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RPM Achieves 23% Earnings Growth in Third Quarter 2004



- Industrial segment sales rise 13%
- Consumer segment sales ahead 9%
- Net income, EBIT margins continue to improve; EBIT ahead 26%
- RPM reaffirms fiscal 2004 projections for 10% to 12% earnings growth

MEDINA, Ohio, April 7 /PRNewswire-FirstCall/ -- RPM International Inc. (NYSE: RPM), a leading specialty coatings manufacturer, today reported continued strong performance for its 2004 fiscal year, achieving record sales and continued growth in earnings and earnings per share for its third quarter and first nine months, ended February 29, 2004.

(Logo: http://www.newscom.com/cgi-bin/prnh/20010126/RPMLOGO )

"We are very pleased to report continued year-over-year strength in both of our operating segments, despite the seasonal slowness of our third quarter," said Frank C. Sullivan, president and chief executive officer. "Our results reflect success in all three components of our growth strategy -- organic growth, acquisitions and enhanced profitability."

Third-Quarter Sales and Earnings

RPM reported record net sales of $480.8 million for the third quarter of fiscal 2004, an increase of $47.2 million, or 11 percent, compared with the same period a year ago. Organic growth represented 4 percent of the sales increase, acquisition activity over the past 12 months brought 4 percent growth and the remaining 3 percent of the increase was from favorable foreign exchange rates.

Both operating segments strengthened year-over-year during the third quarter. RPM's industrial segment net sales increased by 13 percent, of which 3 percent was organic, led by roofing services sales, 4 percent represented net favorable foreign exchange differences and 6 percent came from bolt-on product line acquisitions during the past year.

RPM's consumer segment continued to advance, with net sales growing by 9 percent over the prior year, of which 6 percent was organic, 2 percent represented net favorable foreign exchange differences and 1 percent came from bolt-on product line acquisitions during the past year.

Consolidated earnings before interest and taxes ("EBIT") grew by 26 percent to $17.1 million, reflecting the higher sales volume, increased profitability as productivity gains boosted margins and accretive acquisitions, all of which more than compensated for higher material costs and a number of growth-related investments. Industrial segment EBIT grew by 16 percent, mainly through growth in organic sales volume, especially roofing services, and contributions from accretive acquisitions, despite the impact of higher material costs. Consumer segment EBIT grew by 6 percent, as the benefit from solid sales growth was offset by the impact of higher material costs, and planned investments in growth-related initiatives. For a reconciliation of EBIT to the most comparable GAAP measure, income before income taxes, please refer to the supplemental segment information attached to this release.

Net income grew by 23 percent to $6.0 million compared with the prior year's $4.9 million, with the margin on sales improving by 0.2%. Third- quarter earnings per common share improved to $0.05, exceeding the $0.04 a year ago by 25 percent.

Nine-Month Results

For the first nine months of its 2004 fiscal year, RPM reported record net sales of $1.661 billion. This represents growth of 11 percent over last year, with organic growth of 5 percent, acquisition growth of 3 percent and 3 percent growth from favorable exchange rates. The industrial and consumer operating segments have both achieved solid year-over-year growth through nine months, increasing 12 percent and 10 percent, respectively, both including net favorable foreign exchange differences and the impact of product line bolt-on acquisitions.

Consolidated EBIT grew $17.3 million, or 12 percent, over last year to $158.6 million. Growth on a consolidated basis reflects the net sales improvements, including accretive acquisitions, which more than offset higher material costs this year. Industrial segment EBIT grew by 9 percent from last year to $95.9 million, while consumer segment EBIT grew by 8 percent from last year to $91.8 million. This EBIT growth in the operating segments results from solid growth in net sales, which includes accretive acquisitions, offset partly by increases in material costs and growth-related investments.

Net income in the first nine months grew by 13 percent to a record $88.9 million. Nine-month diluted earnings per common share reached a record $0.76, exceeding $0.68 a year ago by 12 percent.

Strong cash flow generation from operations of $42.9 million during the third quarter brought the nine-month total to $108.8 million, an overall decrease of $8.5 million compared with the prior-year period, principally due to this year's asbestos-related payments, net of taxes, amounting to $24.2 million. Cash flows were positively impacted primarily by the $10.2 million growth in net income and the $4.5 million increase in depreciation and amortization. Capital expenditures during the first nine months were $26.2 million and, as expected, remain below depreciation of $35.3 million. Long-term debt declined $15.1 million to $709.8 million in the first nine months as the company improved its debt-to-capital ratio to 43 percent from 45 percent at its previous year end, May 31, 2003.

Business Outlook

"We are pleased to show continuing record growth in both segments of our business, particularly during our seasonally slowest period," commented Sullivan. "We are encouraged by early signs that we will have a strong spring and a record finish to our 2004 fiscal year, allowing us to meet or exceed our original sales and earnings expectations for the year."

Sullivan noted that Senate Majority Leader Bill Frist has announced plans to begin floor debate on a bill proposing federal asbestos litigation reform, known as the FAIR Act, the week of April 19.

"As we've stated earlier, we believe that passage of this legislation would bring fairness, predictability and finality for all parties affected by asbestos exposure," Sullivan said. "Additionally, this legislation would encourage business investment and jobs creation in America's manufacturing sector. We urge all investors, institutional and individual shareholders alike, to be heard in Washington, as ultimately it is America's investors who are paying the price of this gross abuse of our legal system."

Webcast Information

RPM will host a conference call at 9:00 a.m. Eastern time on Thursday, April 8, 2004. The call may be accessed by dialing 800-299-8538 or over the Internet through RPM's web site at http://www.rpminc.com . Please access approximately 10 minutes before the call to complete registration. A replay will be available about noon Eastern time on April 8 until 8:00 p.m. Eastern time on April 15, 2004, on RPM's web site or by dialing 888-286-8010 and citing access code 54116040. A transcript of the call will also be posted on the web site as soon as possible.

About RPM

RPM International Inc., a holding company, owns subsidiaries that are world leaders in specialty coatings serving both industrial and consumer markets. RPM's industrial products include roofing systems, sealants, corrosion control coatings, flooring coatings and specialty chemicals. RPM's consumer products are used by professionals and do-it-yourselfers for home maintenance and improvement, automotive and boat repair and maintenance, and by hobbyists. Leading industrial brands include Stonhard, Tremco, Carboline, Day-Glo, Euco and Dryvit. Consumer brands include Zinsser, Rust-Oleum, DAP, Varathane, Bondo and Testors.

For more information, contact Glenn R. Hasman, vice president - finance and communications for RPM, at 330-273-8820 or ghasman@rpminc.com.

This press release contains "forward-looking statements" relating to the business of the company. These forward-looking statements, or other statements made by the company, are made based on management's expectations and beliefs concerning future events impacting the company and are subject to uncertainties and factors (including those specified below) which are difficult to predict and, in many instances, are beyond the control of the company. As a result, actual results of the company could differ materially from those expressed in or implied by any such forward-looking statements. These uncertainties and factors include (a) general economic conditions; (b) the price and supply of raw materials, particularly titanium dioxide, certain resins, aerosols and solvents; (c) continued growth in demand for the company's products; (d) legal, environmental and litigation risks inherent in the company's construction and chemicals businesses and risks related to the adequacy of the company's existing reserves and insurance coverage for such matters; (e) the effect of changes in interest rates; (f) the effect of fluctuations in currency exchange rates upon the company's 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 the company's ongoing acquisition and divestiture activities; (i) risks inherent in its contingent liability reserves, including asbestos; and other risks detailed in the company's other reports and statements filed with the Securities and Exchange Commission, including the risk factors set forth in the company's prospectus and prospectus supplement included as part of the company's Registration Statement on Form S-3 (File No. 333-108647), as the same may be amended from time to time. RPM does 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.

This release includes a non-GAAP financial measure, earnings before interest and taxes (EBIT). As required by SEC rules, we have provided a reconciliation of EBIT to the most directly comparable GAAP measure (income before income taxes), which is contained in the tables of this release and on our web site at www.rpminc.com .


                           
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (Unaudited)
                       In thousands, except per share data

                                      Nine Months Ended    Three Months Ended
                                     Feb. 29,    Feb. 28,  Feb. 29,  Feb. 28,
                                       2004        2003      2004      2003

    Net Sales                      $1,660,694  $1,493,943  $480,769  $433,562
    Cost of sales                     908,121     817,681   270,175   248,182
    Gross profit                      752,573     676,262   210,594   185,380
    Selling, general &
     administrative expenses          593,962     534,902   193,496   171,766
    Interest expense, net              20,761      20,290     7,767     6,102
    Income before income taxes        137,850     121,070     9,331     7,512
    Provision for income taxes         48,937      42,374     3,313     2,629
    Net Income                        $88,913     $78,696    $6,018    $4,883

    Basic earnings per share of
     common stock                       $0.77       $0.68     $0.05     $0.04

    Diluted earnings per share of
     common stock                       $0.76       $0.68     $0.05     $0.04

    Average shares of common stock
     outstanding - basic              115,687     115,193   115,835   115,583

    Average shares of common stock
     outstanding - diluted            116,593     116,022   117,351   116,121


                         SUPPLEMENTAL SEGMENT INFORMATION
                                   (Unaudited)
                                   In thousands

                                     Nine Months Ended    Three Months Ended
                                     Feb. 29,    Feb. 28,  Feb. 29,  Feb. 28,
                                       2004        2003      2004      2003
    Net Sales:
       Industrial Segment            $911,252    $813,755  $264,754  $235,193
       Consumer Segment               749,442     680,188   216,015   198,369
            Total                  $1,660,694  $1,493,943  $480,769  $433,562

    Income Before Income Taxes (a):
       Earnings Before Interest
        and Taxes (EBIT) (b)
            Industrial Segment        $95,905     $88,160    $9,948    $8,580
            Consumer Segment           91,843      85,102    17,678    16,663
            Corporate/Other           (29,137)    (31,902)  (10,528)  (11,629)
                 Total EBIT           158,611     141,360    17,098    13,614
       Consolidated Interest
        Expense, Net                  (20,761)    (20,290)   (7,767)   (6,102)
                 Total               $137,850    $121,070    $9,331    $7,512

    (a) The presentation includes a reconciliation of EBIT to Income Before
        Income Taxes, a measure defined by Generally Accepted Accounting
        Principles (GAAP) in the United States.

    (b)  EBIT is defined as earnings before interest and taxes.  We believe
         that EBIT provides one of the best comparative measures of pure
         operating performance, and it is a widely accepted financial
         indicator used by certain investors and analysts to analyze and
         compare companies.  EBIT is not intended to represent cash flows for
         the period, nor is it presented as an alternative to operating income
         or as an indicator of operating performance.  EBIT should not be
         considered in isolation, but with GAAP, and it is not indicative of
         operating income or cash flow from operations as determined by those
         principles.  Our method of computation may or may not be comparable
         to other similarly titled measures of other companies.  EBIT may not
         be indicative of our historical operating results, nor is it meant to
         be predictive of potential future results.


                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                                  In thousands

                                                      Nine Months Ended
                                                February 29,      February 28,
                                                     2004              2003
    Cash Flows From Operating Activities
         Net income                                $88,913           $78,696
         Depreciation and amortization              46,784            42,285
         Items not affecting cash and
          other                                    (12,527)              563
         Changes in operating working
          capital                                  (14,389)           (4,237)
                                                   108,781           117,307

    Cash Flows From Investing Activities
         Capital expenditures                      (26,169)          (22,017)
         Acquisition of businesses, net
          of cash acquired                         (24,871)          (19,547)
                                                   (51,040)          (41,564)

    Cash Flows From Financing Activities
         Reductions of long-term and
          short-term debt                          (14,295)          (14,922)
         Cash dividends                            (47,419)          (44,123)
         Exercise of stock options                   4,116             3,286
                                                   (57,598)          (55,759)

    Increase in Cash and Short-Term
     Investments                                       143            19,984

    Cash and Short-Term Investments at
     Beginning of Period                            50,725            42,172

    Cash and Short-Term Investments at
     End of Period                                 $50,868           $62,156



                            CONSOLIDATED BALANCE SHEETS
                                   In thousands

                                          February 29, February 28,   May 31,
    Assets                                    2004        2003         2003
                                          (Unaudited) (Unaudited)

    Current Assets
        Cash and short-term investments       $50,868     $62,156     $50,725
        Trade accounts receivable             373,603     337,272     456,920
        Allowance for doubtful accounts       (18,460)    (18,054)    (17,297)
        Net trade accounts receivable         355,143     319,218     439,623
        Inventories                           291,908     262,883     253,204
        Deferred income taxes                  54,284      42,441      51,285
        Prepaid expenses and other current
         assets                               137,063     121,939     133,257
        Total current assets                  889,266     808,637     928,094

    Property Plant and Equipment, At Cost     747,977     690,564     714,009
        Allowance for depreciation and
         amortization                        (381,122)   (333,400)   (343,220)
        Property, plant and equipment, net    366,855     357,164     370,789

    Other Assets
        Goodwill                              649,811     601,998     631,253
        Other intangible assets, net of
         amortization                         279,799     259,876     282,949
        Other                                  38,001      32,549      34,126
        Total other assets                    967,611     894,423     948,328

    Total Assets                           $2,223,732  $2,060,224  $2,247,211

    Liabilities and Stockholders' Equity

    Current Liabilities
        Accounts payable                     $142,740    $117,004    $171,956
        Current portion of long-term debt       2,080       4,800       1,282
        Accrued compensation and benefits      68,481      63,332      77,577
        Accrued loss reserves                  55,777      56,292      64,230
        Asbestos-related liabilities           49,579       6,829      41,583
        Other accrued liabilities              62,597      53,341      59,759
        Income taxes payable                  (10,580)        716      11,263
        Total current liabilities             370,674     302,314     427,650

    Long-Term Liabilities
        Long-term debt, less current
         maturities                           709,753     694,774     724,846
        Asbestos-related liabilities           56,370           -     103,000
        Other long-term liabilities            62,578      54,355      59,951
        Deferred income taxes                  81,308      89,327      54,756
        Total long-term liabilities           910,009     838,456     942,553
           Total liabilities                1,280,683   1,140,770   1,370,203

    Stockholders' Equity
        Preferred stock; none issued                -           -           -
        Common stock (outstanding 115,952;
         115,594; 115,496)                      1,160       1,156       1,156
        Paid-in capital                       512,443     508,397     508,397
        Treasury stock, at cost                  (135)          -      (1,167)
        Accumulated other comprehensive
         loss                                   2,295     (34,275)    (17,169)
        Retained earnings                     427,286     444,176     385,791
        Total stockholders' equity            943,049     919,454     877,008

    Total Liabilities and Stockholders'
     Equity                                $2,223,732  $2,060,224  $2,247,211


SOURCE RPM International Inc.
CONTACT: Glenn R. Hasman, vice president - finance and communications for RPM, +1-330-273-8820, or ghasman@rpminc.com
Web site: http://www.rpminc.com


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