Both consumers and professionals have to protect the capital assets they rely on. RPM International (NYSE: RPM) has made it its business to help people get the protection they need by providing rust- and corrosion-proofing products, as well as sealants, caulks, and other chemicals with vital applications in construction. Demand for those products has been strong, and long-term gains have boosted RPM's business substantially over the years.
Coming into Thursday's fiscal second-quarter financial report, RPM shareholders expected modest but solid growth in revenue and earnings, following up on record performance in recent periods. RPM didn't disappoint, with another set of all-time highs in key financial metrics helping to boost investor optimism about the company's prospects. Let's take a closer look at RPM International and what its latest results say about what's to come for the business.
Continue Reading Below
RPM keeps cleaning up
In its fiscal second quarter, RPM International continued its positive momentum from earlier in the fiscal year. Revenue jumped 11% to $1.32 billion, nearly doubling the 6% growth rate that most investors were looking to see from the sealant and coatings specialist. Net income was up 35% to $95.5 million, and the resulting earnings of $0.70 per share were $0.11 higher than the consensus forecast among those following the stock.
RPM got a good balance of growth organically and from acquisitions. Organic sales climbed more than 4% from year-ago levels, while acquisition growth added another 5 percentage points of revenue growth. Favorable foreign exchange impacts also helped lift RPM's top line.
RPM got good results from all of its major segments. On the consumer side, acquisitions played a primary role in powering 11% top-line growth, with the purchases of insulating products brand Touch 'n Foam and coatings company SPS helping to boost results in the U.S. and Europe, respectively. Industrial sales were also up 11%, with organic growth being more important to the growth there. Improving prospects for oil and gas customers helped to boost performance for the segment, and strength in North America helped offset weaker operational results in Latin America, especially Brazil. The specialty segment saw more modest revenue gains of 7%, about half of which came from acquisitions.
From a profit perspective, RPM's segment results were more mixed. Pre-tax profit for the consumer segment was down slightly on an adjusted basis from year-earlier figures, but segment bottom-line figures in the industrial business climbed 9%. The specialty segment managed to post double-digit improvements in pre-tax profit. Rising raw materials costs plagued much of RPM's business, even though the impacts weren't so large as to prevent the company from being successful.
CEO Frank Sullivan was happy with the results. "Our strategically balanced business model performed as intended," Sullivan said, "with strength in our industrial and specialty businesses offsetting weakness in our consumer segment." The CEO also noted the benefits of cost-reduction efforts and new product line acquisitions in helping to bolster growth.
What's ahead for RPM?
RPM is getting optimistic about the remainder of its fiscal year. The company sees steady results in the industrial segment during the second half of fiscal 2018, pointing to good conditions in the North American construction industry and positive impacts from necessary rebuilding efforts in hurricane-damaged areas. Low- to mid-single-digit percentage gains in the consumer segment will come largely from organic growth, although patent expirations will weigh on the specialty segment throughout fiscal 2018.
RPM made favorable moves to its earnings guidance. The company now sees its bottom line coming in at $3 to $3.10 per share, up $0.15 from its previous projection. It expects an additional, and not included in that number, boost of $0.10 per share, which should come from the new reduction in the U.S. corporate tax rate that took effect on Jan. 1.
RPM shareholders were quite pleased with the news, and the stock jumped 5% in pre-market trading following the announcement. As conditions remain favorable for its segments, RPM International has a lot of opportunities to keep building up its businesses throughout the coming year and beyond.
10 stocks we like better than RPM InternationalWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and RPM International wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of January 2, 2018