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RPM Reports Decline in Sales, Net Income for Fiscal 2009 Second Quarter

Published on 2009-01-12. Author : SpecialChem

MEDINA, Ohio -- RPM International Inc. reported lower sales and net income for its fiscal 2009 second quarter ended November 30, 2008.

Second-Quarter Results

RPM's net sales of $890.0 million were down 1.7% from the $905.7 million reported in the fiscal 2008 second quarter. Organic sales declined 4.6%, with 3.8% of that amount representing net foreign exchange losses. Net acquisition growth of 2.9% offset part of the organic decline.

Net income for the quarter decreased 23.9%, to $41.7 million from $54.9 million a year ago, while diluted earnings per share decreased 23.3% to $0.33 from $0.43.

"RPM's second-quarter operating results indicate the impact of the worldwide recession, particularly on our consumer products segment. Our industrial segment, which has been experiencing robust growth for the past several years, also felt the impact of recession as sales continued to grow, albeit at a slower pace," stated Frank C. Sullivan, chairman and chief executive officer.

Consolidated earnings before interest and taxes (EBIT) were $77.7 million, a 16.4% decline from the $93.0 million reported a year ago.

Second-Quarter Segment Sales and Earnings

Sales in the company's industrial segment grew 3.3% to $625.6 million from $605.8 million in the year-ago second quarter. Organic sales declined 2.9%, including 4.3% in net foreign exchange losses as a result of the dollar strengthening against most other worldwide currencies. Growth from acquisitions was 6.2%. Industrial segment EBIT for the second quarter decreased 4.0% to $71.0 million, compared to EBIT of $74.0 million a year ago.

"Industrial segment sales growth slowed across most of our businesses," stated Sullivan. "Sales growth remained brisk in our protective coatings, fiberglass reinforced plastics and international polymer flooring product lines. However, previously high growth lines, such as North American polymer flooring, began feeling the impact of the overall economic decline in the second quarter, while formerly strong international markets reflected the migration of the U.S. recession to Europe and our other overseas markets," Sullivan stated.

Sales by RPM's consumer segment fell 11.8% to $264.4 million from $299.9 million a year ago. Of the decline in sales, 8.0% was organic, including 2.7% in net foreign exchange losses, while acquisitions less divestitures accounted for 3.8% of the decline, largely representing the sale of the company's Bondo subsidiary in the fiscal 2008 second quarter. Consumer segment EBIT declined 48.5% to $15.9 million from $30.8 million in the fiscal 2008 second quarter.

"Our consumer businesses continue to face a difficult retail climate, largely attributable to the lingering effects of the weak domestic housing market that has impacted many of our large retail accounts. New, high value products introduced by both our Rust-Oleum and DAP subsidiaries over the summer months have experienced good market acceptance and are performing consistent with our expectations. Our other consumer product lines are maintaining market share in this difficult retail environment," Sullivan stated.

Asbestos Liability

During the quarter, RPM paid $16.4 million in pre-tax asbestos costs, compared to $26.1 million in the year-ago period. RPM's total asbestos reserve balance stood at $527.3 million at November 30, 2008.

Cash Flow and Financial Position

For the first half of fiscal 2009, cash from operations was $104.0 million, compared to $104.1 million in the fiscal 2008 first half. Capital expenditures were $24.9 million, compared to depreciation of $32.2 million over the same period in fiscal 2009. Total debt at the end of the first half was $962.6 million, compared to $1,073.6 million at the end of fiscal 2008. RPM's net (of cash) debt-to-total capitalization ratio was 40.3%, compared to 42.6% at May 31, 2008, and both are at the low end of the company's historic norms. "At November 30, 2008, liquidity, including cash and long-term committed available credit, stood at a very strong $523.4 million," Sullivan stated.

Stock Repurchase Update

RPM said it purchased 1,239,544 shares of its stock during the quarter at an average cost of $16.62.

First-Half Sales and Earnings

Net sales for the first half of fiscal 2009 increased 2.2% to $1.88 billion from $1.84 billion a year ago. Net income declined 9.6%, from $123.1 million to $111.1 million during the period.

Diluted earnings per share for the first half of fiscal 2009 decreased 10.4%, to $0.86 from $0.96 a year ago. First-half EBIT was $188.6 million, down 8.4% from the $205.9 million reported a year ago.

RPM's industrial segment sales increased 9.0% in the fiscal 2009 first half, to $1.32 billion from $1.21 billion a year ago. Acquisitions represented 7.5% of the sales growth, with organic growth adding 1.5%, including 0.7% of net foreign exchange losses. Industrial segment EBIT increased 5.3% to $162.6 million from $154.4 million in the fiscal 2008 first half.

First-half sales for the consumer segment declined 11.2% to $552.3 million from $621.6 million reported in the first half of fiscal 2008. Organic sales decreased by 6.4%, including net foreign exchange losses of 0.8%, while acquisitions less divestitures accounted for 4.8% of the decline, primarily due to the Bondo sale. Consumer segment EBIT was down 32.3%, to $50.5 million from $74.5 million a year ago.

Business Outlook

"We are likely to experience a loss in our fiscal third quarter, which will end February 28, 2009, due to a combination of factors. The third quarter is RPM's seasonally low period, and our performance will be further impacted by continuing revenue declines, along with employee severance costs resulting from adjustments in certain RPM businesses to address the deteriorating business environment," stated Sullivan.

"As we announced during the second quarter, it is likely that our current fiscal year results will be below those of fiscal 2008, given the significant deterioration of economic conditions worldwide. Also as previously announced, we are discontinuing guidance for the current fiscal year until such time as we see more predictability in overall economic conditions," he stated.

RPM International Inc., a holding company, owns subsidiaries that are world leaders in specialty coatings and sealants 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) general economic conditions; (b) the price, 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 liabilities, including for asbestos-related claims; 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, 2008, 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 International Inc.

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