SEC Document

 

The effective income tax rate was (17.0%) for the three months ended February 28, 2018. Excluding the $1.4 million provisional (benefit) resulting from the Act, the effective income tax rate was (12.9%) for the three months ended February 28, 2018. The (12.9%) benefit rate reflects the favorable cumulative impact of the U.S. fiscal 2018 statutory rate reduction from 35% to 29.2%. The effective income tax expense rate for the three months ended February 28, 2017 was 25.4%.

Refer to Note 9, “Income Taxes,” to the Consolidated Financial Statements for additional disclosures and discussion regarding the Act.

Net Income  Net income of $40.6 million for the quarter ended February 28, 2018 compares to net income of $12.7 million for the comparable prior year period.  Net income attributable to noncontrolling interests approximated $0.4 million and $0.8 million for the third quarter of fiscal 2018 and 2017, respectively. Net income attributable to RPM International Inc. stockholders for the third quarter of fiscal 2018 was $40.2 million, or 3.6% of consolidated net sales, which compared to net income of $11.9 million, or 1.2% of consolidated net sales for the comparable prior year period.

Diluted earnings per share of common stock for the quarter ended February 28, 2018 of $0.30 compares with diluted earnings per share of common stock of $0.09 for the quarter ended February 28, 2017.

Nine Months Ended February 28, 2018

Net Sales  Consolidated net sales of $3,763.5 million for the first nine months of fiscal 2018 grew by approximately 8.6% from net sales of $3,465.3 million for last year’s first nine months. Acquisitions added 4.7%, while organic sales, which include the impact of price and volume, improved by 2.4%.  Consolidated net sales for this year’s first nine months also reflect a favorable foreign exchange impact of 1.5%.

Industrial segment net sales for the current period grew by 9.4% to $2,001.9 million, from net sales of $1,830.7 million during the same period a year ago. The improvement was primarily due to organic growth of 3.7% during this year’s first nine months resulting from improved performance by our roofing and flooring businesses. This performance was slightly offset 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.  Recent acquisitions contributed 3.5% to net sales during the current period. Favorable foreign exchange impacted net sales by 2.2% during the current period.

Consumer segment net sales for this year’s first nine months grew by 8.1% to $1,205.9 million, primarily due to growth in net sales from recent acquisitions of 7.2%.  This segment had 0.2% 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 nine months of fiscal 2018.  Slightly favorable foreign currency impacted net sales in the consumer segment by 0.7% during the current period versus the same period a year ago.  

Specialty segment net sales for this year’s first nine months grew by 6.9% to $555.7 million. Recent acquisitions provided 3.4% of the growth in net sales, while organic growth provided 2.8% during the current period, in spite of the loss of sales associated with the fiscal 2017 closure of an unprofitable European manufacturing facility and reduced revenue associated with a patent expiration. Organic growth in net sales was driven by 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 nine months by 0.7%.

Gross Profit Margin  Our consolidated gross profit margin of 41.5% of net sales for the first nine months of fiscal 2018 compares to a consolidated gross profit margin of 43.4% for the comparable period a year ago. This gross profit decline of approximately 1.9% of net sales primarily reflects current year margins that were burdened by the impact of overall higher raw material costs for approximately 120 basis points, unfavorable absorption of certain businesses, and the remainder 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 $7.4 million during the current period versus the same period last year, but improved to 31.8% of net sales for this year’s first nine months from 34.3% of net sales for the comparable prior year period, resulting primarily from the 8.6% 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 nine months.  Additional SG&A expense generated from companies acquired during the last 12 months approximated $36.4 million during this year’s first nine months. There was also higher distribution and commission expense

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