RPM International (RPM) Misses Q2 EPS by 16c, Revenues Miss; Offers 3Q EPS Below Consensus

January 4, 2019 6:53 AM EST
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Price: $86.88 +3.40%

Revenue Growth %: +12.6%

Financial Fact:
Net Income: 113.39M

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RPM International (NYSE: RPM) reported Q2 EPS of $0.52, $0.16 worse than the analyst estimate of $0.68. Revenue for the quarter came in at $1.36 billion versus the consensus estimate of $1.39 billion.

  • Record second-quarter sales of $1.36 billion improved 3.6% over prior year
  • Second-quarter diluted EPS of $0.37 includes restructuring and other charges, along with adverse impacts from higher raw material costs, foreign exchange and new accounting standard
  • Excluding restructuring and other charges, diluted EPS was $0.52
  • SG&A improves as a percent of sales due to better cost controls
  • Cash from operations increased 29% due to improved working capital management
  • MAP to Growth operating improvement plan launched and underway
  • Completed convertible bond redemption, lowering future diluted share count by 3.3 million

Business Outlook

“We remain focused on executing our MAP to Growth operating improvement plan, targeting a 540-basis-point improvement in our operating margin. As we announced on November 28, 2018, we intend to return $1.5 billion in capital to our stockholders by May 31, 2021, through a combination of dividends and share repurchases. In addition to the previously mentioned convertible bond redemption, we have repurchased approximately $82.0 million of our common stock through November 30, 2018. Additional actions we completed during our fiscal 2019 second quarter include the announced closure of five manufacturing plants, the reduction of 149 positions, and the start of our transition to center-led manufacturing and procurement functions. We also began to implement actions to improve our manufacturing processes, optimize assets and reduce inventory, while moving forward on our supply chain initiatives to consolidate the number of vendors used and negotiate more favorable pricing and payment terms. Accordingly, we are maintaining the long-term projections that we provided at our November 28 investor day,” stated Sullivan.

“In the third quarter, from an operating perspective, revenue growth should remain in the low- to mid-single-digit range. While we are seeing the early benefits of our purchasing activities and softness in certain raw material categories, it is important to note that because RPM is on a FIFO basis for inventory, the benefits we are beginning to see on the raw material front will typically flow into our income statement 90 days later than if we were under the LIFO method of accounting, as is the case with our large industry competitors. Further, due to three non-operating items, we anticipate significantly lower reported earnings and earnings per share for the third quarter period ending February 28, 2019. These items are:

An anticipated current tax rate of approximately 26.0% versus a benefit from certain tax items of $5.9 million last year;
Compared to the prior-year realized gains on marketable securities, the combination of declines in the equities market in December and the new accounting standard that requires unrealized gains and losses on equity securities to be reflected in earnings, we expect a year-over-year negative impact during this year’s third quarter of $5 million to $6 million; and
An adverse comparison to last year’s third quarter, during which we reversed approximately $3.4 million of long-term incentive compensation when it became clear that the targeted goals would not be reached.

“Taken together, expectations of continuing raw material cost challenges and these non-operating items are likely to result in third-quarter EPS in the range of $0.10 to $0.12,” stated Sullivan.

“Although we are in the early innings of our restructuring efforts, we are making good progress, which has us excited about the prospects for the future. As we work through the plan over the next few quarters, we will continue to adjust out associated charges to provide a clear picture of the initiative and its results,” Sullivan concluded.

GUIDANCE:

RPM International sees Q3 2019 EPS of $0.10-$0.12, versus the consensus of $0.29.

For earnings history and earnings-related data on RPM International (RPM) click here.



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