Industry News

RPM Reports Record Net Income and Cash Flow for Fiscal 2010 Second Quarter

Published on 2010-01-07. Author : SpecialChem

MEDINA, Ohio -- RPM International Inc. reported record net income and cash flow, despite a small decline in net sales, for its fiscal 2010 second quarter ended November 30, 2009.

Second-Quarter Results

RPM's net sales of $858.7 million were down 3.5% from the $890.0 million reported in the fiscal 2009 second quarter. Organic sales declined 6.5%, offset in part by 2.2% in net foreign exchange gains. Net acquisition growth of 0.8% also offset part of the organic decline.

Net income for the quarter grew 34.0%, to a record $55.9 million from $41.7 million a year ago, while diluted earnings per share improved 30.3%, to $0.43 from $0.33.

"Our net income in the second quarter continued to benefit from cost reduction programs initiated in the prior fiscal year. Modest consumer segment sales growth continued, while sales in our larger industrial segment remained under pressure in line with our previously stated expectations," stated Frank C. Sullivan, chairman and chief executive officer.

Consolidated earnings before interest and taxes (EBIT) increased 19.4% to a record $92.9 million from the $77.7 million reported in the fiscal 2009 second quarter. "In addition to our own cost reduction efforts, RPM benefited from more stable raw material costs compared to year-ago levels," stated Sullivan.

Second-Quarter Segment Sales and Earnings

Sales in RPM's industrial segment, representing 71.4% of total sales, declined 6.0% to $613.5 million from $652.7 million in the year-ago second quarter. Organic sales declined 9.5%, offset in part by acquisition growth of 1.0% and net foreign exchange gains of 2.5%. Industrial segment EBIT for the second quarter improved 4.5% to $74.2 million, compared to EBIT of $71.0 million a year ago.

"Industrial sales in international markets, as well as certain product lines, including roofing and polymer flooring, held up reasonably well despite the troubled global economy. Other industrial product lines, particularly those that serve domestic commercial construction markets, struggled as tight credit markets continued to dampen both new commercial construction and major renovation projects," Sullivan stated.

Sales in RPM's consumer segment, which accounted for 28.6% of total sales, grew 3.3% to $245.2 million from $237.2 million a year ago. All of the increase was organic, including 1.5% in net foreign exchange gains. Consumer segment EBIT improved to $31.8 million from $15.6 million a year ago.

"Our consumer businesses are benefiting from gains in market share during the past fiscal year, new product introductions and strength in our small project, maintenance and repair, and redecoration products, despite consumers being cautious about spending on major home renovation projects. Increasing sales, coupled with cost reduction efforts, produced outstanding EBIT growth for the consumer segment," Sullivan stated.

Cash Flow and Financial Position

For the first half of fiscal 2010, cash from operations was $184.7 million, a 77.5% increase over the $104.0 million in the first half of fiscal 2009. Capital expenditures of $8.3 million compare to depreciation of $31.1 million over the same period in fiscal 2010. Total debt at the end of the first half was $906.2 million, compared to $930.8 million at the end of fiscal 2009 and $962.6 million at the end of the second quarter of fiscal 2009. RPM's net (of cash) debt-to-total capitalization ratio was 29.7%, compared to 37.2% at May 31, 2009, and both remain at the low end of the company's historic norms. "We are continuing to build on our existing strong cash and liquidity position in anticipation of a return to our normal level of acquisition growth. At November 30, 2009, liquidity, including cash and long-term committed available credit, stood at a record $853.7 million," Sullivan stated.

On October 6, 2009, RPM announced the sale of $300 million aggregate principal amount of 6.125% notes due October 15, 2019. Proceeds were used to redeem $164 million in principal amount of RPM unsecured senior notes due October 15, 2009, and to pay down $120 million in short-term borrowings under the company's accounts receivable securitization program, with the remainder used for general corporate purposes.

During the quarter, RPM paid $18.9 million in pre-tax asbestos costs, compared to $16.4 million in the year-ago period. RPM's total asbestos reserve balance stood at $452.8 million at November 30, 2009.

First-Half Sales and Earnings

Net sales for the first half of fiscal 2010 decreased 5.4% to $1.77 billion from $1.88 billion a year ago. Net income improved 15.9% to a record $128.9 million from $111.2 million in the fiscal 2009 first half.

Diluted earnings per share for the first half of fiscal 2010 increased 16.3%, to a record $1.00 from $0.86 a year ago. Record first-half EBIT was $213.5 million, up 13.2% over the $188.6 million reported a year ago.

RPM's industrial segment sales declined 10.2% in the fiscal 2010 first half, to $1.24 billion from $1.38 billion a year ago. The organic sales decline was 11.1%, including net foreign exchange losses of 1.1%, partially offset by acquisition growth of 0.9%. Industrial segment EBIT declined 3.6% to $159.1 million from $165.1 million in the fiscal 2009 first half.

First-half sales for the consumer segment grew 7.9% to $537.1 million from $497.6 million reported in the first half of fiscal 2009. Organic sales improved by 7.9%, including net foreign exchange losses of 0.7%. Consumer segment EBIT was up 73.1%, to $82.1 million from $47.4 million a year ago.

Business Outlook

"We are encouraged by the year-to-date improvements in our gross margin that have resulted from productivity gains, operating efficiencies and cost reduction actions undertaken during our last fiscal year. Additionally, while still materially above historical norms, raw material costs have declined from last year's extraordinary levels," stated Sullivan. "We continue to anticipate a loss for the seasonally weak fiscal third quarter ending February 28, 2010, but operating results should be significantly improved from the same period last year," he stated. "As a result, we are revising our fiscal 2010 guidance upward to a range of $1.30 to $1.45 compared to the adjusted $1.05 per diluted share earned last year," Sullivan stated.

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 International Inc.

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