MEDINA, OH - RPM International Inc. reported record sales and EBIT for its fiscal 2016 third quarter, which ended February 29, 2016, despite the strong U.S. dollar and overall weakness in many global markets outside the United States.
Net sales grew 4.5 percent to $988.6 million in the fiscal 2016 third quarter from $946.4 million in the fiscal 2015 third quarter. Consolidated earnings before interest and taxes (EBIT) were $42.1 million, up 23.1 percent from $34.2 million a year ago. Net income of $18.6 million in the fiscal 2016 third quarter compares to a reported loss of $57.3 million a year ago. Third-quarter diluted earnings per common share were $0.14, compared to a year-ago reported loss of $0.44.
The year-ago loss for the quarter was due to a one-time, non-cash net charge for a tax accrual related to possible repatriation of overseas earnings to fund future obligations for the company's Specialty Products Holding Corp. (SPHC) bankruptcy settlement. On an as-adjusted basis, earnings per diluted share were $0.20 in the prior year's third quarter, which included a $13.0 million or $0.10 per share tax benefit.
"We were pleased with RPM's performance during our seasonally slow third quarter, considering the headwinds posed by foreign currency translation, which reduced sales by 4.2 percent in the quarter, along with declining economies in a number of the international markets we serve," said Frank C. Sullivan, RPM Chairman and Chief Executive Officer. "We were able to leverage good sales growth into EBIT growth of 23 percent."
Industrial segment sales declined 3.1 percent to $484.0 million from $499.6 million in the fiscal 2015 third quarter. Organic sales improved 2.6 percent, while acquisitions added 0.7 percent. Foreign currency translation negatively impacted sales by 6.4 percent. Industrial segment EBIT for the quarter of $2.1 million, was $6.7 million below last year's EBIT of $8.8 million. During the quarter, the industrial segment had $6.9 million in higher product warranty expenses and severance-related charges across businesses operating in weaker end markets. Excluding these items, industrial EBIT would have been up slightly year over year.
"Results from our industrial segment continue to be mixed by both end markets and geography. Our U.S.-based industrial companies serving the commercial construction markets enjoyed high single-digit growth. However, our businesses with exposure to the global energy sector continue to be down by about 10 percent. Geographically, our Latin American industrial businesses showed strong organic growth in local currencies, while performance by businesses in Europe was somewhat choppy," stated Sullivan.
Third-quarter sales in the company's specialty segment increased 37.5 percent to $165.6 million from $120.4 million a year ago. Organic sales increased 7.5 percent, and acquisitions added 31.5 percent, primarily a result of the inclusion of December's results from SPHC companies that were reconsolidated with RPM at the beginning of the 2015 calendar year, along with the Morrells acquisition in March 2015. Foreign currency translation negatively impacted sales by 1.5 percent. Specialty segment EBIT increased 128.4 percent to $21.4 million from $9.4 million in the fiscal 2015 third quarter.
"Excluding the additional month of SPHC sales for December, our specialty businesses are gaining market share in a broad base of niche markets and performed well in Europe," said Sullivan.
Sales in RPM's consumer segment increased 3.9 percent to $339.0 million from $326.4 million in the fiscal 2015 third quarter. Organic sales increased 4.6 percent, while acquisitions added 1.2 percent. Foreign currency translation negatively impacted sales by 1.9 percent. Consumer segment EBIT increased 10.3 percent to $38.8 million from $35.1 million a year ago.
"In our consumer segment, excluding the soft nail polish enamels business, organic growth was approximately 6 percent, fueled by recent market share gains and new product placements," stated Sullivan.
Looking forward, Sullivan said, "For the fourth quarter of our fiscal year, we expect consumer segment sales to grow in the mid-single-digit range. Benefits from recent market share gains and new product placements that just began impacting sales in the third quarter this year are expected to continue adding incremental sales into fiscal 2017. In our industrial segment, we expect solid growth for businesses serving the U.S. commercial construction markets to be somewhat offset by results from businesses serving the global energy sector. In our specialty segment businesses, sales growth in the mid- to upper-single-digit range will be predominately organically driven.
"While the negative impact of currency translation is diminishing slightly on a sequential basis, it will continue to challenge us. In addition, during last year's fiscal fourth quarter, the company reversed a Synta earn-out accrual in the amount of $9.9 million, impacting EPS favorably by $0.05 per share. Taking into account all of these factors, we are maintaining our guidance for fiscal 2016 full-year results of $2.50 per diluted share."
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