U.S. Markets closed

RPM International's (RPM) Stock Climbs on Q3 Earnings Beat

Zacks Equity Research

RPM International Inc. ’s RPM shares spiked 2% after it reported third-quarter fiscal 2019 results, wherein earnings and revenues topped the respective Zacks Consensus Estimate. The company reported adjusted earnings per share of 14 cents in the quarter, beating the consensus mark of 11 cents by 27.3%. However, the reported figure declined 33.3% from the year-ago period.

Net sales of $1.14 billion surpassed the consensus mark of $1.13 billion by 0.2% and improved 3.4% year over year, despite being the seasonally slowest quarter due to winter weather conditions across many of the countries and markets served by the company. The improvement is attributed to strong organic growth of 4.3% from the prior-year quarter. Acquisitions also contributed 2.1% to the sales growth.

However, strong sales growth continues to be offset by rising raw material expenses, and higher freight, labor and energy costs. In addition, challenging international market added to the woes. Foreign exchange headwind reduced sales by 3% from the year-ago quarter.

RPM International Inc. Price, Consensus and EPS Surprise

RPM International Inc. Price, Consensus and EPS Surprise | RPM International Inc. Quote

Operating Highlights

Gross margin decreased 60 basis points (bps) year over year in the fiscal third quarter, owing to higher raw material and freight costs.

Adjusted earnings before interest and taxes (EBIT) in the reported quarter came in at $46.9 million, down 17.3% year over year. Adjusted EBIT margin of 4.1% also declined 100 bps year over year.

Segment Details

The company has three reportable segments — Industrial, Specialty and Consumer.

Industrial Segment (contributing 50.9% to net sales): Sales in the segment increased 2.1% from a year ago to $580.9 million, given strong performance across the businesses providing corrosion control coatings, fiberglass grating, commercial sealants, and concrete admixture and repair products. However, foreign exchange and challenging international market partly offset the segment’s positives. Notably, this segment has the largest international exposure.

Organic sales growth was 4.8%, while acquisitions added 1.3% to net sales. Foreign currency translation negatively impacted sales by 4%.

Consumer Segment (33.8%): Sales improved 6% on a year-over-year basis to $385 million during the quarter, owing to 5.3% organic sales growth. Acquisitions contributed 2.7%, whereas foreign currency translation negatively impacted sales by 2%. Favorable trend of market share gains contributed to the segment’s growth.

Specialty Segment (15.3%): Sales increased 2.7% from the prior-year period to $174.7 million on the back of 0.6% organic sales improvement and 3.4% acquisition growth during the said quarter. However, foreign currency translation impacted sales by 1.3%. The segment gained from marine coatings, exterior cladding systems, fluorescent colorants businesses and benefits from the acquisition of Nudura in September 2018.

Balance Sheet

As of Feb 28, 2019, the company had cash and cash equivalents of $195.2 million compared with $244.4 million at fiscal 2018-end.

Long-term debt (excluding current maturities) at the end of the quarter was $2.07 billion compared with $2.17 billion at fiscal 2018-end.

In the first nine months of fiscal 2019, the company had cash from operations of $145.5 million compared with $140.7 million in the corresponding period of fiscal 2018.

Guidance

The company expects net sales to grow in the low-single-digit range during the fiscal fourth quarter, which is seasonally the strongest quarter. It also expects to witness double-digit EBIT growth, resulting from price increases and moderating raw material cost.

Resultantly, for the fiscal fourth quarter, its earnings are expected in the range of $1.12-$1.16 per share, higher than the year-ago level of 63 cents and the consensus estimate of $1.12 (considering the mid-point of the guided range).

Zacks Rank & Key Picks

RPM currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the Construction sector are Quanta Services, Inc. PWR, Apergy Corporation APY and Armstrong World Industries, Inc. AWI. While Quanta Services and Apergy sport a Zacks Rank #1 (Strong Buy), Armstrong World carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here .

Quanta Services’ earnings for the current year are expected to increase 25.3%.

Apergy has a solid three-five year expected EPS growth rate of 22.5%.

Armstrong World’s earnings for 2019 are anticipated to grow 21.9%.

Zacks' Top 10 Stocks for 2019

In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-holds for the year?

Who wouldn't? Our annual Top 10s have beaten the market with amazing regularity. In 2018, while the market dropped -5.2%, the portfolio scored well into double-digits overall with individual stocks rising as high as +61.5%. And from 2012-2017, while the market boomed +126.3, Zacks' Top 10s reached an even more sensational +181.9%.

See Latest Stocks Today >>