MEDINA, OH – Paint and coatings manufacturer RPM International Inc. reported financial results for its fiscal 2019 second quarter ended Nov. 30, 2018.
Fiscal 2019 second-quarter net sales were $1.36 billion, up 3.6% over the $1.32 billion reported a year ago. The quarter’s results include the impact of charges of $29.2 million primarily for acquisitions, convertible debt extinguishment and restructuring related to the company’s operating improvement plan. Investment losses were $6.5 million during the current quarter as a result of a new accounting standard, which now requires RPM to record unrealized gains and losses on equity securities in earnings rather than as a component of equity. For the fiscal 2018 second quarter, the company recorded a favorable discrete tax adjustment of $18.0 million related to the implementation of a foreign legal entity realignment and corresponding planning strategy. Fiscal 2019 second-quarter net income was $49.2 million versus $95.5 million in the year-ago period. Diluted earnings per share (EPS) were $0.37 compared to $0.70 in the year-ago quarter. Income before income taxes (IBT) was $66.6 million compared to $109.2 million reported in the fiscal 2018 second quarter. RPM’s consolidated earnings before interest and taxes (EBIT) were $96.8 million compared to $131.8 million reported in the year-ago period. Excluding the charges mentioned above, RPM’s current-quarter adjusted EBIT was $126.0 million and diluted EPS was $0.52, compared to prior-year second-quarter adjusted diluted EPS of $0.57.
“We achieved solid top-line improvement with sales growth of 3.6%, despite the unfavorable foreign currency translation effect of 2.0%,” said Frank C. Sullivan, RPM Chairman and Chief Executive Officer. “Like many manufacturers, our bottom line was impacted by a continued rise in costs for raw materials, freight, labor and energy, as well as adverse foreign exchange translation. SG&A improved by 30 basis points, and adjusted SG&A, excluding restructuring expenses, improved by 100 basis points versus last year’s second quarter. Restructuring activities related to our MAP to Growth operating improvement plan, the details of which we shared at an investor day on November 28, are well under way. Our plan is focused on driving greater efficiency and long-term profitability of the business to enhance shareholder value.”
As previously announced, on Nov. 27, 2018, RPM redeemed all of its outstanding 2.25% Convertible Senior Notes due 2020, primarily with cash. As a result, approximately 3.3 million shares will be removed from the calculation of diluted EPS going forward.
During the fiscal 2019 second quarter, RPM’s industrial segment net sales increased 2.1% to $718.0 million from $702.9 million a year ago, reflecting organic growth of 3.3% and acquisitions contributing an additional 1.5%. Foreign currency translation reduced sales by 2.7%. Industrial segment IBT was $54.4 million compared with $67.7 million a year ago. EBIT was $56.8 million compared to $70.2 million in the fiscal 2018 second quarter. Adjusted EBIT, which excludes charges related to acquisitions, restructuring and other expenses, increased 1.0% to $70.9 million from the year-ago period.
“Solid performance in our businesses providing corrosion control coatings and concrete admixture and repair products drove top-line growth in the industrial segment, despite the impact of the second wettest autumn on record in the U.S., which affected sales somewhat, particularly in our commercial roofing business,” stated Sullivan. “International sales, which account for approximately half of our industrial segment business, were soft this quarter. Higher raw material costs, unfavorable foreign exchange, restructuring and other related charges impacted results. We made good progress on our operating improvement initiatives in the segment, which included consolidating production after announcing the closure of three plants and shifting that manufacturing to other facilities.”
RPM’s consumer segment generated a 4.1% increase in sales to $432.6 million from $415.4 million in the fiscal 2018 second quarter. Organic sales increased 2.8%, while acquisition growth contributed 2.9%. Foreign currency translation reduced sales by 1.6%. Consumer segment IBT was $41.2 million compared with $45.1 million in the prior-year period. EBIT was $41.3 million compared to $45.2 million in the fiscal 2018 second quarter. Excluding restructuring-related expenses, adjusted EBIT was $42.9 million for the fiscal 2019 quarter.
“Price increases instituted late in the first quarter helped to mitigate margin erosion in the consumer segment. However, raw material costs and foreign exchange continue to be challenges,” said Sullivan. “On the top line, organic sales growth was aided by pricing and new product introductions in our sealants and adhesives business, resulting in new accounts and market share gains. Sales were tempered by the exceptionally wet weather in the U.S., the segment’s largest market. We continued to make operational improvements, which were kicked off in our fourth quarter of last year, leading to reductions in working capital and the announced closure of one additional manufacturing facility during the second quarter.”
RPM’s specialty segment reported fiscal 2019 second-quarter sales growth of 7.6% to $212.0 million from $197.1 million in the year-ago period. Organic growth contributed 2.3%, while acquisition growth was 6.1%. Foreign currency translation reduced sales by 0.8%. Specialty segment IBT was $30.0 million compared with $34.4 million in the prior-year period. EBIT was $29.9 million compared to $34.4 million in the fiscal 2018 second quarter. Adjusted EBIT, which excludes acquisition costs and restructuring-related expenses, was $34.1 million in the fiscal 2019 second quarter.
“Driving the strong second-quarter performance in the specialty segment were our businesses providing wood coatings, powdered coatings and fluorescent colorants. The segment also received a boost to the top line from the acquisition of Nudura in September, which extends our building envelope product line offerings. Performance by our restoration equipment business was brisk as it responded to recent natural disasters, but was below elevated sales levels that resulted from Hurricane Harvey last year. We made MAP to Growth progress in this segment as well, with the announced closure of one manufacturing facility,” Sullivan said.