Income Tax Rate The effective income tax expense rate was 12.2% for the three months ended November 30, 2017 compared to an effective income tax benefit rate of 34.3% for the three months ended November 30, 2016. The decrease in the current quarter effective income tax rate as compared to the prior quarter rate is primarily due to a $18.0 million discrete tax benefit recorded in the current quarter. The discrete benefit resulted primarily from the execution of legal entity restructurings associated with tax planning strategies and a corresponding reduction to the deferred tax liability recorded for our estimate of the U.S. tax cost associated with unremitted foreign earnings that may be repatriated in the forseeable future.
Net Income (Loss) Net income of $95.9 million for the quarter ended November 30, 2017 compares to net loss of $70.3 million for the comparable prior year period. Net income attributable to noncontrolling interests approximated $0.4 million and $0.7 million for the second quarter of fiscal 2018 and 2017, respectively. Net income attributable to RPM International Inc. stockholders for the second quarter of fiscal 2018 was $95.5 million, or 7.3% of consolidated net sales, which compared to net loss of $70.9 million, or 6.0% of consolidated net sales for the comparable prior year period.
Diluted income per share of common stock for the quarter ended November 30, 2017 of $0.70 compares with diluted loss per share of common stock of $0.54 for the quarter ended November 30, 2016.
Six Months Ended November 30, 2017
Net Sales Consolidated net sales of $2,660.8 million for the first half of fiscal 2018 grew by approximately 8.9% from net sales of $2,442.8 million for last year’s first half. Acquisitions added 5.5%, while organic sales, which include the impact of price and volume, improved by 2.5%. Consolidated net sales for this year’s first half also reflect a slightly favorable foreign exchange impact of 0.9%.
Industrial segment net sales for the current period grew by 9.4% to $1,432.7 million, from net sales of $1,309.3 million during the same period a year ago. The improvement was primarily due to recent acquisitions, which contributed 4.2% to net sales during the current period. Organic growth of 3.8% during this year’s first half resulted from improved performance by our roofing businesses, and several of our European businesses; especially certain U.K. based operations, but was slightly offset by a lagging performance by our businesses which continue to be impacted by recession and political unrest in Brazil, as well as our companies serving oil and gas markets. Favorable foreign exchange impacted net sales by 1.4% during the current period.
Consumer segment net sales for this year’s first half grew by 8.9% to $842.6 million, primarily due to growth in net sales from recent acquisitions of 8.5%. This segment had a virtually no growth in organic sales during the current period versus the same period last year, as the timing of shipments, inventory adjustments and softer consumer takeaway at our larger retail customers continued to impact this segment throughout the first half of fiscal 2018. Slightly favorable foreign currency impacted net sales in the consumer segment by 0.4% during the current period versus the same period a year ago.
Specialty segment net sales for this year’s first half grew by 7.1% to $385.6 million. Recent acquisitions provided 3.9% of the growth in net sales, while organic growth provided 2.9% during the current period, in spite of the loss of sales associated with the fiscal 2017 closure of an unprofitable European manufacturing facility. Organic growth in net sales was driven by recent hurricane activity that impacted our businesses serving the water damage restoration and equipment markets, as well as increases in specialty OEM industrial coatings. Foreign currency had a slightly favorable impact on specialty segment net sales during this year’s first half by 0.3%.
Gross Profit Margin Our consolidated gross profit margin of 42.2% of net sales for the first half of fiscal 2018 compares to a consolidated gross profit margin of 44.0% for the comparable period a year ago. This gross profit decline of approximately 1.8% of net sales primarily reflects current year margins that were burdened by the impact of overall higher raw material costs for approximately 90 bps, unfavorable manufacturing absorption for approximately 30 bps, and approximately 60 bps from an unfavorable mix of product sold versus last year. We anticipate that rising raw material prices will continue to trend upward due to higher petrochemical costs and rising global demand.
SG&A Our consolidated SG&A expense increased by approximately $10.4 million during the current period versus the same period last year, but improved to 30.6% of net sales for this year’s first half from 32.9% of net sales for the comparable prior year period, resulting primarily from the 8.9% increase in net sales during the current period, combined with tighter cost controls during the current period and the benefit from severance actions taken during fiscal 2017 across each of our segments. During fiscal 2017, we made a decision to exit our Flowcrete polymer flooring business located in the Middle East, and in connection with that decision, we performed an additional review of the collectability of accounts receivable which resulted in a loss of $11.4 million for increased bad debt reserves during last year’s first half. Additional SG&A expense generated from companies acquired during the last 12 months approximated $29.2 million during this year’s first half. There was also higher distribution and commission expense on higher sales volume during the current period versus last year, which was partially offset by lower professional services and bad debt expense. Lastly, warranty expense for the six months ended November 30, 2017 decreased slightly by approximately $1.1 million from the amount recorded during the comparable prior year period, and it is typical that warranty expense will fluctuate from period to period.
RPM International Inc. (NYSE: RPM) owns subsidiaries that are world leaders in coatings, sealants, building materials and related services. From homes to precious landmarks worldwide, their brands are trusted by consumers and professionals alike to protect, improve and beautify. Among its leading consumer brands are Rust-Oleum, DAP and Zinsser. Learn more about RPM brands >>
RPM is a compelling long-term investment.
The percent by which RPM's 10-year total return has bested the S&P 500. More reasons >>
Get the latest news and financial information on why RPM is a good investment Download investor kit >>