Specialty chemical products maker RPM International, Inc. (RPM) on Monday reported a 5% increase in profit for the first quarter, aided by cost-cutting measures and improvement in gross profit margins. The company noted that consumer segment performance offset continued weakness in its industrial segment. Looking ahead, the company now forecasts fiscal year 2010 earnings per share to be at the high end of the previously forecasted range.
First Quarter Results
The Medina, Ohio-based company's net income for the first quarter increased to $73.03 million, or $0.57 per share, from $69.52 million, or $0.53 per share, in the same period last year. On average, eight analysts polled by Thomson Reuters expected the company to report earnings of $0.44 per share for the quarter. Analysts estimates typically exclude special items.
Net sales for the quarter were $915.95 million, down 7.1% from $985.47 million in the year-ago period. Wall Street analysts had a consensus revenue estimate of $873.87 million for the quarter. Core sales growth declined 3.2%, with the balance of 3.9% attributable to negative foreign exchange translation.
The company's gross profit margin improved by 200 basis points, while selling, general and administrative expenses as a percent of sales increased 10 basis points on the lower sales volume, yet declined in absolute terms by 6.6%.
Commenting on the results, Frank Sullivan, chairman and chief executive officer of RPM International, said, "The advantage of our deliberate strategic balance between consumer and industrial markets was evident in the quarter as our consumer segment sales and EBIT growth offset continued weakness in our industrial segment. It was a solid quarter for RPM, reflecting the benefits of the aggressive actions we took last year to lower our cost base, resulting in net income that was ahead of last year's record first quarter."
Peer Performance
RPM serves the industrial and consumer sector, both of which were hit hard by the economic slump. The dormant housing industry, a hibernating construction sector and a somewhat increased consumer do-it-yourself market have hurt makers of specialty chemical products.
Pittsburgh, Pennsylvania-based PPG Industries Inc. (PPG) is slated to report its financial results for the third quarter on October 15, 2009. Analysts expect the company to report earnings of $0.88 per share for the quarter on revenues of $3.13 billion.
Cleveland, Ohio-based Sherwin-Williams Co. (SHW) is scheduled to report its financial results for the third quarter on October 20, 2009. Analysts expect the company to earn $1.35 per share on revenues of $2.01 billion for the quarter.
Segment Results
RPM's consumer segment, accounting for 34.5% of consolidated first-quarter sales, recorded core growth of 12.5% with a negative foreign exchange impact of 2.6%. Consumer sales for the quarter rose 9.9% to $316.24 million from $287.88 million in the prior-year period, while segment EBIT surged 54.1% from the year-ago period to $53.33 million. The company noted that volume growth, coupled with aggressive cost reduction actions last year, helped in producing excellent operating leverage for the consumer segment.
Sales for RPM's industrial segment, representing 65.5% of consolidated sales for the quarter, declined 14% to $599.71 million from $697.58 million in the previous-year quarter. Core sales growth declined 9.6%, while the balance of 4.4% resulted from the negative impact of foreign exchange. Segment EBIT declined 10.3% from the same period last year to $81.87 million. The industrial segment continued to face a depressed commercial construction environment and reduced capital spending in several markets.
RPM's capital expenditures for the quarter dropped to $3.3 million from $12.2 million in the year-ago quarter.
Total debt as at August 31, 2009 was $906.7 million, compared to $930.8 million as at May 31, 2009 and $972.5 million at the end of the year-ago quarter.
The company's asbestos indemnity and defense cash costs were $18.6 million in the first quarter, compared to $16.0 million a year ago. The company's total accrued asbestos liability was $471.8 million.
Outlook
For fiscal year 2010, RPM now forecasts earnings at the higher end of the previously-stated earnings per share growth guidance range of 5%-25% over the adjusted $1.05 per share earned in fiscal 2009. The forecast range implies earnings in a range of $1.10-$1.31 per share. Analysts expect the company to report earnings of $1.22 per share for the year.
Sullivan said, "Our first-quarter results were better than we anticipated, which certainly gives us a good start to the fiscal year. The sequential increase in sales from the fiscal 2009 fourth quarter of 6.8% is a marked change from previous years where the first quarter is typically lower than the fourth quarter. We see this as a bullish sign of a slowly improving economy."
Stock Quotes
In Monday's regular trading session, RPM is trading at $18.42, up $0.34 or 1.85% on a volume of 0.20 million shares. In the past 52 weeks, the stock has been trading in a range of $9.09-$18.82.
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