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A month has gone by since the last earnings report for RPM International (RPM). Shares have added about 5.5% in that time frame, outperforming 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 Q1 Earnings & Sales Top Estimates, Up Y/Y
RPM International Inc. reported solid results for first-quarter fiscal 2021 (ended Aug 31, 2020). Its top and bottom lines not only surpassed the Zacks Consensus Estimate but also improved significantly from the year-ago period. The uptrend was mainly driven by a strategically balanced business model and the 2020 MAP to Growth initiative.
Inside the Headlines
RPM reported adjusted earnings of $1.44 per share, which beat the consensus mark of $1.21 by 19% and increased an impressive 51.6% from the year-ago figure of 95 cents.
Net sales of $1.61 billion surpassed the consensus mark of $1.49 billion by 7.9% and rose 9.1% from the prior-year level of $1.47 billion. Strong resilience in the Construction Products Group and Consumer Group (RPM’s two largest segments) was partially offset by softness in the Performance Coatings Group as well as Specialty Products Group.
Adjusted EBIT for the reported quarter increased 39.8% year over year to $269.2 million.
Construction Products Group: Sales in the segment increased 2.2% from a year ago to $547.7 million, backed by 3.6% organic growth, partially offset by a 1.4% foreign currency impact. Strong growth in commercial sealants and roofing businesses in North America backed by continued success in restoration and building envelope systems initiatives supported sales. Also, favorable weather conditions and increased orders that were deferred during fiscal fourth-quarter 2020 added to the positives. Adjusted EBIT came in at $102.3 million, up 17.7% year over year.
Performance Coatings Group: Segment sales decreased 12.6% from a year ago to $259.8 million, owing to a 1.6% organic sales decline and 0.7% unfavorable foreign currency translation. However, acquisitions contributed 0.3% to sales growth. Limited access to outside contractors within facilities and construction sites, as well as poor energy market conditions that resulted in deferred industrial maintenance spending ailed the segment. Adjusted EBIT decreased 16.4% on a year-over-year basis to $30.9 million.
Consumer Group: Sales of $641.2 million in the segment improved 33.8% from the prior-year period, backed by 34% organic growth. However, foreign currency translation impacted sales by 0.2%. Spiking DIY demand and favorable weather in the quarter aided the top line. The segment’s adjusted EBIT totaled $136.7 million, up a notable 121.6% from the prior-year level of $61.7 million. The bottom line benefited from volume leveraging, MAP to Growth savings, favorable product mix and moderation in some raw material categories.
Specialty Products Group: The segment’s sales totaled $158 million, which declined 1.3% on a year-over-year basis owing to 5.7% fall in organic sales. Contribution of 4.1% from acquisitions and 0.3% from favorable foreign currency partially offset the negatives. Sales in the segment marginally benefited from favorable market conditions that drove demand for some of its products, including marine coatings, wood coatings and protectants, as well as nail enamels. Adjusted EBIT was down 15.9% year over year.
As of Aug 31, 2020, RPM had cash and cash equivalents of $251.8 million compared with $212.1 million a year ago and $233.4 million at fiscal 2020-end. Long-term debt (excluding current maturities) at quarter-end was $2.30 billion compared with $2.02 billion in the comparable prior-year period and $2.46 billion at fiscal 2020-end. Cash provided by operations was $381.1 million for the first three months of fiscal 2021 compared with $145.1 million in the comparable year-ago period.
For the fiscal second quarter, RPM anticipates net sales improvement in low- to mid-single digits and adjusted EBIT growth to be more than 20%. Excellent momentum in the MAP to Growth program and the Ali acquisition (excluding acquisition-related costs) will contribute to fiscal second-quarter results.
The company anticipates Construction Products Group and Performance Coatings Group sales growth for fourth-quarter fiscal 2021, after two quarters of a decline. The Specialty Products Group is expected to face flat sales comparisons in the fiscal second quarter, but improve in the back half of fiscal 2021. Consumer Group’s sales momentum is likely to continue owing to the expectation of elevated demand for the next few quarters, thanks to strong housing market and new home improvement projects. However, it anticipates certain raw materials, and packaging-related inflation and additional overhead expenses resulting from ongoing investments in capacity to put pressure on the bottom line. Due to uncertainty regarding the impacts of COVID-19 and the upcoming U.S. elections, the company is not providing its earnings guidance for fiscal 2021.
Notably, RPM is on track to achieve the targeted annualized savings run rate of $290 million by the end of the current fiscal year (ending May 31, 2021).
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 12.37% due to these changes.
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 D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise RPM International has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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