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Why Is RPM International (RPM) Down 3.5% Since Last Earnings Report?

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·7 min read
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A month has gone by since the last earnings report for RPM International (RPM). Shares have lost about 3.5% 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 (RPM) Q2 Earnings & Sales Top Estimates

RPM International Inc. (RPM) reported better-than-expected results for second-quarter fiscal 2021 (ended November 2020). Its top and bottom lines not only surpassed the Zacks Consensus Estimate but also improved 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 International reported adjusted earnings of $1.06 per share, which beat the consensus mark of $1.00 by 6% and increased an impressive 39.5% from the year-ago figure of 76 cents.

Net sales of $1,486 million surpassed the consensus mark of $1,460 million by 1.8% and rose 6% from the prior-year level of $1,401.3 million. The upside was led by 3.5% organic sales growth. Acquisitions contributed 2.3% to net sales growth. Strong contributions from Consumer Group and Specialty Products segments were partially offset by softness in Performance Coatings Group.

Adjusted EBIT for the reported quarter increased 29.7% year over year to $199.3 million.

Segmental Details

Construction Products Group: Sales in the segment increased 0.8% from a year ago to $503.5 million, backed by 1.2% organic growth, partially offset by a 0.4% foreign currency impact. Growth in Construction Products Group was largely due to the execution of the MAP to Growth program, aggressive cost cuts and proactive management to improve its product mix despite softness in the commercial and institutional construction markets in North America and Europe Also, the segment remained focused on renovation and restoration projects, which expanded its market share with industry-leading construction technologies. Adjusted EBIT was $78.5 million, up 26.8% year over year.

Performance Coatings Group: Segment sales decreased 11.6% from a year ago to $258.8 million, owing to a 12.2% organic sales decline. Nonetheless, favorable foreign currency translation of 0.4% and acquisitions of 0.2% contributed to sales. Limited access to outside contractors within facilities and construction sites as well as poor energy market conditions, which resulted in deferred industrial maintenance spending, ailed the segment.

Nonetheless, MAP to Growth savings and cost-reduction plans partly offset the loss. Also, the segment started to benefit during the post-pandemic period, with customers catching up on projects deferred during the end of fiscal 2020. Adjusted EBIT decreased 24.2% on a year-over-year basis to $28 million.

Consumer Group: Sales of $547.5 million in the segment improved 21.4% from the prior-year period, backed by 15.2% organic growth. Acquisitions contributed 5.8% to sales and foreign currency translation positively impacted sales by 0.4%. The upside was led by higher demand, owing to broad distribution and market-leading position as consumers are more homebound because of the pandemic. Additionally, brisk cleaning product sales, favorable translational foreign exchange and the recent acquisition of Ali Industries benefitted the top line. The segment’s adjusted EBIT totaled $90.7 million, up a notable 65.8% from the prior-year level of $54.7 million. The bottom line benefited from increasing sales volume, MAP to Growth savings, and stable cost of raw materials.

Specialty Products Group: The segment’s sales totaled $176.1 million, which increased 11.3% on a year-over-year basis, owing to a 6.6% rise in organic sales. Contribution of 3.8% from acquisitions and 0.9% from favorable foreign currency translation were also added to the positives. Sales growth was attributable to increased hurricane and wildfire activity, higher demand for water restoration equipment, and fluorescent pigments, which are used in fire retardant tracer dyes.

Moreover, strong demand for disinfectants, air-purification equipment and HEPA filters added to the positives. Owing to the increased demand for industrial wood-protection products, the company expanded sales of the forestry chemicals business in Australia and New Zealand. Adjusted EBIT totaled $29.6 million, up 27.7 % year over year.

Balance Sheet

As of Nov 30, 2020, RPM International had cash and cash equivalents of $272.9 million compared with $208.1 million a year ago and $233.4 million at the fiscal 2020-end. Long-term debt (excluding current maturities) at the quarter-end was $2.22 billion compared with $2.42 billion in the prior-year period and $2.46 billion at the fiscal 2020-end. Cash provided by operations was $579.5 million for the first six months of fiscal 2021 compared with $300.2 million in the year-ago period.

Q3 Guidance

For the fiscal third quarter, RPM International anticipates net sales growth in mid-single digits and adjusted EBIT growth of more than 30%. Excellent momentum in the MAP to Growth program and the Ali acquisition (excluding acquisition-related costs) will likely contribute to fiscal third-quarter results.

The company anticipates Construction Products Group sales to be flat to negative for third-quarter fiscal 2021, as it focuses on building restoration, renovation and innovation to outperform its peers in a challenging construction market.

It expects sales in the Performance Coatings Group to continue to decline in the fiscal third quarter, which serves the most challenging end markets.

The Specialty Products Group is expected to witness positive sales growth in the fiscal third quarter, driven by new management, improved business development initiatives and a recovering OEM customer base.

Consumer Group’s sales momentum is likely to continue its double-digit sales growth, owing to the expectation related to the recent acquisition of Ali Industries that is performing better than expected.

The company expects sales in all four segments to increase in the fourth quarter of fiscal 2021 from the year-ago reported figure due to an easier comparison.,

The company ensures to continue its cost-saving initiatives and operational improvements into fiscal 2022, which go beyond the end of the MAP to Growth program.

Notably, RPM International 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?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 5.36% due to these changes.

VGM Scores

At this time, RPM International has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. 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.

Outlook

Estimates have been broadly 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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