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RPM Fiscal 2010 Third-Quarter Results Improve Over Prior Year

Published on 2010-04-09. Author : SpecialChem

MEDINA, Ohio --RPM International Inc. reported a significantly lower loss for its fiscal 2010 third quarter ended February 28, 2010, compared to the prior-year loss in this traditional seasonally slow period.

Third-Quarter Results

RPM's net sales of $666.6 million increased 4.9% from the $635.4 million reported a year ago. Organic sales improved 3.0%, including a foreign exchange gain of 5.1%, while acquisition growth added 1.9%.

The net loss for the third quarter was $9.4 million, or $0.07 per diluted share, compared to a loss of $30.9 million, or $0.24 per diluted share, in the year-ago period.

"Last year's results were impacted not only by the recession, but also by one-time charges taken to lower our cost base. This year's third-quarter sales reflected the traditional seasonally weak nature of the quarter, magnified by extremely harsh and unusual weather in North America and Europe. Some of our industrial businesses rebounded, while sales of others that are exposed to North American commercial construction markets have not yet begun to recover," stated Frank C. Sullivan, chairman and chief executive officer. "Our consumer sales were up slightly, reflecting the impact of severe winter weather throughout the entire U.S.," he stated.

Third-quarter earnings before interest and taxes (EBIT) of $2.6 million compares to a prior-year loss before interest and taxes of $31.0 million.

Third-Quarter Segment Results

Sales in the company's industrial segment increased 6.7%, to $457.7 million from $429.1 million in the year-ago third quarter. Organic sales improved 3.9%, including net foreign exchange gains of 6.1%, and acquisition growth added 2.8%. The segment reported EBIT of $1.2 million, compared to a loss before interest and taxes of $20.3 million a year ago.

"Many of our industrial product lines, particularly polymer flooring and industrial coatings serving markets outside the U.S., along with our roofing business, are experiencing solid demand. Geographic and end-market diversity, including institutional construction and infrastructure markets, have helped to offset some of the residual weakness in our commercial sealants, concrete additives and exterior insulation finish systems businesses that are more directly impacted by weak domestic commercial construction markets," Sullivan stated.

Sales in RPM's consumer segment improved 1.3% to $208.9 million from $206.3 million in the third quarter a year ago. Nearly all of the increase was organic, including 2.9% in net foreign exchange gains. Consumer segment EBIT grew to $12.3 million from $2.7 million in the fiscal 2009 third quarter.

"RPM's consumer businesses continue to benefit from the cost reduction initiatives completed in the prior fiscal year, market share gains and new product introductions. We believe the consumer segment would have posted higher sales had weather during the quarter been less severe, particularly in the eastern half of the U.S.," Sullivan stated.

Nine-Month Sales and Earnings

For the nine months ended February 28, 2010, RPM's sales declined 2.8%, to $2.44 billion from $2.51 billion a year ago. The sales decline was 4.0% organic, partially offset by a 0.6% increase in net foreign exchange gains and by net acquisitions of 0.6%. Net income increased 48.8% to $119.5 million from $80.3 million a year ago, while net income per diluted share improved 50.0% to $0.93 from $0.62. EBIT grew 37.1% to $216.1 million from $157.7 million for the first nine months in fiscal 2009.

Industrial segment sales declined 6.2% to $1.70 billion from $1.81 billion in the first nine months of fiscal 2009. A decline in organic sales of 7.7% was partially offset by 0.7% in net foreign exchange gains and by acquisition growth of 0.8%. For the nine months, industrial segment EBIT increased 10.7% to $160.3 million from $144.8 million.

Consumer segment sales improved 6.0% to $746.0 million from $703.9 million in the same period a year ago. All of the increase was organic, including 0.4% in foreign exchange gains. Consumer segment EBIT grew 89.0% to $94.7 million from $50.1 million in the first nine months of fiscal 2009.

Cash Flow and Financial Position

"RPM's strong liquidity, capital position and cash flow will permit us to more aggressively grow our business by capitalizing on our robust acquisition pipeline, while funding important capital improvements and marketing initiatives," Sullivan stated. "Through the first nine months of fiscal 2010, our after-tax cash from operations was a record $188.9 million, up 40.3% from the $134.6 million generated through the first nine months of fiscal 2009. RPM's net (of cash) debt-to-total capitalization ratio at the end of the quarter was approximately 35.1%, compared to 42.7% at the end of last year's third quarter," Sullivan stated.

The company's capital expenditures during the first nine months were $14.1 million, compared to depreciation of $46.6 million. Total debt as of February 28, 2010 was $908.1 million, contrasted to $983.2 million on February 28, 2009 and $930.8 million at the end of the 2009 fiscal year. Total cash and cash equivalents were $256.2 million, and RPM had $440.0 million in credit available under its senior revolving and accounts receivable credit facilities, resulting in total liquidity of $696.0 million at the end of February 2010.

Through nine months, asbestos-related costs were $57.4 million, compared to $52.2 million in the first nine months of fiscal 2009. The total asbestos liability balance was $432.9 million at February 28, 2010. During the third quarter, RPM paid $19.9 million in pre-tax asbestos-related indemnity and defense costs, compared to the $19.8 million paid in the year-ago third quarter.

Three Acquisitions Completed

On December 14, 2009, RPM subsidiary Rust-Oleum Corporation announced the acquisition of FibreGrid Limited, a United Kingdom-based supplier of fiberglass anti-slip safety products. The company has annual sales of approximately $3.5 million and its management team will operate it as part of Rust-Oleum's Watco UK Limited business unit.

On January 19, 2010, RPM announced the acquisition of the Universal Sealants (U.K.) Limited group of companies, a United Kingdom-based supplier of coatings and construction products and services for bridges and large infrastructure projects. Existing management will continue to operate the $55 million business as part of RPM's Performance Coatings Group.

Following the end of the quarter, RPM announced on March 3, 2010 that its Rust-Oleum subsidiary acquired Chemtec Chemicals BV, a $6 million manufacturer of industrial cleaners and specialty coatings based in the Netherlands.

All acquisitions were funded using available sources of foreign cash and are expected to be accretive to earnings within one year. Terms of the acquisitions were not disclosed.

Business Outlook

"We anticipate earnings performance for our 2010 fiscal year to be in the upper end of the range of our previous guidance of $1.30 to $1.45 per diluted share, compared to the adjusted $1.05 reported for fiscal 2009," Sullivan stated. "Most of our operating companies - both consumer and industrial - are realizing the benefits of a gradually improving economy and good operating leverage from our prior-year cost reductions.

"Looking beyond the 2010 fiscal year, we are excited about our growth prospects, both on the acquisition front and in terms of new, high-value products in our consumer segment. As the overall economy strengthens, infrastructure spending improves and building owners recognize the value of energy saving retrofits and new construction, our overall industrial business should see greater top-line momentum," Sullivan concluded.

About RPM:

RPM International Inc., a holding company, owns subsidiaries that are world leaders in specialty coatings, sealants, building materials and related services serving both industrial and consumer markets. RPM's industrial products include roofing systems, sealants, corrosion control coatings, flooring coatings and specialty chemicals. Industrial brands include Stonhard, Tremco, illbruck, Carboline, Day-Glo, Euco and Dryvit. RPM's consumer products are used by professionals and do-it-yourselfers for home maintenance and improvement, boat repair and maintenance, and by hobbyists. Consumer brands include Zinsser, Rust-Oleum, DAP, Varathane and Testors.

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, including for asbestos-related claims and warranty obligations; 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, 2009, 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.

Source: RPM


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