RPM Reports Fiscal 2013 First-Quarter Results - Sales increase 6%

- Diluted earnings per share up 8.5%, excluding one-time adjustments

- Earnings guidance raised for FY 2013, excluding one-time adjustments

MEDINA, Ohio, Oct. 3, 2012 /PRNewswire/ -- RPM International Inc. (NYSE: RPM) today reported its financial results for its fiscal 2013 first quarter ended August 31, 2012 and raised its earnings guidance for the full fiscal year, excluding one-time adjustments.   

First-Quarter Results

Fiscal 2013 first-quarter net sales of $1.05 billion increased 6.2% over the $985.9 million reported a year ago.  Including one-time adjustments, consolidated EBIT for the fiscal 2013 first quarter was $83.5 million compared to $136.5 million a year ago.  First-quarter net income after one-time adjustments was $33.9 million, or $0.26 per diluted share, compared to $76.8 million, or $0.59 per diluted share, in the fiscal 2012 first period.  Excluding one-time adjustments, consolidated EBIT was $139.8 million, up 2.4% from the fiscal 2012 first quarter.  Net income of $84.8 million excluding adjustments was up 10.4% from a year ago.  First-quarter diluted earnings per share, excluding adjustments was $0.64, an 8.5% increase over the $0.59 reported last year. 

During the quarter, the company incurred a one-time, non-cash charge of $45.3 million for the write-down of its investments in Kemrock Industries and Exports Limited in India, based on deteriorating local economic conditions and their impact on Kemrock's stock price and operating performance.  The company also incurred an $11.0 million charge in the roofing division at RPM's Building Solutions Group, principally associated with the strategic decision to exit certain unprofitable contracts outside of North America in order to better focus on the company's successful core roofing business in the U.S. and Canada.

"First-quarter operating results were on plan, with both our industrial and consumer segments posting increases in sales and EBIT, prior to the one-time adjustments that impacted the industrial segment. Most of our operating units are seeing growth in unit volume, pricing improvement and a stabilization of raw material prices," stated Frank C. Sullivan, chairman and chief executive officer.

First-Quarter Segment Sales and Earnings

RPM's consumer segment reported a 7.7% increase in sales to $343.4 million from $318.9 million in the fiscal 2012 first quarter. Organic sales were up 6.1%, including 5.3% in volume growth and 2.4% from pricing, partially offset by 1.6% in foreign exchange translation losses. Acquisition growth added 1.6%.  Consumer segment EBIT improved 14.2% to $58.8 million in the fiscal 2013 first quarter from $51.5 million in the same period a year ago, driven primarily by higher sales volume and improved leverage on selling, general and administrative expenses.  

"Our consumer segment performed well in the quarter, with a solid sales increase driven by higher volume resulting from continued market share gains and increased traction for newer, innovative products with higher selling prices than our conventional consumer offerings.  The segment is also benefiting from the gradual recovery of the U.S. housing market," Sullivan stated. 

The company's industrial segment sales, including adjustments, improved 5.4%, to $703.3 million from $667.0 million a year ago, with 1.0% in volume improvement, 1.8% in pricing increases, and acquisition growth of 8.1%, all of which were partially offset by 5.5% in foreign exchange losses.  Including adjustments, industrial segment EBIT declined 16.8% to $76.9 million.  Excluding one-time adjustments, first-quarter sales increased 5.9% to $706.2 million and EBIT increased 5.6% to $97.7 million from $92.5 million in the fiscal 2012 first quarter.

"We are seeing gradual improvement in North American commercial construction, which affects about 30% of our industrial segment and which is still considerably below its pre-recession peak. Other industrial businesses showing strength included Carboline corrosion control and fireproofing products, Stonhard high-performance polymer flooring and several of our North American-based RPM2 companies. Our European-based businesses are down in sales year-over-year due to general weakness in European markets, combined with unfavorable foreign exchange translation.   In contrast to our other major North American based businesses, our roofing division is also suffering year-over-year declines," stated Sullivan. 

Cash Flow and Financial Position

During the fiscal 2013 first quarter, cash from operations was $17.7 million, up from $7.5 million a year ago.  Capital expenditures were $12.7 million in the quarter, compared to $4.9 million in the year-ago period.  Depreciation was $13.3 million during the first quarter of fiscal 2013, compared to $13.0 million for the same period last year.  

Total debt at August 31, 2012 of $1.2 billion compares to $1.1 billion at May 31, 2012 and $1.1 billion at the end of last year's first quarter. Net (of cash) debt-to-total capital was 43.5%, versus 36.0% at the end of last year's first quarter and 40.3% at the end of the prior fiscal year. Liquidity, including cash, was $870.8 million, compared to $834.3 million a year ago and $813.1 million at May 31, 2012.

"RPM's strong cash and liquidity position gives us confidence to continue to support a growing cash dividend, as well as a vigorous acquisition program, which has added companies generating more than $410 million in annual sales to the RPM family of companies since the beginning of fiscal 2012," Sullivan stated. "Our debt-to-total capital ratio remains at the low end of our historic norms, and we are continuing to pursue acquisitions that complement our core competencies."  

Recent Acquisitions Boost Sales, Broaden Product Lines and Extend Geographic Reach

"During the first four months of fiscal 2013, we acquired three companies with annual sales approximating $225 million.  Moreover, through them, we added a significant product line extension to our consumer offerings, established a strong foothold in one of the world's largest geographic markets and entered an entirely new product category," Sullivan stated.  Acquisitions, all of which are expected to be accretive to earnings within one year, included:

  • Synta, Inc., a producer and marketer of innovative and unique exterior wood deck and concrete restoration systems sold through leading national home centers and marketed under the brands of Deck Restore and Concrete Restore.  The company's products also include a craft coatings line.  Synta, which was acquired by RPM's Rust-Oleum Group on September 21, 2012, has annualized sales expected to exceed $40 million, and is based in Clarkston, Ga. 
  • Kirker Enterprises, Inc., a leading manufacturer of nail care enamels, coatings components and related products for the personal care industry, which was acquired by the RPM2 Group on September 5, 2012. Based in Patterson, N.J., Kirker has annual sales of more than $100 million.
  • Viapol Ltda., a leading Brazilian manufacturer and marketer of building materials and construction products, which was acquired  on June 19, 2012 and is operating as part of The Euclid Chemical Group, a unit of RPM's Building Solutions Group.  Viapol, with annual sales of approximately $85 million, offers products that include rolled asphalt roofing materials, waterproofing systems, concrete admixtures, industrial epoxy flooring systems, and retail paints, varnishes and stains.  From its base in Cacapava, Brazil, Viapol serves the largest economy in South America and sixth largest in the world. 

Business Outlook

"Based on our first-quarter results and outlook, we are increasing  our fiscal 2013 sales guidance issued with our fiscal 2012 year-end earnings release on July 23, 2012, which anticipated consolidated sales growth in a range of 5% to 10%, to a consolidated sales increase of 8% to 10%.  Our earnings guidance at that time was also in the range of 5% to 10%. We now expect net income and diluted earnings per share for fiscal 2013 to increase between 9% and 12%, or $1.80 to $1.85 per share, prior to one-time adjustments, as a result of continued robust growth in North America, recent acquisitions and more favorable foreign currency comparisons during the back half of this fiscal year," stated Sullivan. 

Webcast and Conference Call Information

Management will host a conference call to further discuss these results beginning at 10:00 a.m. EDT today.  The call can be accessed by dialing 800-510-0178 or 617-614-3450 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 1:00 p.m. EDT today until 11:59 p.m. EDT on October 10, 2012.  The replay can be accessed by dialing 888-286-8010 or 617-801-6888 for international callers.  The access code is 47920564.  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, Universal Sealants 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 Zinsser, Rust-Oleum, DAP, 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; (j) risks and uncertainties associated with the SPHC bankruptcy proceedings; 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, 2012, 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)




















AS REPORTED




AS ADJUSTED






Three Months




Three Months


Three Months




Ended




Ended


Ended




August 31,


One-Time


August 31,


August 31,




2012


Adjustments


2012


2011











Net Sales


$     1,046,714


$           2,878


$     1,049,592


$        985,918

Cost of sales


612,834


(2,541)


610,293


576,292

Gross profit


433,880


5,419

(1)

439,299


409,626

Selling, general & administrative expenses


310,940


(10,588)

(2)

300,352


273,943

Interest expense


18,430




18,430


17,806

Investment (income), net


(6,974)




(6,974)


(24)

Other expense (income), net


39,422


(40,273)

(3)

(851)


(803)

Income before income taxes


72,062


56,280


128,342


118,704

Provision for income taxes


34,195


3,768


37,963


35,364

Net income


37,867


52,512


90,379


83,340

Less:  Net income attributable to noncontrolling interests


3,954


1,606


5,560


6,529

Net income attributable to RPM International Inc. Stockholders


$          33,913


$         50,906


$          84,819


$          76,811











Earnings per share of common stock attributable to RPM International Inc. Stockholders:



















Basic


$             0.26


$            0.38


$             0.64


$             0.59











Diluted


$             0.26


$            0.38


$             0.64


$             0.59











Average shares of common stock outstanding - basic 


128,805


128,805


128,805


128,094











Average shares of common stock outstanding - diluted


129,570


129,570


129,570


128,628





















(1)

 Represents an adjustment for revised cost estimates in the Roofing Division of RPM's Building Solutions Group in conjunction with unprofitable contracts outside of North America. 

(2)

 Adjustment includes $5,588 in Roofing exit costs and $5,000 of charges relating to Kemrock investment write-downs at RPM's Performance Coatings Group. 

(3)

 Write-downs of Kemrock investments, including $35,538 at Corporate and $4,735 at RPM's Performance Coatings Group. 





















SUPPLEMENTAL SEGMENT INFORMATION









IN THOUSANDS









(Unaudited)


AS REPORTED




AS ADJUSTED






Three Months




Three Months


Three Months




Ended




Ended


Ended




August 31,


One-Time


August 31,


August 31,




2012


Adjustments


2012


2011

Net Sales:










Industrial Segment


$        703,335


$           2,878


$        706,213


$        667,016


Consumer Segment


343,379




343,379


318,902


     Total


$     1,046,714


$           2,878


$     1,049,592


$        985,918











Income Before Income Taxes (a):










Industrial Segment










     Income Before Income Taxes (a)


$          74,304


$         20,742


$          95,046


$          91,546


     Interest (Expense), Net (b)


(2,608)




(2,608)


(917)


     EBIT (c)


$          76,912


$         20,742


$          97,654


$          92,463


Consumer Segment










     Income Before Income Taxes (a)


$          58,788


$                  -


$          58,788


$          51,512


     Interest (Expense), Net (b)








36


     EBIT (c)


$          58,788


$                  -


$          58,788


$          51,476


Corporate/Other










     (Expense) Before Income Taxes (a)


$         (61,030)


$         35,538


$         (25,492)


$         (24,354)


     Interest (Expense), Net (b)


(8,848)




(8,848)


(16,901)


     EBIT (c)


$         (52,182)


$         35,538


$         (16,644)


$           (7,453)


     Consolidated










          Income Before Income Taxes (b)


$          72,062


$         56,280


$        128,342


$        118,704


          Interest (Expense), Net (b)


(11,456)




(11,456)


(17,782)


          EBIT (c)


$          83,518


$         56,280


$        139,798


$        136,486





















(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


















August 31, 2012


August 31, 2011


May 31, 2012




(Unaudited)


(Unaudited)



Assets







Current Assets








Cash and cash equivalents


$             257,382


$             373,355


$             315,968


Trade accounts receivable


787,174


752,035


772,048


Allowance for doubtful accounts


(26,874)


(27,030)


(26,507)


Net trade accounts receivable


760,300


725,005


745,541


Inventories


525,323


495,830


489,978


Deferred income taxes


20,083


17,686


19,868


Prepaid expenses and other current assets


231,773


243,467


239,982


Total current assets


1,794,861


1,855,343


1,811,337









Property, Plant and Equipment, at Cost


1,094,665


1,010,855


1,050,965


Allowance for depreciation and amortization


(648,961)


(623,416)


(632,133)


Property, plant and equipment, net


445,704


387,439


418,832

Other Assets








Goodwill


954,969


842,431


849,346


Other intangible assets, net of amortization


380,624


320,082


345,620


Other


95,649


111,798


134,885


Total other assets


1,431,242


1,274,311


1,329,851









Total Assets


$          3,671,807


$          3,517,093


$          3,560,020









Liabilities and Stockholders' Equity







Current Liabilities








Accounts payable


$             347,245


$             335,453


$             391,467


Current portion of long-term debt


3,097


2,343


2,584


Accrued compensation and benefits


115,599


112,789


166,178


Accrued loss reserves


56,056


55,023


54,652


Other accrued liabilities


184,325


177,684


144,911


Total current liabilities


706,322


683,292


759,792









Long-Term Liabilities








Long-term debt, less current maturities


1,199,513


1,103,078


1,112,952


Other long-term liabilities


350,511


232,904


346,967


Deferred income taxes


45,861


62,082


26,326


Total long-term liabilities


1,595,885


1,398,064


1,486,245


   Total liabilities


2,302,207


2,081,356


2,246,037









Stockholders' Equity








Preferred stock; none issued








Common stock (outstanding 132,013; 131,131; 131,555)

1,320


1,311


1,316


Paid-in capital


748,912


739,181


742,895


Treasury stock, at cost


(69,740)


(62,765)


(69,480)


Accumulated other comprehensive (loss)


(146,701)


(5,810)


(177,893)


Retained earnings


692,449


632,422


686,818


     Total RPM International Inc. stockholders' equity

1,226,240


1,304,339


1,183,656


Noncontrolling interest


143,360


131,398


130,327


     Total equity


1,369,600


1,435,737


1,313,983









Total Liabilities and Stockholders' Equity


$          3,671,807


$          3,517,093


$          3,560,020

 

CONSOLIDATED STATEMENTS OF CASH FLOWS




IN THOUSANDS






(Unaudited)









Three Months Ended





August 31,





2012


2011








Cash Flows From Operating Activities:





  Net income



$      37,867


$        83,340

  Adjustments to reconcile net income to net





          cash provided by operating activities:





               Depreciation



13,330


13,009

               Amortization



6,028


5,110

               Impairment loss on investment in Kemrock

40,273



               Other-than-temporary impairments on marketable securities




               Deferred income taxes


1,874


(1,374)

               Stock-based compensation expense


3,873


3,125

               Other 



(443)


(83)

  Changes in assets and liabilities, net of effect





          from purchases and sales of businesses:





               (Increase) in receivables


(1,095)


(4,211)

               (Increase) in inventory


(30,666)


(27,113)

               Decrease (increase) in prepaid expenses and other




                    current and long-term assets


8,167


(6,370)

               (Decrease) in accounts payable


(50,100)


(27,069)

               (Decrease) in accrued compensation and benefits

(54,142)


(45,873)

               Increase (decrease) in accrued loss reserves

820


(2,622)

               Increase in other accrued liabilities


47,799


14,818

               Other



(5,851)


2,789

                    Cash From Operating Activities


17,734


7,476

Cash Flows From Investing Activities:





     Capital expenditures



(12,702)


(4,913)

     Acquisition of businesses, net of cash acquired


(141,203)


(35,914)

     Purchase of marketable securities


(55,744)


(11,315)

     Proceeds from sales of marketable securities


49,320


13,821

     Other




17,255


915

                    Cash (Used For) Investing Activities


(143,074)


(37,406)

Cash Flows From Financing Activities:





     Additions to long-term and short-term debt


147,547


7,391

     Reductions of long-term and short-term debt


(63,193)


(10,824)

     Cash dividends



(28,281)


(27,424)

     Repurchase of stock



(260)


(204)

     Exercise of stock options



803


1,205

                    Cash Provided By (Used For) Financing Activities

56,616


(29,856)








Effect of Exchange Rate Changes on Cash and 




     Cash Equivalents

10,138


(1,870)








Net Change in Cash and Cash Equivalents

(58,586)


(61,656)








Cash and Cash Equivalents at Beginning of Period

315,968


435,011








Cash and Cash Equivalents at End of Period

$    257,382


$      373,355

 

 

SOURCE RPM International Inc.



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