SEC Document

EX-99.1

Exhibit 99.1

RPM REPORTS RECORD RESULTS FOR FISCAL 2018 FIRST QUARTER

 

    Sales up 8%

 

    Net income up 3%

 

    Full-year EPS guidance maintained

Medina, Ohio – October 4, 2017 – RPM International Inc. (NYSE: RPM) today reported record sales, net income and earnings per diluted share for its fiscal 2018 first quarter ended August 31, 2017, despite continued strong headwinds from rising raw material costs.

First-Quarter Results

Fiscal 2018 first-quarter net sales of $1.35 billion increased 7.5% over the $1.25 billion reported a year ago. First-quarter net income was up 3.2% to $116.4 million from $112.8 million in the year-ago period, and diluted earnings per share of $0.86 were up 3.6% from $0.83 in the fiscal 2017 first quarter. Income before income taxes (IBT) increased 4.6% to $155.3 million from $148.5 million in the fiscal 2017 first quarter. RPM’s consolidated earnings before interest and taxes (EBIT) increased 6.1% to $177.6 million from $167.4 million reported in the fiscal 2017 first quarter.

“We derived significant benefits from the nine acquisitions made in fiscal 2017, along with our selling, general and administrative (SG&A) cost reduction actions taken last year. Rising raw material costs negatively impacted gross profit margins. As a result, we instituted price increases, which began to take effect late in the quarter. After three years of foreign currency headwinds attributable to the strengthening U.S. dollar, currency translation was essentially neutral this quarter,” stated Frank C. Sullivan, RPM chairman and chief executive officer.

First-Quarter Segment Sales and Earnings

The company’s industrial segment net sales increased 8.0%, to $729.8 million from $675.8 million reported a year ago, with 3.2% in organic growth, while acquisitions added 4.3%. Foreign currency translation increased sales by 0.5%. Industrial segment EBIT increased 0.4% to $91.5 million from $91.1 million in the fiscal 2017 first quarter.

“Our industrial segment results reflect a combination of higher raw material costs, unfavorable product mix, higher distribution expense and disappointing results from a struggling Latin America. Our European and Canadian businesses performed very well in the quarter. North American commercial construction markets, which have bolstered the industrial segment’s performance over the past several years, have become a bit choppy, with some areas performing well and others showing weakness. Our businesses serving the oil and gas industries were down in the mid-single digits, compared to double-digit declines over the past three years. We expect sales at those businesses to turn positive in the second half of this fiscal year,” stated Sullivan.

RPM’s consumer segment reported a 6.8% increase in sales to $427.1 million from $399.9 million in the fiscal 2017 first quarter. Organic sales declined 1.2%, while acquisition growth contributed 8.1%. Foreign currency translation reduced sales by 0.1%. Consumer segment EBIT improved 3.5% to $72.6 million from $70.1 million in the fiscal 2017 first quarter.


RPM Reports Record Results for Fiscal 2018 First Quarter

October 4, 2017

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“Our growth in consumer is being driven by Touch n’ Foam and SPS, both of which were acquired in the third quarter of fiscal 2017. Even though the residential housing market remains solid, overall organic growth in the U.S. paint category, across the industry, has been softer over the last couple of quarters,” stated Sullivan.

RPM’s specialty segment had sales growth of 6.9%, to $188.5 million from $176.3 million in the fiscal 2017 first quarter. Organic growth contributed 3.0%, while acquisition growth was 4.1%. Foreign currency translation was a negative 0.2%. Specialty segment EBIT was up 8.9% to $33.0 million from $30.4 million in the fiscal 2017 first quarter.

“Many of our specialty business units had solid performance in the quarter, led by a surge at our restoration equipment unit, which was partially due to immediate response efforts to Hurricane Harvey. Our powder coatings, wood finishes and wood preservatives businesses also performed well in the quarter. The segment was able to more than offset higher raw material costs through SG&A savings resulting from actions taken in the prior fiscal year,” Sullivan stated.

Cash Flow and Financial Position

During the fiscal 2018 first quarter, cash used from operations was $26.1 million compared to cash provided by operations of $6.5 million a year ago. Capital expenditures were $17.5 million in the quarter, compared to $17.0 million in the year-ago period.

Total debt at August 31, 2017 of $2.12 billion compares to $2.09 billion at May 31, 2017 and $1.66 billion at the end of last year’s first quarter. Net (of cash) debt-to-total capital was 54.7%, versus 50.5% at the end of last year’s first quarter and 54.8% at the end of the prior fiscal year. Liquidity, including cash, was $1.0 billion, compared to $976.0 million a year ago and $1.15 billion at May 31, 2017.

Business Outlook

“Sales during the first quarter were in line with our expectations and revenue growth was very balanced across all three segments. We believe that the severe hurricane season will initially hinder sales in the second quarter, but provide higher than originally expected sales in the back half as communities in the devastated Texas, Florida and Caribbean regions begin the rebuilding process. On the raw material front, the hurricanes will perpetuate the already higher raw material cost environment well into the second quarter before moderating. Our price increase actions should offset a large portion of the raw material increases. Additionally, we continue to incur expenses relating to the ongoing integration of Flowcrete and Euclid into the newly formed Euclid Group. We are also very focused on driving improved operating leverage throughout the entire industrial segment, which will involve future re-alignments to generate additional cost savings and efficiencies. As a result of these factors across our businesses, our sales growth guidance for the balance of fiscal 2018 in our industrial and consumer segments is in the mid-single-digit range and specialty in the low- to mid-single-digit range. We are maintaining our full-year EPS guidance of $2.85 to $2.95 per diluted share,” stated Sullivan.

Webcast and Conference Call Information

Management will host a conference call to discuss the quarter’s results beginning at 10:00 a.m. EDT today. The call can be accessed by dialing 888-771-4371 or 847-585-4405 for international callers. Participants are asked to call the assigned number approximately 10 minutes before the conference call begins. The call, which will last approximately one hour, will be open to the public, but only financial analysts will be permitted to ask questions. The media and all other participants will be in a listen-only mode. The call may also be accessed via the RPM website at www.RPMinc.com.


RPM Reports Record Results for Fiscal 2018 First Quarter

October 4, 2017

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For those unable to listen to the live call, a replay will be available from approximately 12:30 p.m. EDT on October 4, 2017 until 11:59 p.m. EDT on October 11, 2017. The replay can be accessed by dialing 888-843-7419 or 630-652-3042 for international callers. The access code is 45605381. The call also will be available both live and for replay, and as a written transcript, via the RPM web site at www.RPMinc.com.

About RPM

RPM International Inc. owns subsidiaries that are world leaders in specialty coatings, sealants, building materials and related services across three segments. RPM’s industrial products include roofing systems, sealants, corrosion control coatings, flooring coatings and other construction chemicals. Industrial companies include Stonhard, Tremco, illbruck, Carboline, Flowcrete, Euclid Chemical and RPM Belgium Vandex. RPM’s consumer products are used by professionals and do-it-yourselfers for home maintenance and improvement and by hobbyists. Consumer brands include Rust-Oleum, DAP, Zinsser, Varathane and Testors. RPM’s specialty products include industrial cleaners, colorants, exterior finishes, specialty OEM coatings, edible coatings, restoration services equipment and specialty glazes for the pharmaceutical and food industries. Specialty segment companies include Day-Glo, Dryvit, RPM Wood Finishes, Mantrose-Haeuser, Legend Brands, Kop-Coat and TCI. Additional details can be found at www.rpminc.com and by following RPM on Twitter at www.twitter.com/RPMintl.

For more information, contact Barry M. Slifstein, vice president – investor relations, at 330-273-5090 or bslifstein@rpminc.com.

# # #

Use of Non-GAAP Financial Information

To supplement the financial information presented in accordance with Generally Accepted Accounting Principles in the United States (“GAAP”) in this earnings release, we use EBIT, a non-GAAP financial measure. EBIT is defined as earnings (loss) before interest and taxes. We evaluate the profit performance of our segments based on income before income taxes, but also look to EBIT as a performance evaluation measure because interest expense is essentially related to acquisitions, as opposed to segment operations. For that reason, we believe EBIT is also useful to investors as a metric in their investment decisions. EBIT should not be considered an alternative to, or more meaningful than, income before income taxes as determined in accordance with GAAP, since EBIT omits the impact of interest in determining operating performance, which represent items necessary to our continued operations, given our level of indebtedness. Nonetheless, EBIT is a key measure expected by and useful to our fixed income investors, rating agencies and the banking community all of whom believe, and we concur, that this measure is critical to the capital markets’ analysis of our segments’ core operating performance. We also evaluate EBIT because it is clear that movements in EBIT impact our ability to attract financing. Our underwriters and bankers consistently require inclusion of this measure in offering memoranda in conjunction with any debt underwriting or bank financing. EBIT may not be indicative of our historical operating results, nor is it meant to be predictive of potential future results. See the financial statement section of this earnings release for a reconciliation of EBIT to income before income taxes.

Forward-Looking Statements

This press release contains “forward-looking statements” relating to our business. These forward-looking statements, or other statements made by us, are made based on our expectations and beliefs concerning future events impacting us, and are subject to uncertainties and factors (including those specified below) which are difficult to predict and, in many instances, are beyond our control. As a result, our actual results could differ materially from those expressed in or implied by any such forward-looking statements. These uncertainties and factors include (a) global markets and general economic conditions, including uncertainties surrounding the volatility in financial markets, the availability of capital and the effect of changes in interest rates, and the viability of banks and other financial institutions; (b) the prices, supply and capacity of raw materials, including assorted pigments, resins, solvents and other natural gas- and oil-based materials; packaging, including plastic containers; and transportation services, including fuel surcharges; (c) continued growth in demand for our products; (d) legal, environmental and litigation risks inherent in our construction and chemicals businesses and risks related to the adequacy of our insurance coverage


RPM Reports Record Results for Fiscal 2018 First Quarter

October 4, 2017

Page 4 of 4

 

for such matters; (e) the effect of changes in interest rates; (f) the effect of fluctuations in currency exchange rates upon our foreign operations; (g) the effect of non-currency risks of investing in and conducting operations in foreign countries, including those relating to domestic and international political, social, economic and regulatory factors; (h) risks and uncertainties associated with our ongoing acquisition and divestiture activities; (i) risks related to the adequacy of our contingent liability reserves; and (j) other risks detailed in our filings with the Securities and Exchange Commission, including the risk factors set forth in our Annual Report on Form 10-K for the year ended May 31, 2017, as the same may be updated from time to time. We do not undertake any obligation to publicly update or revise any forward-looking statements to reflect future events, information or circumstances that arise after the date of this release.


CONSOLIDATED STATEMENTS OF INCOME

IN THOUSANDS, EXCEPT PER SHARE DATA

(Unaudited)

 

     Three Months Ended  
     August 31,  
     2017     2016  

Net Sales

   $ 1,345,394     $ 1,252,063  

Cost of sales

     773,386       700,021  
  

 

 

   

 

 

 

Gross profit

     572,008       552,042  

Selling, general & administrative expenses

     394,409       384,085  

Interest expense

     26,773       22,778  

Investment (income), net

     (4,453     (3,838

Other (income) expense, net

     (5     542  
  

 

 

   

 

 

 

Income before income taxes

     155,284       148,475  

Provision for income taxes

     38,381       35,081  
  

 

 

   

 

 

 

Net income

     116,903       113,394  

Less: Net income attributable to noncontrolling interests

     487       625  
  

 

 

   

 

 

 

Net income attributable to RPM International Inc. Stockholders

   $ 116,416     $ 112,769  
  

 

 

   

 

 

 

Earnings per share of common stock attributable to RPM International Inc. Stockholders:

    

Basic

   $ 0.87     $ 0.85  
  

 

 

   

 

 

 

Diluted

   $ 0.86     $ 0.83  
  

 

 

   

 

 

 

Average shares of common stock outstanding - basic

     131,236       130,600  
  

 

 

   

 

 

 

Average shares of common stock outstanding - diluted

     135,720       135,241  
  

 

 

   

 

 

 

SUPPLEMENTAL SEGMENT INFORMATION

IN THOUSANDS

(Unaudited)

 

     Three Months Ended  
     August 31,  
     2017     2016  

Net Sales:

  

Industrial Segment

   $ 729,768     $ 675,840  

Consumer Segment

     427,144       399,887  

Specialty Segment

     188,482       176,336  
  

 

 

   

 

 

 

Total

   $ 1,345,394     $ 1,252,063  
  

 

 

   

 

 

 

Income Before Income Taxes (a):

    

Industrial Segment

    

Income Before Income Taxes (a)

   $ 88,902     $ 89,266  

Interest (Expense), Net (b)

     (2,554     (1,837
  

 

 

   

 

 

 

EBIT (c)

   $ 91,456     $ 91,103  
  

 

 

   

 

 

 

Consumer Segment

    

Income Before Income Taxes (a)

   $ 72,368     $ 70,088  

Interest (Expense), Net (b)

     (196     (3
  

 

 

   

 

 

 

EBIT (c)

   $ 72,564     $ 70,091  
  

 

 

   

 

 

 

Specialty Segment

    

Income Before Income Taxes (a)

   $ 33,167     $ 30,504  

Interest Income, Net (b)

     120       153  
  

 

 

   

 

 

 

EBIT (c)

   $ 33,047     $ 30,351  
  

 

 

   

 

 

 

Corporate/Other

    

(Expense) Before Income Taxes (a)

   $ (39,153   $ (41,383

Interest (Expense), Net (b)

     (19,690     (17,253
  

 

 

   

 

 

 

EBIT (c)

   $ (19,463   $ (24,130
  

 

 

   

 

 

 

Consolidated

    

Income Before Income Taxes (a)

   $ 155,284     $ 148,475  

Interest (Expense), Net (b)

     (22,320     (18,940
  

 

 

   

 

 

 

EBIT (c)

   $ 177,604     $ 167,415  
  

 

 

   

 

 

 

 

(a) The presentation includes a reconciliation of Income (Loss) Before Income Taxes, a measure defined by Generally Accepted Accounting Principles in the United States (GAAP), to EBIT.
(b) Interest income (expense), net includes the combination of interest income (expense) and investment income (expense), net.
(c) EBIT is defined as earnings (loss) before interest and taxes. We evaluate the profit performance of our segments based on income before income taxes, but also look to EBIT as a performance evaluation measure because interest expense is essentially related to acquisitions, as opposed to segment operations. For that reason, we believe EBIT is also useful to investors as a metric in their investment decisions. EBIT should not be considered an alternative to, or more meaningful than, income before income taxes as determined in accordance with GAAP, since EBIT omits the impact of interest in determining operating performance, which represent items necessary to our continued operations, given our level of indebtedness. Nonetheless, EBIT is a key measure expected by and useful to our fixed income investors, rating agencies and the banking community all of whom believe, and we concur, that this measure is critical to the capital markets’ analysis of our segments’ core operating performance. We also evaluate EBIT because it is clear that movements in EBIT impact our ability to attract financing. Our underwriters and bankers consistently require inclusion of this measure in offering memoranda in conjunction with any debt underwriting or bank financing. EBIT may not be indicative of our historical operating results, nor is it meant to be predictive of potential future results.


CONSOLIDATED BALANCE SHEETS

IN THOUSANDS

(Unaudited)

 

     August 31, 2017     August 31, 2016     May 31, 2017  

Assets

      

Current Assets

      

Cash and cash equivalents

   $ 236,191     $ 194,470     $ 350,497  

Trade accounts receivable

     1,060,147       960,575       1,039,468  

Allowance for doubtful accounts

     (45,063     (27,940     (44,138

Net trade accounts receivable

     1,015,084       932,635       995,330  

Inventories

     851,312       728,597       788,197  

Prepaid expenses and other current assets

     260,361       239,383       263,412  
  

 

 

   

 

 

   

 

 

 

Total current assets

     2,362,948       2,095,085       2,397,436  
  

 

 

   

 

 

   

 

 

 

Property, Plant and Equipment, at Cost

     1,526,565       1,362,075       1,484,579  

Allowance for depreciation

     (770,692     (729,584     (741,893
  

 

 

   

 

 

   

 

 

 

Property, plant and equipment, net

     755,873       632,491       742,686  
  

 

 

   

 

 

   

 

 

 

Other Assets

      

Goodwill

     1,169,083       1,222,659       1,143,913  

Other intangible assets, net of amortization

     587,274       563,225       573,092  

Deferred income taxes, non-current

     22,126       20,206       19,793  

Other

     211,612       193,233       213,529  
  

 

 

   

 

 

   

 

 

 

Total other assets

     1,990,095       1,999,323       1,950,327  
  

 

 

   

 

 

   

 

 

 

Total Assets

   $ 5,108,916     $ 4,726,899     $ 5,090,449  
  

 

 

   

 

 

   

 

 

 

Liabilities and Stockholders’ Equity

      

Current Liabilities

      

Accounts payable

   $ 469,954     $ 430,475     $ 534,718  

Current portion of long-term debt

     254,061       4,201       253,645  

Accrued compensation and benefits

     115,124       106,145       181,084  

Accrued losses

     26,406       32,969       31,735  

Other accrued liabilities

     229,602       309,813       234,212  
  

 

 

   

 

 

   

 

 

 

Total current liabilities

     1,095,147       883,603       1,235,394  
  

 

 

   

 

 

   

 

 

 

Long-Term Liabilities

      

Long-term debt, less current maturities

     1,868,229       1,652,529       1,836,437  

Other long-term liabilities

     491,677       699,822       482,491  

Deferred income taxes

     91,660       53,381       97,427  
  

 

 

   

 

 

   

 

 

 

Total long-term liabilities

     2,451,566       2,405,732       2,416,355  
  

 

 

   

 

 

   

 

 

 

Total liabilities

     3,546,713       3,289,335       3,651,749  
  

 

 

   

 

 

   

 

 

 

Commitments and contingencies

      

Stockholders’ Equity

      

Preferred stock; none issued

      

Common stock (outstanding 133,537; 133,377; 133,563)

     1,335       1,334       1,336  

Paid-in capital

     961,956       930,123       954,491  

Treasury stock, at cost

     (223,567     (213,379     (218,222

Accumulated other comprehensive (loss)

     (429,382     (506,251     (473,986

Retained earnings

     1,248,769       1,223,611       1,172,442  
  

 

 

   

 

 

   

 

 

 

Total RPM International Inc. stockholders’ equity

     1,559,111       1,435,438       1,436,061  

Noncontrolling interest

     3,092       2,126       2,639  
  

 

 

   

 

 

   

 

 

 

Total equity

     1,562,203       1,437,564       1,438,700  
  

 

 

   

 

 

   

 

 

 

Total Liabilities and Stockholders’ Equity

   $ 5,108,916     $ 4,726,899     $ 5,090,449  
  

 

 

   

 

 

   

 

 

 


CONSOLIDATED STATEMENTS OF CASH FLOWS

IN THOUSANDS

(Unaudited)

 

     Three Months Ended  
     August 31,  
     2017     2016  

Cash Flows From Operating Activities:

    

Net income

   $ 116,903     $ 113,394  

Adjustments to reconcile net income to net cash provided by (used for) operating activities:

    

Depreciation

     19,893       17,679  

Amortization

     11,483       11,121  

Deferred income taxes

     9,815       (434

Stock-based compensation expense

     7,465       8,171  

Other non-cash interest expense

     1,422       2,481  

Realized (gain) on sales of marketable securities

     (2,861     (2,584

Other

     (140     18  

Changes in assets and liabilities, net of effect from purchases and sales of businesses:

    

Decrease in receivables

     1,646       28,663  

(Increase) in inventory

     (46,771     (42,763

(Increase) in prepaid expenses and other current and long-term assets

     (10,865     (18,206

(Decrease) in accounts payable

     (72,688     (70,598

(Decrease) in accrued compensation and benefits

     (69,008     (77,738

(Decrease) in accrued losses

     (5,765     (2,021

Increase in other accrued liabilities

     20,147       38,015  

Other

     (6,765     1,302  
  

 

 

   

 

 

 

Cash (Used For) Provided By Operating Activities

     (26,089     6,500  
  

 

 

   

 

 

 

Cash Flows From Investing Activities:

    

Capital expenditures

     (17,533     (16,957

Acquisition of businesses, net of cash acquired

     (36,169     (17,274

Purchase of marketable securities

     (56,275     (13,099

Proceeds from sales of marketable securities

     40,792       12,602  

Other

     702       272  
  

 

 

   

 

 

 

Cash (Used For) Investing Activities

     (68,483     (34,456
  

 

 

   

 

 

 

Cash Flows From Financing Activities:

    

Additions to long-term and short-term debt

     19,125       91,669  

Reductions of long-term and short-term debt

     (760     (76,973

Cash dividends

     (40,089     (36,529

Shares of common stock repurchased and returned for taxes

     (5,346     (17,105

Payments of acquisition-related contingent consideration

     (3,258     (4,033

Other

     (747     (866
  

 

 

   

 

 

 

Cash (Used For) Financing Activities

     (31,075     (43,837
  

 

 

   

 

 

 

Effect of Exchange Rate Changes on Cash and Cash Equivalents

     11,341       1,111  
  

 

 

   

 

 

 

Net Change in Cash and Cash Equivalents

     (114,306     (70,682

Cash and Cash Equivalents at Beginning of Period

     350,497       265,152  
  

 

 

   

 

 

 

Cash and Cash Equivalents at End of Period

   $ 236,191     $ 194,470  
  

 

 

   

 

 

 

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