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News Release


Complete Release

RPM Reports Record Results for Fiscal 2018 Third Quarter

  • Sales increase 7.8% to a third-quarter record of $1.1 billion
  • Record diluted EPS of $0.30 versus $0.09 a year ago includes non-recurring $0.01 per share net tax benefit with the enactment of tax reform and an additional $0.08 per share benefit from lower corporate tax rate that was previously included in the company’s earnings guidance
  • Record third-quarter net income of $40.2 million versus $11.9 million a year ago
  • Record third-quarter EBIT of $56.7 million

MEDINA, Ohio--(BUSINESS WIRE)--Apr. 5, 2018-- RPM International Inc. (NYSE:RPM) today reported record sales, net income and diluted earnings per share for its fiscal 2018 third quarter ended February 28, 2018.

Third-Quarter Results

Net sales grew 7.8% to $1.1 billion in the fiscal 2018 third quarter from $1.0 billion in the fiscal 2017 third quarter. Organic sales improved 1.8%, while acquisitions added 3.1%. Foreign currency translation positively affected sales by 2.9%. Net income was $40.2 million versus $11.9 million in the fiscal 2017 third quarter. Third-quarter earnings per diluted share were $0.30 compared to $0.09 reported last year. Third-quarter net income included an income tax benefit of $5.9 million, compared to year-ago income tax expense of $4.3 million.

Income before income taxes (IBT) was $34.7 million versus year-ago IBT of $17.0 million. Consolidated earnings before interest and taxes (EBIT) were $56.7 million, up 52.6% from year-ago EBIT of $37.1 million.

During the quarter, the company recognized a non-recurring $0.01 per share net tax benefit as a result of the enactment of the Tax Cuts and Jobs Act on December 22, 2017, and an additional $0.08 per share benefit from the resulting lower U.S. statutory tax rate. In January, the full-year guidance that was communicated included a $0.10 per share benefit from the lower corporate tax rate, of which $0.08 per share was recognized in the third quarter.

“RPM’s operating performance for the third quarter was outstanding, despite severe, continued industry-wide headwinds from higher raw material costs. We continue to generate exceptional EBIT leverage, reflecting the early success of cost savings initiatives we began implementing last year and rigorous SG&A spending discipline we have exercised throughout this year,” stated Frank C. Sullivan, RPM chairman and chief executive officer.

Third-Quarter Segment Sales and Earnings

Industrial segment sales increased 9.2% to $569.2 million from $521.4 million in the fiscal 2017 third quarter. Organic sales improved 2.2%, while acquisitions added 2.8%. Foreign currency translation positively affected sales by 4.2%. IBT increased 52.1% to $17.8 million, compared to year-ago IBT of $11.7 million. Industrial segment EBIT for the quarter of $20.3 million was up 38.8% from last year’s EBIT of $14.6 million.

“Our industrial segment, representing over 50% of consolidated sales, increased EBIT by nearly 40% through greater SG&A cost leverage, despite higher raw materials costs. Our Tremco Roofing and international polymer flooring businesses did extremely well, partially offset by continued weakness in Brazil and mixed results in Europe,” stated Sullivan.

Sales in RPM’s consumer segment increased 6.4% to $363.4 million from $341.4 million in the fiscal 2017 third quarter. Organic sales improved 0.7%, while acquisitions added 4.2%. Foreign currency translation positively affected sales by 1.5%. IBT was $29.1 million, down 2.3% from year-ago IBT of $29.8 million. Consumer segment EBIT declined 2.1% to $29.3 million from $29.9 million in the fiscal 2017 third quarter. Last year’s consumer EBIT included a $4.9 million intangible impairment charge on the Synta product line.

“In our consumer segment, prior-year acquisitions continue to drive incremental sales and our organic growth has outperformed that of our peers in the consumer space. However, the overall sluggishness in consumer point-of-sale takeaway over the last several quarters continued. We expect a robust advertising schedule in the fourth quarter to position the consumer segment for accelerated growth in fiscal 2019,” stated Sullivan.

Third-quarter sales in the company’s specialty segment increased 6.5% to $170.1 million from $159.7 million a year ago. Organic sales increased 2.7% and acquisitions added 2.2%. Foreign currency translation positively affected sales by 1.6%. IBT was $22.8 million, up 51.9% from year-ago IBT of $15.0 million. Specialty segment EBIT improved 52.6% to $22.7 million from $14.9 million a year ago. Last year’s specialty EBIT included a European facility closure charge of $4.2 million.

“Sales were brisk in our restoration, OEM and pleasure marine coatings businesses, which were partially offset by expected declines in our edible coatings business as a result of a patent expiration. Specialty generated very strong improvement in EBIT, largely as a result of SG&A cost savings actions we began implementing last year, including a plant closure in Europe, and tight spending controls this year,” stated Sullivan.

Nine-Month Results

Nine-month net sales grew 8.6% to $3.76 billion from $3.47 billion a year ago. Net income was $252.1 million compared to $53.8 million in the year-ago period. Diluted earnings per share improved to $1.87 from $0.41 in the first nine months of fiscal 2017. IBT was $299.2 million versus year-ago IBT of $58.6 million. Consolidated EBIT was $366.1 million compared to year-ago EBIT of $118.2 million. Prior-year results included pre-tax impairment charges of $193.2 million, a pre-tax charge of $12.3 million for exiting a business in the Middle East, and a pre-tax charge of $4.2 million for a plant closure in Europe.

Nine-Month Segment Sales and Earnings

Sales for RPM’s industrial segment increased 9.4% to $2.0 billion from $1.83 billion in the fiscal 2017 first nine months. Organic sales increased 3.7%, while acquisitions added 3.5%. Foreign currency translation positively affected sales by 2.2%. IBT was $174.4 million, up 15.3% from year-ago IBT of $151.3 million. Industrial segment EBIT of $182.0 million was up 15.2% from EBIT of $157.9 million in the first nine months of fiscal 2017, which included a charge for exiting a business in the Middle East.

In the consumer segment, nine-month sales were up 8.1% to $1.21 billion from $1.12 billion in the first nine months of fiscal 2017. Organic sales improved 0.2%, while acquisitions added 7.2%. Foreign currency positively affected sales by 0.7%. IBT was $146.6 million, compared to a year-ago loss before income taxes of $40.7 million. Consumer segment EBIT was $147.1 million compared to a loss of $40.6 million in the first nine months a year ago, as a result of impairment charges.

Specialty segment sales increased 6.9% to $555.7 million from $519.6 million in the first nine months a year ago. Organic sales increased 2.8% and acquisitions added 3.4%. Foreign currency translation positively affected sales by 0.7%. IBT was $90.4 million, up 17.9% from year-ago IBT of $76.7 million. Specialty segment EBIT improved 18.2% to $90.1 million from $76.3 million in the same period a year ago, which included the charge for a plant closure in Europe.

Cash Flow and Financial Position

For the first nine months of fiscal 2018, cash from operations was $140.7 million, compared to $173.5 million in the first nine months of fiscal 2017. Capital expenditures during the current nine-month period of $72.8 million compare to $80.1 million over the same time in fiscal 2017. Total debt at the end of the first nine months of fiscal 2018 was $2.18 billion, compared to $1.98 billion a year ago and $2.09 billion at the end of fiscal 2017. RPM’s net (of cash) debt-to-total capitalization ratio was 54.0%, compared to 58.0% at February 28, 2017 and 54.8% at May 31, 2017.

At February 28, 2018, RPM’s total liquidity, including cash and long-term committed available credit, was $966.9 million. “We continue to aggressively pursue acquisitions and reinvest in our existing businesses,” stated Sullivan.

Business Outlook

“On a consolidated basis in the fourth quarter, we expect RPM to generate mid-to-upper-single-digit sales growth that will drive double-digit EBIT growth, reflecting continued tight SG&A spending controls, despite the challenging higher raw material environment. Overall, these anticipated results are consistent with what we communicated back in January,” stated Sullivan.

“As for the performance of our segments in the fourth quarter, we expect sales growth in our industrial segment in the mid- to upper-single digits, driven by continued strong performance in our Tremco Roofing liquid applied products, as well as favorable foreign currency translation. For our consumer segment, we expect sales growth in the mid-single-digit range and for the specialty segment, sales growth in the low-single-digit range,” Sullivan stated.

The company currently expects its income tax rate to be in the 26% to 27% range in the fourth quarter of fiscal 2018, which includes the lower U.S. statutory income tax rate. The company noted its tax rate could change as the IRS continues to issue guidance on the new tax law.

“We are narrowing our fiscal 2018 earnings guidance upwards to a range of $3.05 to $3.10 per diluted share from our previous guidance of $3.00 to $3.10 per diluted share, reflecting our expectation of a continuation of solid top-line sales and double-digit EBIT growth,” stated Sullivan.

Webcast and Conference Call Information

Management will host a conference call to discuss these results beginning at 10:00 a.m. EDT today. The call can be accessed by dialing 888-771-4371 or 847-585-4405 for international callers. Participants are asked to call the assigned number approximately 10 minutes before the conference call begins. The call, which will last approximately one hour, will be open to the public, but only financial analysts will be permitted to ask questions. The media and all other participants will be in a listen-only mode.

For those unable to listen to the live call, a replay will be available from approximately 12:30 p.m. EDT on April 5, 2018 until 11:59 p.m. EDT on April 12, 2018. The replay can be accessed by dialing 888-843-7419 or 630-652-3042 for international callers. The access code is 46126364. The call also will be available both live and for replay, and as a written transcript, via the RPM web site at www.RPMinc.com.

About RPM

RPM International Inc. owns subsidiaries that are world leaders in specialty coatings, sealants, building materials and related services across three segments. RPM’s industrial products include roofing systems, sealants, corrosion control coatings, flooring coatings and other construction chemicals. Industrial companies include Stonhard, Tremco, illbruck, Carboline, Flowcrete, Euclid Chemical and RPM Belgium Vandex. RPM's consumer products are used by professionals and do-it-yourselfers for home maintenance and improvement and by hobbyists. Consumer brands include Rust-Oleum, DAP, Zinsser, Varathane and Testors. RPM’s specialty products include industrial cleaners, colorants, exterior finishes, specialty OEM coatings, edible coatings, restoration services equipment and specialty glazes for the pharmaceutical and food industries. Specialty segment companies include Day-Glo, Dryvit, RPM Wood Finishes, Mantrose-Haeuser, Legend Brands, Kop-Coat and TCI. Additional details can be found at www.rpminc.com and by following RPM on Twitter at www.twitter.com/RPMintl.

For more information, contact Barry M. Slifstein, vice president – investor relations, at 330-273-5090 or bslifstein@rpminc.com.

Use of Non-GAAP Financial Information

To supplement the financial information presented in accordance with Generally Accepted Accounting Principles in the United States (“GAAP”) in this earnings release, we use EBIT, a non-GAAP financial measure. EBIT is defined as earnings (loss) before interest and taxes. We evaluate the profit performance of our segments based on income before income taxes, but also look to EBIT as a performance evaluation measure because interest expense is essentially related to acquisitions, as opposed to segment operations. For that reason, we believe EBIT is also useful to investors as a metric in their investment decisions. EBIT should not be considered an alternative to, or more meaningful than, income before income taxes as determined in accordance with GAAP, since EBIT omits the impact of interest in determining operating performance, which represent items necessary to our continued operations, given our level of indebtedness. Nonetheless, EBIT is a key measure expected by and useful to our fixed income investors, rating agencies and the banking community all of whom believe, and we concur, that this measure is critical to the capital markets' analysis of our segments' core operating performance. We also evaluate EBIT because it is clear that movements in EBIT impact our ability to attract financing. Our underwriters and bankers consistently require inclusion of this measure in offering memoranda in conjunction with any debt underwriting or bank financing. EBIT may not be indicative of our historical operating results, nor is it meant to be predictive of potential future results. See the financial statement section of this earnings release for a reconciliation of EBIT to income before income taxes.

Forward-Looking Statements

This press release contains “forward-looking statements” relating to our business. These forward-looking statements, or other statements made by us, are made based on our expectations and beliefs concerning future events impacting us, and are subject to uncertainties and factors (including those specified below) which are difficult to predict and, in many instances, are beyond our control. As a result, our actual results could differ materially from those expressed in or implied by any such forward-looking statements. These uncertainties and factors include (a) global markets and general economic conditions, including uncertainties surrounding the volatility in financial markets, the availability of capital and the effect of changes in interest rates, and the viability of banks and other financial institutions; (b) the prices, supply and capacity of raw materials, including assorted pigments, resins, solvents and other natural gas- and oil-based materials; packaging, including plastic containers; and transportation services, including fuel surcharges; (c) continued growth in demand for our products; (d) legal, environmental and litigation risks inherent in our construction and chemicals businesses and risks related to the adequacy of our insurance coverage for such matters; (e) the effect of changes in interest rates; (f) the effect of fluctuations in currency exchange rates upon our foreign operations; (g) the effect of non-currency risks of investing in and conducting operations in foreign countries, including those relating to domestic and international political, social, economic and regulatory factors; (h) risks and uncertainties associated with our ongoing acquisition and divestiture activities; (i) risks related to the adequacy of our contingent liability reserves; and (j) other risks detailed in our filings with the Securities and Exchange Commission, including the risk factors set forth in our Annual Report on Form 10-K for the year ended May 31, 2017, as the same may be updated from time to time. We do not undertake any obligation to publicly update or revise any forward-looking statements to reflect future events, information or circumstances that arise after the date of this release.

         
CONSOLIDATED STATEMENTS OF INCOME
IN THOUSANDS, EXCEPT PER SHARE DATA
(Unaudited)
Three Months Ended Nine Months Ended
February 28, February 28,
2018 2017 2018 2017
 
Net Sales $ 1,102,677 $ 1,022,496 $ 3,763,487 $ 3,465,329
Cost of sales   663,184     593,923     2,200,971     1,963,033  
Gross profit 439,493 428,573 1,562,516 1,502,296
Selling, general & administrative expenses 382,972 386,032 1,196,980 1,189,611
Goodwill and other intangible asset impairments 4,900 193,198
Interest expense 27,459 23,769 80,628 69,452
Investment (income), net (5,471 ) (3,627 ) (13,663 ) (9,881 )
Other (income) expense, net   (165 )   502     (592 )   1,301  
Income before income taxes 34,698 16,997 299,163 58,615
(Benefit) provision for income taxes   (5,890 )   4,313     45,814     2,793  
Net income 40,588 12,684 253,349 55,822
Less: Net income attributable to noncontrolling interests   361     756     1,243     2,051  
 
Net income attributable to RPM International Inc. Stockholders $ 40,227   $ 11,928   $ 252,106   $ 53,771  
 
Earnings per share of common stock attributable to
RPM International Inc. Stockholders:
Basic $ 0.30   $ 0.09   $ 1.90   $ 0.41  
Diluted $ 0.30   $ 0.09   $ 1.87   $ 0.41  
 
Average shares of common stock outstanding - basic   131,178     130,677     131,195     130,657  
Average shares of common stock outstanding - diluted   131,178     130,677     135,657     130,657  
 
         
SUPPLEMENTAL SEGMENT INFORMATION
IN THOUSANDS
(Unaudited)
Three Months Ended Nine Months Ended
February 28, February 28,
2018 2017 2018 2017
Net Sales:
Industrial Segment $ 569,210 $ 521,403 $ 2,001,883 $ 1,830,672
Consumer Segment 363,370 341,434 1,205,945 1,115,095
Specialty Segment   170,097     159,659     555,659     519,562  
Total $ 1,102,677   $ 1,022,496   $ 3,763,487   $ 3,465,329  
 
Income Before Income Taxes:
Industrial Segment
Income Before Income Taxes (a) $ 17,804 $ 11,705 $ 174,402 $ 151,262
Interest (Expense), Net (b)   (2,505 )   (2,929 )   (7,572 )   (6,672 )
EBIT (c) 20,309 14,634 181,974 157,934
Charge to exit Flowcrete Middle East (d)         12,275  
Adjusted EBIT $ 20,309   $ 14,634   $ 181,974   $ 170,209  
 
Consumer Segment
Income (Loss) Before Income Taxes (a) $ 29,123 $ 29,802 $ 146,576 $ (40,685 )
Interest (Expense), Net (b)   (154 )   (92 )   (493 )   (114 )
EBIT (c) 29,277 29,894 147,069 (40,571 )
Goodwill and other intangible asset impairments (e)         188,298  
Adjusted EBIT $ 29,277   $ 29,894   $ 147,069   $ 147,727  
 
Specialty Segment
Income Before Income Taxes (a) $ 22,792 $ 15,000 $ 90,398 $ 76,664
Interest Income, Net (b)   86     116     284     406  
EBIT (c) $ 22,706   $ 14,884   $ 90,114   $ 76,258  
 
Corporate/Other
(Expense) Before Income Taxes (a) $ (35,021 ) $ (39,510 ) $ (112,213 ) $ (128,626 )
Interest (Expense), Net (b)   (19,415 )   (17,237 )   (59,184 )   (53,191 )
EBIT (c) $ (15,606 ) $ (22,273 ) $ (53,029 ) $ (75,435 )
 
Consolidated
Income Before Income Taxes (a) $ 34,698 $ 16,997 $ 299,163 $ 58,615
Interest (Expense), Net (b)   (21,988 )   (20,142 )   (66,965 )   (59,571 )
EBIT (c) 56,686 37,139 366,128 118,186
Charge to exit Flowcrete Middle East (d) 12,275
Goodwill and other intangible asset impairments (e)         188,298  
Adjusted EBIT $ 56,686   $ 37,139   $ 366,128   $ 318,759  
 
(a)   The presentation includes a reconciliation of Income (Loss) Before Income Taxes, a measure defined by Generally Accepted Accounting Principles in the United States (GAAP), to EBIT.
(b) Interest income (expense), net includes the combination of interest income (expense) and investment income (expense), net.
(c)

EBIT is defined as earnings (loss) before interest and taxes.  We evaluate the profit performance of our segments based on income before income taxes, but also look to EBIT as a performance evaluation measure because interest expense is essentially related to acquisitions, as opposed to segment operations.  For that reason, we believe EBIT is also useful to investors as a metric in their investment decisions. EBIT should not be considered an alternative to, or more meaningful than, income before income taxes as determined in accordance with GAAP, since EBIT omits the impact of interest in determining operating performance, which represent items necessary to our continued operations, given our level of indebtedness.  Nonetheless, EBIT is a key measure expected by and useful to our fixed income investors, rating agencies and the banking community all of whom believe, and we concur, that this measure is critical to the capital markets' analysis of our segments' core operating performance.  We also evaluate EBIT because it is clear that movements in EBIT impact our ability to attract financing.  Our underwriters and bankers consistently require inclusion of this measure in offering memoranda in conjunction with any debt underwriting or bank financing.  EBIT may not be indicative of our historical operating results, nor is it meant to be predictive of potential future results.

(d) Reflects the charges related to Flowcrete decision to exit the Middle East.
(e) Reflects the impact of goodwill and other intangible asset impairment charges of $188.3 million related to our Kirker reporting unit.
 
     
CONSOLIDATED BALANCE SHEETS
IN THOUSANDS
(Unaudited)
February 28, 2018 February 28, 2017 May 31, 2017
 
Assets
Current Assets
Cash and cash equivalents $ 264,386 $ 210,796 $ 350,497
Trade accounts receivable 926,539 829,632 1,039,468
Allowance for doubtful accounts

(42,244)

(41,357)

(44,138)

Net trade accounts receivable 884,295 788,275 995,330
Inventories 930,594 856,461 788,197
Prepaid expenses and other current assets   278,069     224,347     263,412  
Total current assets   2,357,344     2,079,879     2,397,436  
 
Property, Plant and Equipment, at Cost 1,570,597 1,433,413 1,484,579
Allowance for depreciation   (797,610 )   (731,279 )   (741,893 )
Property, plant and equipment, net   772,987     702,134     742,686  
Other Assets
Goodwill 1,185,890 1,133,013 1,143,913
Other intangible assets, net of amortization 577,861 579,237 573,092
Deferred income taxes, non-current 21,042 25,872 19,793
Other   220,801     212,084     213,529  
Total other assets   2,005,594     1,950,206     1,950,327  
 
Total Assets $ 5,135,925   $ 4,732,219   $ 5,090,449  
 
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 433,372 $ 417,730 $ 534,718
Current portion of long-term debt 3,767 383,980 253,645
Accrued compensation and benefits 139,243 133,588 181,084
Accrued losses 21,107 37,123 31,735
Other accrued liabilities   324,624     258,102     234,212  
Total current liabilities   922,113     1,230,523     1,235,394  
 
Long-Term Liabilities
Long-term debt, less current maturities 2,179,658 1,597,553 1,836,437
Other long-term liabilities 334,913 569,859 482,491
Deferred income taxes   63,219     48,557     97,427  
Total long-term liabilities   2,577,790     2,215,969     2,416,355  
Total liabilities   3,499,903     3,446,492     3,651,749  
Commitments and contingencies
Stockholders' Equity
Preferred stock; none issued
Common stock (outstanding 133,730; 133,583; 133,563) 1,337 1,336 1,336
Paid-in capital 972,187 946,955 954,491
Treasury stock, at cost (233,288 ) (216,366 ) (218,222 )
Accumulated other comprehensive (loss) (405,734 ) (533,165 ) (473,986 )
Retained earnings   1,298,876     1,084,462     1,172,442  
Total RPM International Inc. stockholders' equity 1,633,378 1,283,222 1,436,061
Noncontrolling interest   2,644     2,505     2,639  
Total equity   1,636,022     1,285,727     1,438,700  
Total Liabilities and Stockholders' Equity $ 5,135,925   $ 4,732,219   $ 5,090,449  
 
   
CONSOLIDATED STATEMENTS OF CASH FLOWS
IN THOUSANDS
(Unaudited)
Nine Months Ended

February 28,

2018 2017
 
Cash Flows From Operating Activities:
Net income $ 253,349 $ 55,822
Adjustments to reconcile net income to net
cash provided by (used for) operating activities:
Depreciation 61,078 53,343
Amortization 35,123 33,497
Goodwill and other intangible asset impairments 193,198
Deferred income taxes (42,885 ) (26,996 )
Stock-based compensation expense 17,698 25,005
Other non-cash interest expense 4,275 7,149
Realized (gain) on sales of marketable securities (6,833 ) (5,338 )
Other (71 ) 136
Changes in assets and liabilities, net of effect
from purchases and sales of businesses:
Decrease in receivables 138,942 190,423
(Increase) in inventory (121,095 ) (143,409 )
Decrease (increase) in prepaid expenses and other
current and long-term assets 14,307 (26,698 )
(Decrease) in accounts payable (112,888 ) (95,727 )
(Decrease) in accrued compensation and benefits (45,873 ) (50,425 )
(Decrease) increase in accrued losses (11,001 ) 2,247
(Decrease) in other accrued liabilities (42,895 ) (35,135 )
Other   (483 )   (3,613 )
Cash Provided By Operating Activities   140,748     173,479  
Cash Flows From Investing Activities:
Capital expenditures (72,769 ) (80,110 )
Acquisition of businesses, net of cash acquired (59,991 ) (246,874 )
Purchase of marketable securities (139,641 ) (36,418 )
Proceeds from sales of marketable securities 97,624 36,696
Other   6,766     1,493  
Cash (Used For) Investing Activities   (168,011 )   (325,213 )
Cash Flows From Financing Activities:
Additions to long-term and short-term debt 340,106 422,521
Reductions of long-term and short-term debt (264,051 ) (78,654 )
Cash dividends (125,672 ) (116,680 )
Shares of common stock repurchased and returned for taxes (15,065 ) (20,092 )
Payments of acquisition-related contingent consideration (3,825 ) (4,206 )
Payments for 524(g) trust (102,500 )
Other   (1,911 )   (2,009 )
Cash (Used For) Provided By Financing Activities   (70,418 )   98,380  
 
Effect of Exchange Rate Changes on Cash and
Cash Equivalents   11,570     (1,002 )
 
Net Change in Cash and Cash Equivalents (86,111 ) (54,356 )
 
Cash and Cash Equivalents at Beginning of Period   350,497     265,152  
 
Cash and Cash Equivalents at End of Period $ 264,386   $ 210,796  
 

Source: RPM International Inc.

RPM International Inc.
Barry M. Slifstein, 330-273-5090
vice president – investor relations
bslifstein@rpminc.com.


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