Why Is RPM International (RPM) Down 5.6% Since Last Earnings Report?
A month has gone by since the last earnings report for RPM International (RPM). Shares have lost about 5.6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is RPM International due for a breakout? 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 drivers.
RPM International Q4 Earnings & Sales Top
RPM reported decent fourth-quarter fiscal 2023 (ended May 31, 2023) results, with earnings and sales beating the Zacks Consensus Estimate. Despite a year-over-year decline in earnings, the company marked its sixth consecutive quarter of record sales, suggesting an increase.
Although challenging conditions impacted certain end markets, the company's adaptability and diverse business model helped it grow. The company benefited from businesses selling engineered solutions for infrastructure and reshoring-related capital projects.
Inside the Headlines
RPM reported adjusted earnings of $1.36 per share. The figure topped the consensus mark of $1.29 by 5.4%, but declined from the year-ago quarter’s profit of $1.42 per share.
Net sales of $2.02 billion beat the consensus mark of $1.98 billion by 2% and increased 1.6% from the prior year’s level. The uptrend was driven by increased pricing in response to continued inflation and businesses that are benefiting from increased spending on infrastructure and reshoring capital projects.
Demand was strong in the North American and Latin American markets, increasing 1.4% and 9.3%, respectively. Demand was also strong in the Asia/Pacific, African and the Middle East markets, increasing 17.5% and 7.9%, respectively, driven by higher spending on infrastructure projects. Yet, the European market was weak (down 1.9%) due to high inflation and other macroeconomic headwinds.
Organic sales contributed 2.6% and acquisitions added 0.4% to total sales growth, partially offset by 1.4% in currency headwinds.
Adjusted EBIT increased 1.5% year over year to $267.8 million, marking its sixth consecutive quarter of record adjusted EBIT, owing to strong sales and MAP 2025 savings. Also, the Consumer Group’s margin recovery toward historical average contributed to growth.
Segmental Details
Construction Products Group (CPG): In the reported quarter, segment sales increased 0.3% from a year ago levels to $748 million, owing to a 0.8% organic growth and 1% contribution from buyouts. The uptrend can be attributed to higher pricing and strength in concrete admixtures and repair products.
Also, higher demand from infrastructure and reshoring-related projects added to the positives. Foreign currency translation dented sales by 1.5%. Adjusted EBIT of $124.5 million was up 1.7% year over year due to increased price and MAP 2025 initiatives, partially offset by reduced fixed-cost leverage at plants from lower volumes. Also, internal initiatives to normalize inventories resulted in reduced production.
Performance Coatings Group (PCG): Segment sales increased 8.8% year over year to $358.4 million, owing to a 10.4% rise in organic sales and 0.9% from acquisitions. Foreign currency translation reduced sales by 2.5%. The upside was driven by volume growth in businesses that serve engineered solutions such as fiberglass grating, protective coatings and flooring systems gained from markets like construction, which are benefiting from reshoring and infrastructure-related spending.
Also, increased pricing and stronger demand from energy-related capital projects added to its growth. Adjusted EBIT increased 21.5% on a year-over-year basis to $51.7 million.
Consumer Group: Sales in the segment grew 4.9% year over year to $716.4 million, owing to an 5.6% contribution from organic sales and 0.3% from the acquisition. Yet, unfavorable foreign currency translation impacted sales by 1%. The upside was driven by increased selling price to catch up with continued cost inflation. The segment’s adjusted EBIT rose 30.4% from the prior year’s level to $104.7 million, driven by MAP 2025 operational initiatives and strong sales.
Specialty Products Group (SPG): The segment’s sales totaled $193.4 million, down 14.3% on a year-over-year basis owing to a 12% decline in organic sales. Also, unfavorable foreign currency translation and divestitures net of acquisitions reduced sales by 0.5% and 1.8%, respectively. Lower volumes at businesses supplying OEM markets, including windows, doors, furniture, cabinets and RVs, negatively impacted the results of SPG.
Adjusted EBIT for the quarter totaled $16.3 million, down 63.1% from the prior year’s level. The decline in sales, product mix, a $3.4 million legal expense, and reduced production affected Adjusted EBIT. Unfavorable fixed-cost leverage at plants contributed to this impact due to reduced volumes and inventory normalization initiatives.
Balance Sheet
As of May 31, 2023, RPM International had total liquidity of $1.03 billion. This includes cash and cash equivalents of $215.8 million compared with $201.7 million at fiscal 2022-end.
Long-term debt (excluding current maturities) at the quarter-end was $2.68 billion compared with $2.69 billion at fiscal 2022-end. Cash provided by operations amounted to $577.1 million for the fiscal 2023, up from $178.7 million in the year-ago period.
Fiscal 2023 Highlights
For the fiscal 2023, RPM reported adjusted earnings of $4.30 per share, up 17.5% from $1.42 per share reported in fiscal 2022.
Net sales of $7.26 billion increased 8.2% compared with $6.71 billion reported in prior year.
Adjusted EBIT for fiscal 2023 increased 18.8% year-over-year to a record $841.6 million.
In fiscal 2023, capital expenditures were $254.4 million compared to $222.4 million in fiscal 2022, driven by organic growth opportunities and MAP 2025 efficiency programs.
During the fiscal year, the company returned $263.9 million to stockholders through cash dividends and share repurchases.
Fiscal 2024 Outlook
RPM expects first-quarter sales to grow in the low-single digit and adjusted EBIT growth in the high-single digits.
For fiscal 2024, the company expects sales growth of mid-single digits and adjusted EBIT growth of low-double-digits to mid-teens.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month.
The consensus estimate has shifted 13.52% due to these changes.
VGM Scores
Currently, RPM International has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% 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.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions 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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