A month has gone by since the last earnings report for RPM International (RPM). Shares have added about 7.5% 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 Beat, Revenues Miss Estimates, Margins Down
RPM International Inc. reported mixed results in first-quarter fiscal 2020, wherein earnings surpassed the Zacks Consensus Estimate but revenues missed the same. Nonetheless, both the top and bottom lines improved on a year-over-year basis on the back of plant rationalization, manufacturing improvements and center-led procurement initiatives of its 2020 MAP to Growth operating improvement plan.
The company reported adjusted earnings of 95 cents per share, beating the consensus mark of 91 cents by 4.4%. The reported figure also increased 25% year over year, backed by its 2020 MAP to Growth operating improvement plan.
Sales & Operating Highlights
Net sales of $1.47 billion missed the consensus mark of $1.49 billion by 1.3%. Nonetheless, the said figure increased slightly from the prior-year figure of $1.46 billion. The improvement is attributed to 2.3% contribution from acquisitions. However, foreign currency headwinds resulted in sales decline of 1.3% from the year-ago quarter. Gross margin increased 140 basis points (bps) year over year to 39% during the quarter. Adjusted earnings before interest and taxes (EBIT) margin also increased 260 bps year over year.
Construction Products Group (contributing 36.4% to net sales): Sales in the segment increased 3.6% from a year ago to $536.1 million on the back of 0.7% organic growth and 4.4% contribution from acquisitions, partially offset by a 1.5% foreign currency impact. Adjusted EBIT totaled $86.9 million, up 23.1% from the year-ago period.
Performance Coatings Group (20.2%): Segment sales improved marginally to $297.2 million from $296.4 million a year ago, owing to 0.4% organic sales growth. Although acquisitions contributed 1.8% to sales growth, the metric declined 1.9% from the year-ago quarter due to foreign currency translation. Solid execution of its 2020 MAP to Growth plan, driven by a reduction of operational footprint and strategic decisions to exit low-margin businesses, supported the results. Also, reorganization and management delayering added to the positives. Notably, the segment’s adjusted EBIT increased 31% on a year-over-year basis to $36.9 million.
Consumer Group (32.5%): Sales of $479.3 million in the segment increased 0.4% from the prior-year period, backed by 1.3% contribution from acquisitions and 0.1% organic growth. However, foreign currency translation impacted sales by 1%. The segment’s adjusted EBIT totaled $61.7 million, up 18.6% from the prior year.
Specialty Products Group (10.9%): Segment’s sales totaled $160.1 million, which declined 5.1% on a year-over-year basis, owing to a 4.3% fall in organic sales and 0.8% foreign currency impact. The downside was mainly due to lower demand in OEM, manufacturing and international markets served by the company. Nonetheless, adjusted EBIT was up 8.5% year over year on the back of good cost discipline, manufacturing yield improvements and restructuring activities.
As of Aug 31, 2019, RPM had cash and cash equivalents of $212.1 million compared with $202.2 million a year ago and $223.2 million at fiscal 2019-end. Long-term debt (excluding current maturities) at the end of the fiscal first quarter was $2.02 billion compared with $2.27 billion in the comparable prior-year quarter and $1.97 billion at fiscal 2019-end. In the first three months of the fiscal year, cash from operations was $145.1 million compared with $7.1 million cash used in operations in the comparable year-ago period.
RPM anticipates fiscal 2020 revenue growth to be relatively modest, mainly due to global macroeconomic factors. It believes that sales growth will drive strong leverage to earnings, backed by operating improvement initiatives and fiscal 2019 price increases. Raw material cost inflation is likely to be moderate.
For fiscal second-quarter 2020, the company expects to generate revenue growth of 2-3%. It also expects to witness 20-24% adjusted EBIT growth and adjusted earnings within low- to mid-70-cent range. The Zacks Consensus Estimate for the fiscal second quarter is currently pegged at 91 cents.
Notably, fiscal third quarter is a seasonally weak quarter as painting and construction activity slow down due to cold and snowy weather. Fiscal fourth quarter is comparatively stronger as work begins to accelerate on painting and construction projects. Based on these expectations, the company has reaffirmed its projection for fiscal 2020.
For fiscal 2020, it anticipates revenues to be at the lower end of the previously guided range of 2.5-4%. Adjusted EBIT growth is expected in the 20-24% range. Notably, it projects adjusted earnings between $3.30 and $3.42 per share.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -5.94% due to these changes.
At this time, RPM International has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. 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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