Many important companies fly under the radar of most investors, providing key products and services that fill little-followed niches but that play a vital role for their customers. RPM International (NYSE: RPM) is one such company, making consumer products like Rust-Oleum and DAP but also serving industrial customers with specialty coatings, cleaners, colorants, and other chemicals. Coming into Wednesday's fiscal first-quarter financial report, RPM shareholders were happy with the extent to which the company's stock has bounced back to set new highs over the past couple of months, but they wanted to see evidence that its fundamental business was as strong as its share price. RPM didn't disappoint, producing record sales, net income, and earnings per share. Let's look more closely at RPM International to see how it achieved its strong results.
Continue Reading Below
A look back at RPM's history. Image source: RPM International.
RPM International seals the deal
RPM International's fiscal first-quarter results showed how strong the company has been at boosting its profits despite not seeing the top-line growth that investors had expected. Sales for the quarter were up less than 1% to $1.25 billion, falling well short of the more than 3% growth that most of those following the stock were looking to see from RPM. Yet net income jumped 13% to $112.8 million, and that produced earnings of $0.83 per share, topping the consensus forecast among investors by $0.02 per share.
Looking more closely at RPM's segments, the same trends of tepid sales performance but solid bottom-line results showed up throughout the company. In the industrial segment, sales fell slightly, as foreign currency impacts outweighed organic growth of 1.2% and a percentage point uptick from acquisitions. However, pre-tax profits for the segment were up nearly 6%. The specialty segment did better, seeing its top line climb by nearly 4% on roughly equal contributions from acquisitions and organic growth, and profits for the segment jumped more than 15%. Finally, RPM's consumer segment saw sales rise 1.1%, mostly from organic growth, as the strong U.S. dollar wiped out acquisition-related gains. Pretax profits were up 6% for the division.
CEO Frank Sullivan was generally pleased with RPM's performance, pointing to balanced contributions from all three segments. In the industrial business, Sullivan said that RPM businesses "serving North American commercial construction markets continued to post strong results, while those serving the energy and heavy equipment industries worldwide faced continued dampened demand." The CEO had similar comments about the consumer segment, noting that strength in small-project paints and repair products did well, but the core caulk and sealant business suffered from a lack of capacity to meet customer demand.
Can RPM rev up even further?
RPM was also upbeat about its prospects for the remainder of the year, despite what it referred to as "the challenging revenue growth environment globally." As Sullivan described it, "We continue to generate growth across most RPM businesses despite many market and economic challenges, and our operating units were able to leverage this modest sales growth into very strong [pre-tax profit] growth." RPM expects that it will be able to meet its previous guidance for full-year fiscal 2017 earnings, which is a range between $2.68 and $2.78 per share.
Another positive for RPM is that its balance sheet has remained strong. The company reported $1.66 billion in total debt at the end of the fiscal first quarter, down about $60 million from year-ago figures. At the same time, RPM has been able to boost its liquid assets by more than 10% to $976 million, and that should give the company plenty of capacity to continue paying its dividend, making strategic repurchases of stock, and considering acquisitions to bolster its overall business.
RPM has done well for shareholders recently, and today's results should continue the bullish sentiment toward the company. As long as underlying fundamental business conditions remain favorable, RPM will have the potential to keep growing and delivering solid results in the future.
A secret billion-dollar stock opportunity The world's biggest tech company forgot to show you something, but a few Wall Street analysts and the Fool didn't miss a beat: There's a small company that's powering their brand-new gadgets and the coming revolution in technology. And we think its stock price has nearly unlimited room to run for early in-the-know investors! To be one of them, just click here.
Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends RPM International. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.