- Sales increase 8.5% to first-quarter record
- Raw material costs and restructuring expenses affect profitability
- Operating improvement plan implementation continues to streamline costs
-
Comprehensive plan update to be provided at
November 28 investor day
First-Quarter Results
Fiscal 2019 first-quarter net sales were a record
“We saw strong top-line sales growth in the first quarter, with organic
sales growth up 7.8%, while profitability continued to be adversely
affected by rising raw material costs. In addition, bottom-line results
reflected the impact of restructuring charges, higher legal and
advertising costs in our consumer segment, and the adverse effect of
transactional foreign exchange,” stated
“Our team is focused on driving increased profitability, long-term growth and enhanced value for our shareholders, and we are making good progress in executing on our operating improvement plan, which is specifically designed to increase margins, reduce working capital, and improve overall operating efficiency. During the quarter, we continued our strategic restructuring initiatives, including the reduction of more than 150 positions and the announced closure of four manufacturing facilities, all in line with our 2020 Margin Acceleration Plan,” stated Sullivan.
First-Quarter Segment Sales and Earnings
The company’s industrial segment net sales increased 7.2%, to
“The industrial segment benefited from especially strong performance in North American waterproofing and a healthy recovery in our businesses serving the oil and gas sector. Leverage to the bottom line was masked by unfavorable transactional foreign exchange expense resulting from the strengthening of the dollar versus certain international currencies,” stated Sullivan. “In the process of realigning our global brands, we adjusted our leadership structure, initiated the closure of two plants and discontinued certain international product lines.”
RPM’s consumer segment generated a 13.6% increase in sales to
“Consumer segment sales were strong due to new accounts and market share gains, particularly in wood stains and automotive finishes,” stated Sullivan. “As previously discussed during our fiscal 2018 fourth-quarter conference call, we anticipated that the fiscal 2019 first quarter would be the high-water mark for margin erosion in the consumer segment. We responded with price increases late in the first quarter to help address this. In addition, legal costs accounted for nearly half of the EBIT decline for the quarter, with much of the remainder resulting from stepped up advertising to support recent market share gains.”
RPM’s specialty segment reported sales growth of 2.3%, to
“Specialty segment first-quarter results for the prior year were elevated by our water damage restoration businesses’ response to Hurricane Harvey, which created tougher year-over-year comparisons. Also, the first quarter of fiscal 2019 is the last quarter of negative comparisons related to the NatureSeal patent expiration last August,” Sullivan stated.
Cash Flow and Financial Position
During the fiscal 2019 first quarter, cash used from operations was
Total debt at
Business Outlook
“Our businesses will continue to aggressively pursue price increases to
protect our gross profit margins in the face of continued raw material
cost escalation. With asbestos trust payments now behind us, we are
implementing strategic initiatives to enhance shareholder value through
operational improvements and improved capital allocation. The current
phase of our restructuring program is proceeding as scheduled with
recently announced plant closings and leadership realignment. We will
share a comprehensive update on our plan at an investor day on
Webcast and Conference Call Information
Management will host a conference call to discuss the quarter’s 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) risks related to the
adequacy of our contingent liability reserves; and (j) other risks
detailed in our filings with the
| CONSOLIDATED STATEMENTS OF INCOME | ||||||||||
| IN THOUSANDS, EXCEPT PER SHARE DATA | ||||||||||
| (Unaudited) | ||||||||||
| Three Months Ended | ||||||||||
| August 31, | ||||||||||
| 2018 | 2017 | |||||||||
| Net Sales | $ | 1,459,989 | $ | 1,345,394 | ||||||
| Cost of sales | 865,947 | 773,386 | ||||||||
| Gross profit | 594,042 | 572,008 | ||||||||
| Selling, general & administrative expenses | 459,742 | 394,409 | ||||||||
| Restructuring charges | 20,076 | |||||||||
| Interest expense | 24,406 | 26,773 | ||||||||
| Investment (income), net | (2,433 | ) | (4,453 | ) | ||||||
| Other expense (income), net | 313 | (5 | ) | |||||||
| Income before income taxes | 91,938 | 155,284 | ||||||||
| Provision for income taxes | 21,752 | 38,381 | ||||||||
| Net income | 70,186 | 116,903 | ||||||||
| Less: Net income attributable to noncontrolling interests | 422 | 487 | ||||||||
| Net income attributable to RPM International Inc. Stockholders | $ | 69,764 | $ | 116,416 | ||||||
| Earnings per share of common stock attributable to | ||||||||||
| RPM International Inc. Stockholders: | ||||||||||
| Basic | $ | 0.52 | $ | 0.87 | ||||||
| Diluted | $ | 0.52 | $ | 0.86 | ||||||
| Average shares of common stock outstanding - basic | 131,861 | 131,236 | ||||||||
| Average shares of common stock outstanding - diluted | 136,430 | 135,720 | ||||||||
| SUPPLEMENTAL SEGMENT INFORMATION | ||||||||||
| IN THOUSANDS | ||||||||||
| (Unaudited) | ||||||||||
| Three Months Ended | ||||||||||
| August 31, | ||||||||||
| 2018 | 2017 | |||||||||
| Net Sales: | ||||||||||
| Industrial Segment | $ | 781,973 | $ | 729,768 | ||||||
| Consumer Segment | 485,196 | 427,144 | ||||||||
| Specialty Segment | 192,820 | 188,482 | ||||||||
| Total | $ | 1,459,989 | $ | 1,345,394 | ||||||
| Income Before Income Taxes: | ||||||||||
| Industrial Segment | ||||||||||
| Income Before Income Taxes (a) | $ | 69,057 | $ | 88,902 | ||||||
| Interest (Expense), Net (b) | (2,393 | ) | (2,554 | ) | ||||||
| EBIT (c) | 71,450 | 91,456 | ||||||||
| Inventory-related charges (d) | 4,477 | |||||||||
| Restructuring charges (e) | 7,379 | |||||||||
| Facility closure expense - other (f) | 2,440 | |||||||||
| Receivable reserves (g) | 8,020 | |||||||||
| Adjusted EBIT | $ | 93,766 | $ | 91,456 | ||||||
| Consumer Segment | ||||||||||
| Income Before Income Taxes (a) | $ | 51,296 | $ | 72,368 | ||||||
| Interest (Expense), Net (b) | (165 | ) | (196 | ) | ||||||
| EBIT (c) | 51,461 | 72,564 | ||||||||
| Inventory-related charges (d) | (153 | ) | ||||||||
| Restructuring charges (e) | 1,551 | |||||||||
| Facility closure expense - other (f) | 11 | |||||||||
| Adjusted EBIT | $ | 52,870 | $ | 72,564 | ||||||
| Specialty Segment | ||||||||||
| Income Before Income Taxes (a) | $ | 27,801 | $ | 33,167 | ||||||
| Interest Income, Net (b) | 69 | 120 | ||||||||
| EBIT (c) | 27,732 | 33,047 | ||||||||
| Restructuring charges (e) | 2,147 | |||||||||
| Facility closure expense - other (f) | 4 | |||||||||
| ERP consolidation plan (h) | 659 | |||||||||
| Adjusted EBIT | $ | 30,542 | $ | 33,047 | ||||||
| Corporate/Other | ||||||||||
| (Expense) Before Income Taxes (a) | $ | (56,216 | ) | $ | (39,153 | ) | ||||
| Interest (Expense), Net (b) | (19,484 | ) | (19,690 | ) | ||||||
| EBIT (c) | (36,732 | ) | (19,463 | ) | ||||||
| Restructuring charges (e) | 8,999 | |||||||||
| Professional fees for negotiation of cooperation agreement (i) | 4,297 | |||||||||
| Adjusted EBIT | $ | (23,436 | ) | $ | (19,463 | ) | ||||
| Consolidated | ||||||||||
| Income Before Income Taxes (a) | $ | 91,938 | $ | 155,284 | ||||||
| Interest (Expense), Net (b) | (21,973 | ) | (22,320 | ) | ||||||
| EBIT (c) | 113,911 | 177,604 | ||||||||
| Inventory-related charges (d) | 4,324 | |||||||||
| Restructuring charges (e) | 20,076 | |||||||||
| Facility closure expense - other (f) | 2,455 | |||||||||
| Receivable reserves (g) | 8,020 | |||||||||
| ERP consolidation plan (h) | 659 | |||||||||
| Professional fees for negotiation of cooperation agreement (i) | 4,297 | |||||||||
| Adjusted EBIT | $ | 153,742 | $ | 177,604 | ||||||
| (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 one-off items impacting revenues and/or expenses 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 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) | Inventory-related charges reflect a true-up of prior inventory write-offs at our Consumer Segment and current period inventory write-offs and disposals at our Industrial Segment, all of which have been recorded in cost of goods sold during the first quarter of fiscal 2019 in connection with our restructuring activities. | |
| (e) | Reflects restructuring charges, including headcount reductions, closures of facilities and accelerated vesting of equity awards in connection with key executives, all in relation to our 2020 Margin Acceleration Plan initiatives. | |
| (f) | Includes accelerated depreciation expense related to the shortened useful lives of facilities currently operating, but are in the process of being prepared for closure. | |
| (g) | Reflects the increase in our allowance for doubtful accounts deemed uncollectible as a result of a change in market and leadership strategy. | |
| (h) | Includes implementation costs associated with the current phase of our ERP consolidation plan. | |
| (i) | Comprises professional fees incurred in connection with the negotiation of a cooperation agreement. Refer to Form 8-K as filed on June 28, 2018. | |
| SUPPLEMENTAL INFORMATION | |||||||||
| RECONCILIATION OF "REPORTED" TO "ADJUSTED" AMOUNTS | |||||||||
| (Unaudited) | |||||||||
| Three Months Ended | |||||||||
| August 31, | |||||||||
| 2018 | 2017 | ||||||||
|
Reconciliation of Reported Earnings per
Diluted Share to Adjusted |
|||||||||
| Reported Earnings per Diluted Share | $ | 0.52 | $ | 0.86 | |||||
| Inventory-related charges (d) | 0.03 | ||||||||
| Restructuring charges (e) | 0.11 | ||||||||
| Facility closure expense - other (f) | 0.01 | ||||||||
| Receivable reserves (g) | 0.06 | ||||||||
| ERP consolidation plan (h) | 0.01 | ||||||||
| Professional fees for negotiation of cooperation agreement (i) | 0.02 | ||||||||
| Adjusted Earnings per Diluted Share (j) | $ | 0.76 | $ | 0.86 | |||||
| (d) | Inventory-related charges reflect a true-up of prior inventory write-offs at our Consumer Segment and current period inventory write-offs and disposals at our Industrial Segment, all of which have been recorded in cost of goods sold during the first quarter of fiscal 2019 in connection with our restructuring activities. | |
| (e) | Reflects restructuring charges, including headcount reductions, closures of facilities and accelerated vesting of equity awards in connection with key executives, all in relation to our 2020 Margin Acceleration Plan initiatives. | |
| (f) | Includes accelerated depreciation expense related to the shortened useful lives of facilities currently operating, but are in the process of being prepared for closure. | |
| (g) | Reflects the increase in our allowance for doubtful accounts deemed uncollectible as a result of a change in market and leadership strategy. | |
| (h) | Includes implementation costs associated with the current phase of our ERP consolidation plan. | |
| (i) | Comprises professional fees incurred in connection with the negotiation of a cooperation agreement. Refer to Form 8-K as filed on June 28, 2018. | |
| (j) | Adjusted EPS is provided for the purpose of adjusting diluted earnings per share for one-off items impacting revenues and/or expenses that are not considered by management to be indicative of ongoing operations. | |
| CONSOLIDATED BALANCE SHEETS | ||||||||||||||||
| IN THOUSANDS | ||||||||||||||||
| (Unaudited) | ||||||||||||||||
| August 31, 2018 | August 31, 2017 | May 31, 2018 | ||||||||||||||
| Assets | ||||||||||||||||
| Current Assets | ||||||||||||||||
| Cash and cash equivalents | $ | 202,183 | $ | 236,191 | $ | 244,422 | ||||||||||
| Trade accounts receivable | 1,126,184 | 1,060,147 | 1,160,162 | |||||||||||||
| Allowance for doubtful accounts |
(55,558) |
(45,063) |
(46,344) |
|||||||||||||
| Net trade accounts receivable | 1,070,626 | 1,015,084 | 1,113,818 | |||||||||||||
| Inventories | 853,573 | 851,312 | 834,461 | |||||||||||||
| Prepaid expenses and other current assets | 306,333 | 260,361 | 278,230 | |||||||||||||
| Total current assets | 2,432,715 | 2,362,948 | 2,470,931 | |||||||||||||
| Property, Plant and Equipment, at Cost | 1,589,312 | 1,526,565 | 1,575,875 | |||||||||||||
| Allowance for depreciation | (812,253 | ) | (770,692 | ) | (795,569 | ) | ||||||||||
| Property, plant and equipment, net | 777,059 | 755,873 | 780,306 | |||||||||||||
| Other Assets | ||||||||||||||||
| Goodwill | 1,187,705 | 1,169,083 | 1,192,174 | |||||||||||||
| Other intangible assets, net of amortization | 585,056 | 587,274 | 584,272 | |||||||||||||
| Deferred income taxes, non-current | 21,953 | 22,126 | 21,897 | |||||||||||||
| Other | 218,904 | 211,612 | 222,242 | |||||||||||||
| Total other assets | 2,013,618 | 1,990,095 | 2,020,585 | |||||||||||||
| Total Assets | $ | 5,223,392 | $ | 5,108,916 | $ | 5,271,822 | ||||||||||
| Liabilities and Stockholders' Equity | ||||||||||||||||
| Current Liabilities | ||||||||||||||||
| Accounts payable | $ | 500,913 | $ | 469,954 | $ | 592,281 | ||||||||||
| Current portion of long-term debt | 3,376 | 254,061 | 3,501 | |||||||||||||
| Accrued compensation and benefits | 119,037 | 115,124 | 177,106 | |||||||||||||
| Accrued losses | 30,295 | 26,406 | 22,132 | |||||||||||||
| Other accrued liabilities | 224,515 | 229,602 | 211,706 | |||||||||||||
| Total current liabilities | 878,136 | 1,095,147 | 1,006,726 | |||||||||||||
| Long-Term Liabilities | ||||||||||||||||
| Long-term debt, less current maturities | 2,267,159 | 1,868,229 | 2,170,643 | |||||||||||||
| Other long-term liabilities | 360,074 | 491,677 | 356,892 | |||||||||||||
| Deferred income taxes | 104,644 | 91,660 | 104,023 | |||||||||||||
| Total long-term liabilities | 2,731,877 | 2,451,566 | 2,631,558 | |||||||||||||
| Total liabilities | 3,610,013 | 3,546,713 | 3,638,284 | |||||||||||||
| Commitments and contingencies | ||||||||||||||||
| Stockholders' Equity | ||||||||||||||||
| Preferred stock; none issued | ||||||||||||||||
| Common stock (outstanding 133,408; 133,537; 133,647) | 1,334 | 1,335 | 1,336 | |||||||||||||
| Paid-in capital | 992,086 | 961,956 | 982,067 | |||||||||||||
| Treasury stock, at cost | (256,899 | ) | (223,567 | ) | (236,318 | ) | ||||||||||
| Accumulated other comprehensive (loss) | (493,026 | ) | (429,382 | ) | (459,048 | ) | ||||||||||
| Retained earnings | 1,366,952 | 1,248,769 | 1,342,736 | |||||||||||||
| Total RPM International Inc. stockholders' equity | 1,610,447 | 1,559,111 | 1,630,773 | |||||||||||||
| Noncontrolling interest | 2,932 | 3,092 | 2,765 | |||||||||||||
| Total equity | 1,613,379 | 1,562,203 | 1,633,538 | |||||||||||||
| Total Liabilities and Stockholders' Equity | $ | 5,223,392 | $ | 5,108,916 | $ | 5,271,822 | ||||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||
| IN THOUSANDS | ||||||||||
| (Unaudited) | ||||||||||
| Three Months Ended | ||||||||||
| August 31, | ||||||||||
| 2018 | 2017 | |||||||||
| Cash Flows From Operating Activities: | ||||||||||
| Net income | $ | 70,186 | $ | 116,903 | ||||||
| Adjustments to reconcile net income to net | ||||||||||
| cash provided by (used for) operating activities: | ||||||||||
| Depreciation | 24,068 | 19,893 | ||||||||
| Amortization | 11,472 | 11,483 | ||||||||
| Restructuring charges, net of payments | 7,084 | |||||||||
| Deferred income taxes | (561 | ) | 9,815 | |||||||
| Stock-based compensation expense | 6,668 | 7,465 | ||||||||
| Other non-cash interest expense | 775 | 1,422 | ||||||||
| Realized loss (gain) on sales of marketable securities | 6 | (2,861 | ) | |||||||
| Other | 992 | (140 | ) | |||||||
| Changes in assets and liabilities, net of effect | ||||||||||
| from purchases and sales of businesses: | ||||||||||
| Decrease in receivables | 32,389 | 1,646 | ||||||||
| (Increase) in inventory | (27,207 | ) | (46,771 | ) | ||||||
| (Increase) in prepaid expenses and other | ||||||||||
| current and long-term assets | (18,282 | ) | (10,865 | ) | ||||||
| (Decrease) in accounts payable | (88,271 | ) | (72,688 | ) | ||||||
| (Decrease) in accrued compensation and benefits | (56,747 | ) | (69,008 | ) | ||||||
| Increase (decrease) in accrued losses | 8,415 | (5,765 | ) | |||||||
| Increase in other accrued liabilities | 20,857 | 20,147 | ||||||||
| Other | 1,027 | (6,765 | ) | |||||||
| Cash (Used For) Operating Activities | (7,129 | ) | (26,089 | ) | ||||||
| Cash Flows From Investing Activities: | ||||||||||
| Capital expenditures | (28,295 | ) | (17,533 | ) | ||||||
| Acquisition of businesses, net of cash acquired | (26,366 | ) | (36,169 | ) | ||||||
| Purchase of marketable securities | (12,695 | ) | (56,275 | ) | ||||||
| Proceeds from sales of marketable securities | 9,758 | 40,792 | ||||||||
| Other | (2,881 | ) | 702 | |||||||
| Cash (Used For) Investing Activities | (60,479 | ) | (68,483 | ) | ||||||
| Cash Flows From Financing Activities: | ||||||||||
| Additions to long-term and short-term debt | 120,702 | 19,125 | ||||||||
| Reductions of long-term and short-term debt | (21,952 | ) | (760 | ) | ||||||
| Cash dividends | (42,714 | ) | (40,089 | ) | ||||||
| Shares of common stock repurchased and shares returned for taxes | (20,581 | ) | (5,346 | ) | ||||||
| Payments of acquisition-related contingent consideration | (3,456 | ) | (3,258 | ) | ||||||
| Other | (320 | ) | (747 | ) | ||||||
| Cash Provided By (Used For) Financing Activities | 31,679 | (31,075 | ) | |||||||
| Effect of Exchange Rate Changes on Cash and | ||||||||||
| Cash Equivalents | (6,310 | ) | 11,341 | |||||||
| Net Change in Cash and Cash Equivalents | (42,239 | ) | (114,306 | ) | ||||||
| Cash and Cash Equivalents at Beginning of Period | 244,422 | 350,497 | ||||||||
| Cash and Cash Equivalents at End of Period | $ | 202,183 | $ | 236,191 | ||||||
View source version on businesswire.com: https://www.businesswire.com/news/home/20181003005304/en/
Source:
RPM International Inc.
Russell L. Gordon, 330-273-5090
vice
president and chief financial officer
rgordon@rpminc.com
