RPM International Inc. (RPM) recently reported fiscal 2010 second-quarter earnings of $55.9 million, or 43 cents per share, compared to $41.7 million, or 33 cents in the year-ago quarter. The result also came in ahead of the Zacks Consensus Estimate by 8 cents. The better-than-expected performance was mainly the result of management’s cost reduction initiatives and stabilization in raw material prices.
RPM manufactures and markets specialty paints, protective coatings and roofing systems, sealants and adhesives, for use in both industrial and consumer applications. The company’s industrial products include roofing systems, sealants, corrosion control coatings, flooring coatings and specialty chemicals. RPM’s consumer products are used for home maintenance and improvement, boat repair and maintenance and by hobbyists. The company operates 92 manufacturing facilities in 22 countries and sells products in about 150 countries and territories.
The Medina, Ohio-based company posted a 3.5% year-over-year decline in sales to $858.7 million. The reduction was primarily caused by a 7.1% decrease in unit volumes partially offset by favorable foreign currency translations.
In terms of segments, Industrial division’s sales slipped 6.0% year over year to $613.5 million primarily due to a 9.8% reduction in volumes partially offset by favorable foreign currency translations. The segment’s performance was adversely affected by sluggish commercial construction markets in the U.S. The Consumer segment’s sales rose 3.3% year over year to $245.2 million driven by volume growth and favorable currency translations. The growth mainly stemmed from new product introductions as well as existing small project, maintenance and repair and redecoration products.
RPM’s gross margin expanded 220 basis points (bps) year over year to 42.3% primarily due to stable raw material costs and price increases. Operating income recorded a growth of 19.4% year over year to $92.9 million, while operating margin improved 210 bps to 10.8%. The growth was chiefly driven by higher gross margin coupled with a 3.1% decline in selling, general & administrative expenses to $270.3 million due to management’s cost reduction efforts.
The company ended the quarter with cash and equivalents of $363.9 million and total debt of $906.2 million, compared to $205.3 million of cash and $962.6 million of debt in the year-ago period. During the first half of the current fiscal, RPM raised $304.2 million in debt and deployed $327.1 million towards debt repayments, $52.2 million towards dividends and $8.3 million towards capital expenditure.
Moving forward, despite cost reduction efforts, management expects a loss during the seasonally weak fiscal third quarter, although results are likely to be significantly improved from last year. Nevertheless, RPM now anticipates fiscal 2010 earnings to range between $1.30 and $1.45 per share, compared to the earlier guidance of earnings at the higher end of $1.10 to $1.31 per share. The Zacks Consensus Estimate for the fiscal, derived from 4 covering analysts, is currently pegged at $1.33 per share, which has moved up by 5 cents in the last week.
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