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News Release


Complete Release

RPM Reports Fiscal 2015 Second-Quarter Results

- Second-quarter net income improves 10% on flat sales
- Reconsolidation of SPHC subsidiaries will add $400 million to annualized sales, and will be reflected in subsequent quarterly results
- EPS guidance for FY 2015 reduced to a range of $2.25 to $2.30

MEDINA, Ohio, Jan. 7, 2015 /PRNewswire/ -- RPM International Inc. (NYSE: RPM) today reported a 10% increase in net income and an 8% increase in earnings per diluted share on flat sales for its fiscal 2015 second quarter ended November 30, 2014.  

Second-Quarter Results

Net sales of $1.07 billion were flat compared to last year. Consolidated EBIT (earnings before interest and taxes) increased 3.2%, to $120.1 million from $116.4 million in the fiscal 2014 second quarter. Fiscal 2015 second-quarter net income was up 9.8% to $69.8 million from $63.6 million in the fiscal 2014 second quarter. Earnings per diluted share increased 8.3% to $0.52 from $0.48 a year ago.

"Second-quarter operating performance was mixed, with stronger sales in our businesses serving the U.S. commercial construction market offset by weaker results in Europe, a continued unfavorable year-over-year trend from our Kirker nail enamels business and the negative impact of foreign currency," stated Frank C. Sullivan, chairman and chief executive officer.

Second-Quarter Segment Sales and Earnings

During the fiscal 2015 second quarter, industrial segment sales grew 1.4% to $718.3 million from $708.7 million in the fiscal 2014 second quarter. Organic sales improved 0.7%, including 3.3% in foreign exchange translation losses, while acquisition growth added 0.7%. Industrial segment EBIT declined 5.9% to $79.0 million from $83.9 million in the same period a year ago.

"Most of our European businesses are experiencing a challenging economic climate, negatively impacting our results. Additionally, the strong dollar has negatively impacted all of our international results upon translation.  However, we had strong positive performance by our concrete admixture and commercial sealants companies, which serve the U.S. commercial construction market, and our line of remediation equipment for water and smoke damage. Additionally, our South American businesses are generating good results in their local currencies," Sullivan stated.

RPM's fiscal 2015 second-quarter consumer segment sales declined 2.8% to $352.8 million from $362.8 million a year ago. Organic sales declined 4.2%, including foreign exchange losses of 1.3%, while acquisition growth added 1.4%. Consumer segment EBIT improved 19.1%, to $61.6 million from $51.7 million a year ago.  The improvement in EBIT for RPM's consumer segment is primarily due to the reversal of a $17 million "earn-out" accrual relating to the Kirker acquisition.  

"As stated in the first quarter, Kirker continues to be challenged by a comparison to extremely strong prior-year performance. In anticipation of potential volatility in Kirker's earnings, our acquisition deal structure allows for performance-related payments to offset any shortfall in earnings. As a result, we reversed the $17 million earn-out accrual into income when it became clear that Kirker would not be able to meet its performance objectives this year," stated Sullivan. "Additionally, our large retail customers made aggressive inventory adjustments due to the harsh weather faced in early November. This was in reaction to last year's severe winter when they were caught off-guard and held excess inventory. We expect to benefit from a return to more normal inventory levels by our retail customers in the second half of the fiscal year."

Unusual non-operating costs in this year's second quarter totaled $2.8 million pre-tax, and were related primarily to legal expenses incurred in conjunction with a Securities and Exchange Commission investigation of timing of expense accruals in the 2013 fiscal year, which did not affect full-year earnings, along with the Specialty Products Holding Corp. (SPHC) settlement, and a voluntary self-disclosure agreement with the state of Delaware for unclaimed property.

Cash Flow and Financial Position

For the first half of fiscal 2015, cash from operations was $55.3 million compared to $21.8 million a year ago. During last year's first quarter, the company made a contingent payment to the General Services Administration of approximately $45 million after-tax.  Capital expenditures of $26.5 million compare to $34.6 million during the first half of last year. Total debt at November 30, 2014 was $1.43 billion, compared to $1.37 billion at November 30, 2013 and $1.35 billion at May 31, 2014. RPM's net (of cash) debt-to-total capitalization ratio was 44.8%, compared to 46.4% at November 30, 2013. At November 30, 2014, liquidity stood at $1.01 billion, including cash of $297 million and $718 million in long-term committed available credit.

First-Half Sales and Earnings

Fiscal 2015 first-half net sales improved 1.7% to $2.28 billion from $2.24 billion during the first six months of fiscal 2014. Consolidated EBIT increased 1.2% to $283.7 million from $280.4 million during the first six months of fiscal 2014. Net income was up 1.3% to $168.8 million from $166.7 million in the fiscal 2014 first half. Diluted earnings per share were $1.24, compared to $1.25 a year ago. 

First-Half Segment Sales and Earnings

RPM's industrial segment fiscal 2015 first-half sales improved 3.6%, to $1.49 billion from $1.44 billion in the fiscal 2014 first half. Organic sales increased 2.6%, including net foreign exchange translation losses of 1.6%, while acquisition growth added 1.0%. Industrial segment EBIT was flat to last year at $184.1 million.

First-half sales for the consumer segment declined 1.7% to $782.8 million from $796.2 million a year ago. Organic sales decreased 3.0%, including net foreign exchange losses of 0.5%, and acquisition growth added 1.3%. Consumer segment EBIT increased 2.9% to $138.2 million from $134.4 million in the first half of fiscal 2014. 

SPHC Reconsolidation

The financial results of the company's SPHC subsidiary and its business units will be reconsolidated with RPM's results starting in the third quarter of fiscal 2015. The reconsolidation occurred as a result of the consummation of a plan of reorganization, which resulted in the formation of a trust under Section 524(g) of the United States Bankruptcy Code for the benefit of current and future asbestos personal injury claimants, as previously disclosed.  The trust assumes all liability and responsibility for current and future asbestos claims against the entities emerging from bankruptcy.

SPHC originally filed for bankruptcy protection on May 31, 2010 to permanently resolve asbestos claims against its Bondex International Inc. subsidiary. While RPM has continued to own SPHC and its subsidiaries during the bankruptcy process, their financial results were not consolidated with RPM's during that time.

The trust was funded with an initial contribution of $450.0 million in cash from the Company's revolving line of credit. Payments to the trust, including this initial $450.0 million, will total $797.5 million in pre-tax contributions over the next four years and have a present value, after tax, of $485.0 million.

The reconsolidated SPHC operating subsidiaries include:

Business Outlook

"For the second half of our fiscal year, we expect our consumer segment to benefit from a return to more normal inventory levels at our retail customers with continued growth in consumer DIY spending, and anticipate that the decline in nail polish enamel sales will be much less severe. In our industrial segment, we do not see a near-term turnaround in the European economies and expect continued strengthening of the U.S. dollar to continue negatively impacting results on translation," stated Sullivan.

"Based on these factors, for the second half of fiscal 2015, we expect to generate 6% sales growth in our consumer segment, driving an EBIT increase of 10% to 12%, and 2% to 3% sales growth in our industrial segment, driving an EBIT increase of 4% to 5%. Additionally, we will benefit from the reconsolidation of our SPHC businesses, which should add approximately $170 million in sales and $0.05 per diluted share to our fiscal 2015 second-half results."

"Taking all of these elements into consideration, we have reduced our diluted EPS guidance for the year to $2.25 to $2.30. From a longer-term perspective, we are optimistic given the return of our SPHC businesses and the elimination of their asbestos liability. We can now accelerate growth investments in our businesses and more aggressively return capital to shareholders when appropriate," stated Sullivan. "Looking forward to fiscal 2016, our consolidated EPS guidance is a range of $2.70 to $2.80 per share."

Webcast and Conference Call Information

Management will host a conference call to further discuss these results beginning at 10:00 a.m. EST 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.

For those unable to listen to the live call, a replay will be available from approximately 1 p.m. EST today until 11:59 p.m. EST on January 14, 2015. The replay can be accessed by dialing 888-843-7419 or 630-652-3042 for international callers. The access code is 38349283. 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., a holding company, owns subsidiaries that are world leaders in specialty coatings, sealants, building materials and related services serving both industrial and consumer markets. RPM's industrial products include roofing systems, sealants, corrosion control coatings, flooring coatings and specialty chemicals. Industrial brands include Stonhard, Tremco, illbruck, Carboline, Flowcrete, Day-Glo, Dryvit and Euco. 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. 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 and planning, at 330-273-5090 or bslifstein@rpminc.com.

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 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, 2014, 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



Six Months Ended








November 30,



November 30,








2014


2013



2014


2013






























Net Sales





$         1,071,128


$      1,071,487



$      2,275,024


$      2,236,161


Cost of sales





617,185


613,542



1,312,688


1,279,144


Gross profit





453,943


457,945



962,336


957,017


Selling, general & administrative expenses





334,889


343,048



681,414


678,507


Interest expense





19,404


20,809



38,819


41,534


Investment (income), net





(5,058)


(2,005)



(8,861)


(5,899)


Other (income), net





(1,042)


(1,491)



(2,864)


(1,925)


Income before income taxes





105,750


97,584



253,828


244,800


Provision for income taxes





31,894


29,170



75,133


69,497


Net income





73,856


68,414



178,695


175,303


Less:  Net income attributable to noncontrolling interests




4,090


4,852



9,850


8,643


 

Net income attributable to RPM International Inc. Stockholders

$              69,766


$           63,562



$         168,845


$         166,660

















Earnings per share of common stock attributable to














RPM International Inc. Stockholders:














Basic





$                  0.52


$               0.48



$               1.27


$               1.26

















Diluted





$                  0.52


$               0.48



$               1.24


$               1.25

















Average shares of common stock outstanding - basic 




130,028


129,426



130,061


129,385

















Average shares of common stock outstanding - diluted




134,966


130,418



135,000


130,359













































































SUPPLEMENTAL SEGMENT INFORMATION












IN THOUSANDS














(Unaudited)



































Three Months Ended



Six Months Ended








November 30,



November 30,








2014


2013



2014


2013















Net Sales:















Industrial Segment





$            718,347


$         708,713



$      1,492,233


$      1,439,939



Consumer Segment





352,781


362,774



782,791


796,222



     Total





$         1,071,128


$      1,071,487



$      2,275,024


$      2,236,161

















Income Before Income Taxes (a):















Industrial Segment















     Income Before Income Taxes (a)





$              77,109


$           81,394



$         179,573


$         178,975



     Interest (Expense), Net (b)





(1,898)


(2,528)



(4,531)


(5,062)



     EBIT (c)





$              79,007


$           83,922



$         184,104


$         184,037



Consumer Segment















     Income Before Income Taxes (a)





$              61,562


$           51,720



$         138,231


$         134,437



     Interest (Expense), Net (b)





(4)


26



(12)


65



     EBIT (c)





$              61,566


$           51,694



$         138,243


$         134,372



Corporate/Other















     (Expense) Before Income Taxes (a)





$             (32,921)


$         (35,530)



$         (63,976)


$         (68,612)



     Interest (Expense), Net (b)





(12,444)


(16,302)



(25,415)


(30,638)



     EBIT (c)





$             (20,477)


$         (19,228)



$         (38,561)


$         (37,974)



     Consolidated















          Income Before Income Taxes (a)





$            105,750


$           97,584



$         253,828


$         244,800



          Interest (Expense), Net (b)





(14,346)


(18,804)



(29,958)


(35,635)



          EBIT (c)





$            120,096


$         116,388



$         283,786


$         280,435
































(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 (expense), net includes the combination of interest (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 corporate 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, operating income as determined in accordance with GAAP, since EBIT omits the impact of interest and taxes in determining operating performance, which represent items necessary to our continued operations, given our level of indebtedness and ongoing tax obligations.  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


















November 30, 2014


November 30, 2013


May 31, 2014




(Unaudited)


(Unaudited)



Assets







Current Assets








Cash and cash equivalents


$             296,527


$             224,172


$             332,868


Trade accounts receivable


833,378


802,453


901,587


Allowance for doubtful accounts


(26,605)


(30,024)


(27,641)


Net trade accounts receivable


806,773


772,429


873,946


Inventories


637,932


597,660


613,644


Deferred income taxes


20,280


38,146


22,281


Prepaid expenses and other current assets


198,301


181,220


219,556


Total current assets


1,959,813


1,813,627


2,062,295









Property, Plant and Equipment, at Cost


1,172,307


1,144,947


1,191,676


Allowance for depreciation and amortization


(662,329)


(645,594)


(658,871)


Property, plant and equipment, net


509,978


499,353


532,805

Other Assets








Goodwill


1,118,444


1,125,460


1,147,374


Other intangible assets, net of amortization


441,556


461,555


459,536


Deferred income taxes, non-current


7,582


5,623


7,943


Other


159,880


170,526


168,412


Total other assets


1,727,462


1,763,164


1,783,265









Total Assets


$          4,197,253


$          4,076,144


$          4,378,365









Liabilities and Stockholders' Equity







Current Liabilities








Accounts payable


$             379,874


$             370,993


$             525,680


Current portion of long-term debt


151,358


4,835


5,662


Accrued compensation and benefits


111,032


127,150


173,846


Accrued loss reserves


18,537


22,120


27,487


Other accrued liabilities


208,701


208,983


204,411


Total current liabilities


869,502


734,081


937,086









Long-Term Liabilities








Long-term debt, less current maturities


1,275,875


1,365,115


1,345,965


Other long-term liabilities


411,922


436,335


466,659


Deferred income taxes


48,476


46,753


50,061


Total long-term liabilities


1,736,273


1,848,203


1,862,685


   Total liabilities


2,605,775


2,582,284


2,799,771









Stockholders' Equity








Preferred stock; none issued








Common stock (outstanding 133,748; 133,174; 133,273)

1,337


1,332


1,333


Paid-in capital


806,898


776,363


790,102


Treasury stock, at cost


(94,354)


(80,370)


(85,400)


Accumulated other comprehensive (loss)


(259,267)


(147,740)


(156,882)


Retained earnings


935,773


772,637


833,691


     Total RPM International Inc. stockholders' equity

1,390,387


1,322,222


1,382,844


Noncontrolling interest


201,091


171,638


195,750


     Total equity


1,591,478


1,493,860


1,578,594









Total Liabilities and Stockholders' Equity


$          4,197,253


$          4,076,144


$          4,378,365

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS




IN THOUSANDS






(Unaudited)









Six Months Ended





November 30,


November 30,





2014


2013








Cash Flows From Operating Activities:





  Net income



$        178,695


$        175,303

  Adjustments to reconcile net income to net





          cash provided by operating activities:





               Depreciation



30,132


29,128

               Amortization



16,015


15,776

               Reversal of contingent consideration obligations

(18,080)



               Deferred income taxes


2,170


(8,500)

               Stock-based compensation expense


15,706


9,622

               Other 



(1,222)


(1,229)

  Changes in assets and liabilities, net of effect





          from purchases and sales of businesses:





               Decrease in receivables


44,564


21,971

               (Increase) in inventory


(41,392)


(44,020)

               Decrease (increase) in prepaid expenses and other




                    current and long-term assets


1,306


(750)

               (Decrease) in accounts payable


(133,960)


(111,598)

               (Decrease) in accrued compensation and benefits

(57,837)


(28,152)

               (Decrease) in accrued loss reserves


(8,471)


(5,488)

               (Decrease) in contingent payment




(61,894)

               Increase in other accrued liabilities


37,229


38,304

               Other



(9,599)


(6,641)

                    Cash Provided By Operating Activities


55,256


21,832

Cash Flows From Investing Activities:





     Capital expenditures



(26,498)


(34,603)

     Acquisition of businesses, net of cash acquired


(33,355)


(20,827)

     Purchase of marketable securities


(14,308)


(33,770)

     Proceeds from sales of marketable securities


19,205


19,672

     Other




6,515


1,546

                    Cash (Used For) Investing Activities


(48,441)


(67,982)

Cash Flows From Financing Activities:





     Additions to long-term and short-term debt


83,312


2,776

     Reductions of long-term and short-term debt


(6,501)


(6,071)

     Cash dividends



(66,763)


(61,796)

     Repurchase of stock



(8,954)


(7,877)

     Payments of acquisition related contingent consideration

(24,750)


(5,000)

     Other




1,048


3,670

                    Cash (Used For) Financing Activities


(22,608)


(74,298)








Effect of Exchange Rate Changes on Cash and 




     Cash Equivalents

(20,548)


1,066








Net Change in Cash and Cash Equivalents

(36,341)


(119,382)








Cash and Cash Equivalents at Beginning of Period

332,868


343,554








Cash and Cash Equivalents at End of Period

$        296,527


$        224,172

 

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/rpm-reports-fiscal-2015-second-quarter-results-300016863.html


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