MEDINA, OH - RPM International Inc. announced that the continuing strength of the U.S. dollar against most foreign currencies, coupled with rainy weather in North America, dampened performance for the fiscal 2016 first quarter ended August 31, 2015. Unseasonably wet weather during June and early July had a particularly negative impact on the company's consumer segment. The company anticipates a return to solid growth in the consumer segment for the balance of the year. Additionally, during the first quarter of fiscal 2016, the combination of translational and transactional foreign exchange reduced earnings per diluted share by $0.08. Of note, in local currencies RPM grew at double-digit rates in nearly every region of the world.
Fiscal 2016 first-quarter net sales of $1.24 billion increased 3.2 percent over the $1.20 billion reported a year ago. RPM's consolidated earnings before interest and taxes (EBIT) declined 1.9 percent to $160.6 million from $163.7 million reported in the fiscal 2015 first quarter. First-quarter net income was up 0.7 percent to $99.8 million from $99.1 million in the year-ago period, and diluted earnings per share of $0.74 were up 1.4 percent from $0.73 in the fiscal 2015 first quarter.
During July 2015, RPM's Board of Directors approved the realignment of certain businesses and management structure to recognize how the company allocates resources and analyzes the operating performance of its operating segments. During August 2015, RPM made the determination to combine the former RPM2 industrial operating segment and the former SPHC operating segment into a single operating segment, called the Specialty Products Group. These businesses are characterized by having leading positions in niche markets that typically do not compete with RPM's traditional peers and operate in a multitude of industries including, but not limited to fluorescent pigments, fire and water damage restoration equipment, specialty OEM coatings, and edible coatings for food and pharmaceutical uses. These changes have resulted in the creation of a third reportable segment referred to as the specialty segment. At the end of the first quarter of fiscal 2016, the consumer segment represented 32 percent of consolidated RPM sales, with specialty at 15 percent and industrial at 53 percent.
RPM's consumer segment reported an 8.0 percent decrease in sales to $395.6 million from $430.0 million in the fiscal 2015 first quarter. Organic sales declined 5.4 percent, while acquisition growth contributed 0.4 percent. Foreign currency translation reduced sales by 3.0 percent. Consumer segment EBIT declined 13.8 percent to $66.1 million from $76.7 million in the fiscal 2015 first quarter.
"With the tepid results of the first quarter behind us, principally weather related, the underlying economic fundamentals of our consumer businesses remain strong in the U.S. We expect to gain market share in various categories as the year progresses and believe the weather-related consumer sales shortfall in the first quarter will be picked up in future quarters this year," said Chairman and CEO Frank C. Sullivan.
The company's industrial segment net sales declined 4.5 percent, to $663.3 million from $694.3 million reported a year ago, with 3.7 percent in organic growth, while acquisitions added 0.6 percent. Foreign currency translation reduced sales by 8.8 percent. Industrial segment EBIT declined 4.4 percent to $84.3 million from $88.1 million in the fiscal 2015 first quarter.
"Industrial segment results during the quarter were mixed. Our U.S.-based industrial companies, excluding those with sales into the energy sector, enjoyed mid-single-digit growth, driven by continuing growth in businesses serving the commercial construction market. Industrial businesses in Europe, our second-largest marketplace, had a sales decline of 12.9 percent, but increased 3.3 percent in constant dollars. The comparison in Brazil is even more extreme, where sales were down nearly 21 percent, but were up nearly 16 percent in constant dollars," stated Sullivan.
RPM's new specialty segment had sales growth of 130.7 percent, to $183.6 million from $79.6 million in the fiscal 2015 first quarter. Organic growth contributed 0.6 percent, while acquisition growth contributed 141.7 percent, primarily due to the reconsolidation of SPHC subsidiaries. Foreign currency translation was a negative 11.6 percent. Specialty segment EBIT was up 64.7 percent to $28.0 million from $17.0 million in the fiscal 2015 first quarter.
"Excluding acquisitions, sales in the specialty segment were down 11 percent, principally due to the weakening of the euro versus the U.S. dollar, but sales in constant dollars were fairly flat," stated Sullivan. "We are excited to begin our new fiscal year with the reconsolidated SPHC entrepreneurial companies contributing to a full year of RPM sales and earnings, and benefiting from greater access to capital for expansion or acquisitions," Sullivan stated.
Looking forward, Sullivan noted, "For the industrial segment, representing RPM's largest international exposure, sales are expected to increase in the low-single-digits, as most of its organic growth will be offset by negative foreign currency translation. Although consumer segment sales were down for the quarter, we believe the sales shortfall will be picked up over the next three quarters, and expect sales to grow 5 percent to 7 percent for the balance of fiscal 2016. Specialty segment sales, excluding acquisitions, are expected to grow in the low-to-mid-single-digits in local currencies, all of which will be offset by negative currency translation.”
“Our full-year diluted earnings per share guidance is now $2.50, which reflects the poor weather-driven first-quarter results in the consumer segment, along with continuing negative foreign currency issues," Sullivan stated. "When you factor out the noise created by the strong U.S. dollar, our great entrepreneurial businesses are competing and winning with solid growth in constant dollars in every region of the world."
