses to drive efficiency. We continue to identify numerous opportunities for self-improvement and remain on track to reach our targeted $290 million in annualized savings over the course of the program.”

However, due to the uncertainty regarding the duration and severity of the pandemic, the company is not providing any earnings guidance for fiscal 2021.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 37.12% due to these changes.

VGM Scores

At this time, RPM International has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, RPM International has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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