- Successful execution of 2020 MAP to Growth restructuring program drives strong earnings growth despite weak macroeconomic environment
- Net income increases 52%, diluted EPS up 58% and adjusted diluted EPS up 25%
- Adjusted EBIT margin increases 260 basis points
- All four operating segments benefit from restructuring program, each of which generates strong earnings growth, on an adjusted basis, during the quarter
- Cash flow increases due to operating improvement initiatives
- Strong earnings leverage anticipated to continue in second quarter with adjusted EBIT expected to be up 20% to 24%
First-Quarter Consolidated Results
Fiscal 2020 first-quarter net sales were a record
The first quarter included restructuring-related expenses and other items of
“We continued to experience the benefits of the plant rationalization, manufacturing improvements and center-led procurement initiatives of our 2020 MAP to Growth operating improvement plan during the quarter. These actions resulted in adjusted EBIT and EPS performance that met our projections despite modest top-line sales growth,” stated RPM chairman and CEO
First-Quarter Segment Sales and Earnings
“As we communicated last quarter, we have realigned the business into four reportable segments from our previous three segments. The new segments are the
“The recent acquisitions of Nudura and Schul, as well as last year’s price increases, helped to drive sales growth in the
“Savings from our 2020 MAP to Growth plan provided significant earnings leverage in the
“The Consumer Group’s improvement in EBIT was largely due to a favorable year-over-year comparison resulting from
“The Specialty Products Group experienced sluggish demand in the OEM, manufacturing and international markets it serves, which impacted the top line. However, on the bottom line, adjusted EBIT margins improved by 230 basis points and adjusted EBIT increased by
Cash Flow and Financial Position
During the fiscal 2020 first quarter, cash generated from operations was
Capital expenditures were
“During the quarter we repurchased approximately
Business Outlook
“For the second quarter of fiscal 2020, we expect sales to be up 2% to 3% with strong leverage to the bottom line for an estimated 20% to 24% adjusted EBIT growth, resulting in adjusted diluted EPS in the low- to mid-70-cent range.
“Looking ahead to our fiscal 2020 third and fourth quarters, it is important to note the seasonality in our business. Historically, our third quarter provides our most modest results each year because it falls during the winter months of December through February, when painting and construction activity slow due to cold and snowy weather. Our fourth-quarter results are generally stronger as work begins to accelerate on painting and construction projects.
“Based on our results for the first quarter and our expectations for the remainder of the year, we are affirming the full-year fiscal 2020 guidance we provided on
Webcast and Conference Call Information
Management will host a conference call to discuss these results beginning at
For those unable to listen to the live call, a replay will be available from approximately
About RPM
For more information, contact
Use of Non-GAAP Financial Information
To supplement the financial information presented in accordance with Generally Accepted Accounting Principles in
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 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) the timing of and the realization of anticipated cost savings from restructuring initiatives and the ability to identify additional cost savings opportunities; (j) risks related to the adequacy of our contingent liability reserves; and (k) 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, 2019, 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, | ||||||||
| 2019 | 2018 | |||||||
| Net Sales | $ | 1,472,764 |
| $ | 1,459,989 |
| ||
| Cost of sales |
| 898,010 |
|
| 910,636 |
| ||
| Gross profit |
| 574,754 |
|
| 549,353 |
| ||
| Selling, general & administrative expenses |
| 400,566 |
|
| 415,053 |
| ||
| Restructuring charges |
| 6,622 |
|
| 20,076 |
| ||
| Interest expense |
| 28,317 |
|
| 24,406 |
| ||
| Investment (income), net |
| (5,385 | ) |
| (2,433 | ) | ||
| Other expense, net |
| 1,785 |
|
| 313 |
| ||
| Income before income taxes |
| 142,849 |
|
| 91,938 |
| ||
| Provision for income taxes |
| 36,353 |
|
| 21,752 |
| ||
| Net income |
| 106,496 |
|
| 70,186 |
| ||
| Less: Net income attributable to noncontrolling interests |
| 308 |
|
| 422 |
| ||
| Net income attributable to RPM International Inc. Stockholders | $ | 106,188 |
| $ | 69,764 |
| ||
| Earnings per share of common stock attributable to | ||||||||
| RPM International Inc. Stockholders: | ||||||||
| Basic | $ | 0.82 |
| $ | 0.52 |
| ||
| Diluted | $ | 0.82 |
| $ | 0.52 |
| ||
| Average shares of common stock outstanding - basic |
| 128,882 |
|
| 131,861 |
| ||
| Average shares of common stock outstanding - diluted |
| 129,504 |
|
| 136,430 |
| ||
| SUPPLEMENTAL SEGMENT INFORMATION | ||||||||
| IN THOUSANDS | ||||||||
| (Unaudited) | ||||||||
| Three Months Ended | ||||||||
| August 31, | ||||||||
| 2019 | 2018 | |||||||
| Net Sales: | ||||||||
| Construction Products Segment | $ | 536,105 |
| $ | 517,492 |
| ||
| Performance Coatings Segment |
| 297,241 |
|
| 296,419 |
| ||
| Consumer Products Segment |
| 479,330 |
|
| 477,363 |
| ||
| Specialty Products Segment |
| 160,088 |
|
| 168,715 |
| ||
| Total | $ | 1,472,764 |
| $ | 1,459,989 |
| ||
| Income Before Income Taxes: | ||||||||
| Construction Products Segment | ||||||||
| Income Before Income Taxes (a) | $ | 82,680 |
| $ | 65,044 |
| ||
| Interest (Expense), Net (b) |
| (2,027 | ) |
| (2,290 | ) | ||
| EBIT (c) |
| 84,707 |
|
| 67,334 |
| ||
| 2020 MAP to Growth related initiatives (d) |
| 1,652 |
|
| 3,257 |
| ||
| Acquisition-related costs (e) |
| 548 |
| |||||
| Adjusted EBIT | $ | 86,907 |
| $ | 70,591 |
| ||
| Performance Coatings Segment | ||||||||
| Income Before Income Taxes (a) | $ | 28,057 |
| $ | 8,325 |
| ||
| Interest (Expense), Net (b) |
| (129 | ) |
| (118 | ) | ||
| EBIT (c) |
| 28,186 |
|
| 8,443 |
| ||
| 2020 MAP to Growth related initiatives (d) |
| 8,737 |
|
| 19,751 |
| ||
| Adjusted EBIT | $ | 36,923 |
| $ | 28,194 |
| ||
| Consumer Segment | ||||||||
| Income Before Income Taxes (a) | $ | 59,158 |
| $ | 50,969 |
| ||
| Interest (Expense), Net (b) |
| (105 | ) |
| (174 | ) | ||
| EBIT (c) |
| 59,263 |
|
| 51,143 |
| ||
| 2020 MAP to Growth related initiatives (d) |
| 2,433 |
|
| 864 |
| ||
| Adjusted EBIT | $ | 61,696 |
| $ | 52,007 |
| ||
| Specialty Segment | ||||||||
| Income Before Income Taxes (a) | $ | 23,327 |
| $ | 23,816 |
| ||
| Interest Income, Net (b) |
| 26 |
|
| 93 |
| ||
| EBIT (c) |
| 23,301 |
|
| 23,723 |
| ||
| 2020 MAP to Growth related initiatives (d) |
| 5,328 |
|
| 2,663 |
| ||
| Adjusted EBIT | $ | 28,629 |
| $ | 26,386 |
| ||
| Corporate/Other | ||||||||
| (Expense) Before Income Taxes (a) | $ | (50,373 | ) | $ | (56,216 | ) | ||
| Interest (Expense), Net (b) |
| (20,697 | ) |
| (19,484 | ) | ||
| EBIT (c) |
| (29,676 | ) |
| (36,732 | ) | ||
| 2020 MAP to Growth related initiatives (d) |
| 8,106 |
|
| 13,296 |
| ||
| Adjusted EBIT | $ | (21,570 | ) | $ | (23,436 | ) | ||
| Consolidated | ||||||||
| Income Before Income Taxes (a) | $ | 142,849 |
| $ | 91,938 |
| ||
| Interest (Expense) |
| (28,317 | ) |
| (24,406 | ) | ||
| Investment Income, Net |
| 5,385 |
|
| 2,433 |
| ||
| EBIT (c) |
| 165,781 |
|
| 113,911 |
| ||
| 2020 MAP to Growth related initiatives (d) |
| 26,256 |
|
| 39,831 |
| ||
| Acquisition-related costs (e) |
| 548 |
| |||||
| Adjusted EBIT | $ | 192,585 |
| $ | 153,742 |
| ||
| (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 and Adjusted 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, with Adjusted EBIT provided for the purpose of adjusting for items impacting earnings that are not considered by management to be indicative of ongoing operations. 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 and investment income or expense 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. |
| (d) | Reflects restructuring and other charges, all of which have been incurred in relation to our 2020 Margin Acceleration Plan initiatives, as follows. During fiscal 2020: headcount reductions, closures of facilities and related costs, all of which have been recorded in restructuring expense; inventory-related charges recorded in cost of goods sold that reflect product line and SKU rationalization at our Consumer Segment, as well as inventory write-offs in connection with restructuring activities at our Construction Products and Performance Coatings Segments; increases in our allowance for doubtful accounts deemed uncollectible as a result of a change in market and leadership strategy, and implementation costs associated with our ERP consolidation plan, professional fees incurred in connection with our 2020 MAP to Growth, all of which have been recorded in SG&A. During fiscal 2019: headcount reductions, closures of facilities, and accelerated vesting of equity awards in connection with key executives, all of which are included in restructuring expense; inventory-related charges reflecting a true-up of fiscal 2018 inventory write-offs at our Consumer Segment during the first quarter of fiscal 2019, inventory write-offs and disposals at our Construction Products and Performance Coatings Segments, and accelerated depreciation expense related to the shortened useful lives of facilities being prepared for closure; increases in our allowance for doubtful accounts deemed uncollectible as a result of a change in market and leadership strategy, implementation costs associated with our ERP consolidation plan, and professional fees incurred in connection with our restructuring plan implementation as well as the negotiation of a cooperation agreement, all of which have been recorded in SG&A. |
| (e) | Acquisition costs reflect amounts included in gross profit for inventory disposals and step-ups related to fiscal 2020 acquisitions. |
| SUPPLEMENTAL INFORMATION | |||||||
| RECONCILIATION OF "REPORTED" TO "ADJUSTED" AMOUNTS | |||||||
| (Unaudited) | |||||||
| Three Months Ended | |||||||
| August 31, | |||||||
| 2019 | 2018 | ||||||
| Reconciliation of Reported Earnings per Diluted Share to Adjusted Earnings per Diluted Share (All amounts presented after-tax): | |||||||
| Reported Earnings per Diluted Share | $ | 0.82 |
| $ | 0.52 | ||
| 2020 MAP to Growth related initiatives (d) |
| 0.15 |
|
| 0.24 | ||
| Investment returns (f) |
| (0.02 | ) | ||||
| Adjusted Earnings per Diluted Share (g) | $ | 0.95 |
| $ | 0.76 | ||
| (d) | Reflects restructuring and other charges, all of which have been incurred in relation to our 2020 Margin Acceleration Plan initiatives, as follows. During fiscal 2020: headcount reductions, closures of facilities and related costs, all of which have been recorded in restructuring expense; inventory-related charges recorded in cost of goods sold that reflect product line and SKU rationalization at our Consumer Segment, as well as inventory write-offs in connection with restructuring activities at our Construction Products and Performance Coatings Segments; increases in our allowance for doubtful accounts deemed uncollectible as a result of a change in market and leadership strategy, and implementation costs associated with our ERP consolidation plan, professional fees incurred in connection with our 2020 MAP to Growth, all of which have been recorded in SG&A. During fiscal 2019: headcount reductions, closures of facilities, and accelerated vesting of equity awards in connection with key executives, all of which are included in restructuring expense; inventory-related charges reflecting a true-up of fiscal 2018 inventory write-offs at our Consumer Segment during the first quarter of fiscal 2019, inventory write-offs and disposals at our Construction Products and Performance Coatings Segments, and accelerated depreciation expense related to the shortened useful lives of facilities being prepared for closure; increases in our allowance for doubtful accounts deemed uncollectible as a result of a change in market and leadership strategy, implementation costs associated with our ERP consolidation plan, and professional fees incurred in connection with our restructuring plan implementation as well as the negotiation of a cooperation agreement, all of which have been recorded in SG&A. |
| (f) | Investment returns include realized net gains and losses on sales of investments and unrealized net gains and losses on equity securities, which are adjusted due to their inherent volatility. Management does not consider these gains and losses, which cannot be predicted with any level of certainty, to be reflective of the company's core business operations. |
| (g) | Adjusted EPS is provided for the purpose of adjusting diluted earnings per share for items impacting earnings that are not considered by management to be indicative of ongoing operations. |
| CONSOLIDATED BALANCE SHEETS | ||||||||||||
| IN THOUSANDS | ||||||||||||
| (Unaudited) | ||||||||||||
| August 31, 2019 | August 31, 2018 | May 31, 2019 | ||||||||||
| Assets | ||||||||||||
| Current Assets | ||||||||||||
| Cash and cash equivalents | $ | 212,091 |
| $ | 202,183 |
| $ | 223,168 |
| |||
| Trade accounts receivable | 1,166,444 |
| 1,126,184 |
| 1,287,098 | |||||||
| Allowance for doubtful accounts | (57,185) |
| (55,558) |
| (54,748) | |||||||
| Net trade accounts receivable |
| 1,109,259 |
|
| 1,070,626 |
|
| 1,232,350 |
| |||
| Inventories |
| 860,518 |
|
| 853,573 |
|
| 841,873 |
| |||
| Prepaid expenses and other current assets |
| 234,401 |
|
| 306,333 |
|
| 220,701 |
| |||
| Total current assets |
| 2,416,269 |
|
| 2,432,715 |
|
| 2,518,092 |
| |||
| Property, Plant and Equipment, at Cost |
| 1,674,713 |
|
| 1,589,312 |
|
| 1,662,859 |
| |||
| Allowance for depreciation |
| (861,697 | ) |
| (812,253 | ) |
| (843,648 | ) | |||
| Property, plant and equipment, net |
| 813,016 |
|
| 777,059 |
|
| 819,211 |
| |||
| Other Assets | ||||||||||||
| Goodwill |
| 1,249,818 |
|
| 1,187,705 |
|
| 1,245,762 |
| |||
| Other intangible assets, net of amortization |
| 601,747 |
|
| 585,056 |
|
| 601,082 |
| |||
| Operating lease right-of-use assets |
| 257,628 |
|
| - |
|
| - |
| |||
| Deferred income taxes, non-current |
| 36,335 |
|
| 21,953 |
|
| 34,908 |
| |||
| Other |
| 221,612 |
|
| 218,904 |
|
| 222,300 |
| |||
| Total other assets |
| 2,367,140 |
|
| 2,013,618 |
|
| 2,104,052 |
| |||
| Total Assets | $ | 5,596,425 |
| $ | 5,223,392 |
| $ | 5,441,355 |
| |||
| Liabilities and Stockholders' Equity | ||||||||||||
| Current Liabilities | ||||||||||||
| Accounts payable | $ | 477,050 |
| $ | 500,913 |
| $ | 556,696 |
| |||
| Current portion of long-term debt |
| 582,611 |
|
| 3,376 |
|
| 552,446 |
| |||
| Accrued compensation and benefits |
| 119,349 |
|
| 119,037 |
|
| 193,345 |
| |||
| Accrued losses |
| 20,142 |
|
| 30,295 |
|
| 19,899 |
| |||
| Other accrued liabilities |
| 297,420 |
|
| 224,515 |
|
| 217,019 |
| |||
| Total current liabilities |
| 1,496,572 |
|
| 878,136 |
|
| 1,539,405 |
| |||
| Long-Term Liabilities | ||||||||||||
| Long-term debt, less current maturities |
| 2,018,185 |
|
| 2,267,159 |
|
| 1,973,462 |
| |||
| Operating lease liabilities |
| 215,131 |
|
| - |
|
| - |
| |||
| Other long-term liabilities |
| 407,285 |
|
| 360,074 |
|
| 405,040 |
| |||
| Deferred income taxes |
| 113,227 |
|
| 104,644 |
|
| 114,843 |
| |||
| Total long-term liabilities |
| 2,753,828 |
|
| 2,731,877 |
|
| 2,493,345 |
| |||
| Total liabilities |
| 4,250,400 |
|
| 3,610,013 |
|
| 4,032,750 |
| |||
| Commitments and contingencies | ||||||||||||
| Stockholders' Equity | ||||||||||||
| Preferred stock; none issued | ||||||||||||
| Common stock (outstanding 129,670; 133,408; 130,995) |
| 1,297 |
|
| 1,334 |
|
| 1,310 |
| |||
| Paid-in capital |
| 1,001,081 |
|
| 992,086 |
|
| 994,508 |
| |||
| Treasury stock, at cost |
| (543,650 | ) |
| (256,899 | ) |
| (437,290 | ) | |||
| Accumulated other comprehensive (loss) |
| (601,253 | ) |
| (493,026 | ) |
| (577,628 | ) | |||
| Retained earnings |
| 1,485,917 |
|
| 1,366,952 |
|
| 1,425,052 |
| |||
| Total RPM International Inc. stockholders' equity |
| 1,343,392 |
|
| 1,610,447 |
|
| 1,405,952 |
| |||
| Noncontrolling interest |
| 2,633 |
|
| 2,932 |
|
| 2,653 |
| |||
| Total equity |
| 1,346,025 |
|
| 1,613,379 |
|
| 1,408,605 |
| |||
| Total Liabilities and Stockholders' Equity | $ | 5,596,425 |
| $ | 5,223,392 |
| $ | 5,441,355 |
| |||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
| IN THOUSANDS | ||||||||
| (Unaudited) | ||||||||
| Three Months Ended | ||||||||
| August 31, | ||||||||
| 2019 | 2018 | |||||||
| Cash Flows From Operating Activities: | ||||||||
| Net income | $ | 106,496 |
| $ | 70,186 |
| ||
| Adjustments to reconcile net income to net | ||||||||
| cash provided by (used for) operating activities: | ||||||||
| Depreciation and amortization |
| 35,839 |
|
| 35,540 |
| ||
| Restructuring charges, net of payments |
| 611 |
|
| 7,084 |
| ||
| Deferred income taxes |
| (4,580 | ) |
| (561 | ) | ||
| Stock-based compensation expense |
| 6,560 |
|
| 6,668 |
| ||
| Other non-cash interest expense |
| 775 |
| |||||
| Realized/unrealized (gain) loss on sales of marketable securities |
| (2,854 | ) |
| 6 |
| ||
| Other |
| 250 |
|
| 992 |
| ||
| Changes in assets and liabilities, net of effect | ||||||||
| from purchases and sales of businesses: | ||||||||
| Decrease in receivables |
| 116,349 |
|
| 32,389 |
| ||
| (Increase) in inventory |
| (22,640 | ) |
| (27,207 | ) | ||
| (Increase) in prepaid expenses and other | ||||||||
| current and long-term assets |
| (5,801 | ) |
| (18,282 | ) | ||
| (Decrease) in accounts payable |
| (63,831 | ) |
| (88,271 | ) | ||
| (Decrease) in accrued compensation and benefits |
| (73,180 | ) |
| (56,747 | ) | ||
| Increase in accrued losses |
| 404 |
|
| 8,415 |
| ||
| Increase in other accrued liabilities |
| 50,588 |
|
| 20,857 |
| ||
| Other |
| 928 |
|
| 1,027 |
| ||
| Cash Provided By (Used For) Operating Activities |
| 145,139 |
|
| (7,129 | ) | ||
| Cash Flows From Investing Activities: | ||||||||
| Capital expenditures |
| (36,602 | ) |
| (28,295 | ) | ||
| Acquisition of businesses, net of cash acquired |
| (30,598 | ) |
| (26,366 | ) | ||
| Purchase of marketable securities |
| (9,996 | ) |
| (12,695 | ) | ||
| Proceeds from sales of marketable securities |
| 2,837 |
|
| 9,758 |
| ||
| Other |
| (97 | ) |
| (2,881 | ) | ||
| Cash (Used For) Investing Activities |
| (74,456 | ) |
| (60,479 | ) | ||
| Cash Flows From Financing Activities: | ||||||||
| Additions to long-term and short-term debt |
| 75,718 |
|
| 120,702 |
| ||
| Reductions of long-term and short-term debt |
| (874 | ) |
| (21,952 | ) | ||
| Cash dividends |
| (45,323 | ) |
| (42,715 | ) | ||
| Repurchases of common stock |
| (100,000 | ) |
| (6,994 | ) | ||
| Shares of common stock returned for taxes |
| (6,127 | ) |
| (13,587 | ) | ||
| Payments of acquisition-related contingent consideration |
| (131 | ) |
| (3,456 | ) | ||
| Other |
| (295 | ) |
| (319 | ) | ||
| Cash (Used For) Provided By Financing Activities |
| (77,032 | ) |
| 31,679 |
| ||
| Effect of Exchange Rate Changes on Cash and | ||||||||
| Cash Equivalents |
| (4,728 | ) |
| (6,310 | ) | ||
| Net Change in Cash and Cash Equivalents |
| (11,077 | ) |
| (42,239 | ) | ||
| Cash and Cash Equivalents at Beginning of Period |
| 223,168 |
|
| 244,422 |
| ||
| Cash and Cash Equivalents at End of Period | $ | 212,091 |
| $ | 202,183 |
| ||
View source version on businesswire.com: https://www.businesswire.com/news/home/20191002005269/en/
Source:
Russell L. Gordon, vice president and chief financial officer
330-273-5090 or rgordon@rpminc.com
