2014

RPM Reports Record Fiscal 2014 Second-Quarter Results -- Second-quarter net income improves 53%; net sales increase 5%

-- Net income up 21% for the second quarter vs. prior-year adjusted results

-- EPS guidance increased to $2.05 - $2.10 for fiscal 2014

MEDINA, Ohio, Jan. 8, 2014 /PRNewswire/ -- RPM International Inc. (NYSE: RPM) today reported record sales, net income and diluted earnings per share for its fiscal 2014 second quarter ended November 30, 2013, driven by volume increases in both its industrial and consumer segments and improved operating margins at most of its business units. Based on these results and expectations for the second half, the company increased its full-year earnings guidance for fiscal 2014.

Second-Quarter Results

Net sales increased 5.3% to $1.07 billion from $1.02 billion a year ago. Consolidated EBIT increased 30.0%, to $116.4 million from $89.5 million in the fiscal 2013 second quarter. Fiscal 2014 second-quarter net income was up 52.5% to $63.6 million from $41.7 million in the fiscal 2013 second quarter. Earnings per diluted share increased 54.8% to $0.48 from $0.31 a year ago.

In the fiscal 2013 second quarter, RPM incurred a one-time, non-cash charge of $10.8 million, or $0.09 per diluted share, for the write-down of RPM's remaining equity investment in Kemrock Industries and Exports Ltd. in India. Excluding the Kemrock charge, fiscal 2014 second-quarter consolidated EBIT improved 16.1% from an adjusted $100.4 million a year ago. Second-quarter net income grew 21.1% from an adjusted $52.5 million in the fiscal 2013 second quarter, while earnings per diluted share improved 20.0% from an adjusted $0.40 a year ago.  

"Second-quarter operating performance was strong, with a vast majority of our operating units posting solid increases in sales and EBIT," stated Frank C. Sullivan, chairman and chief executive officer. "Sales increases in both of our business segments were primarily driven by improved unit volume, with relatively minimal acquisition growth or pricing," he stated.

Second-Quarter Segment Sales and Earnings

During the fiscal 2014 second quarter, industrial segment sales grew 2.6% to $708.7 million from $691.1 million in the fiscal 2013 second quarter. Organic sales improved 2.2%, including 0.9% in foreign exchange translation losses, while acquisition growth added 0.4%. Industrial segment EBIT increased 7.4% to $83.9 million from $78.1 million in the same period a year ago.

"Most of our industrial product lines are leveraging relatively modest sales increases into more significant gains in EBIT as a result of prior-year cost reductions in the face of a moderate economic recovery. While we experienced slight declines in North American roofing, we continue to be encouraged by the improvement in most of our European industrial operating companies, as well as the continued gradual recovery in our businesses serving commercial construction markets," Sullivan stated.

RPM's fiscal 2014 second-quarter consumer segment sales increased 11.2% to $362.8 million from $326.4 million a year ago. Organic sales improved 9.5%, including foreign exchange losses of 0.6%, while acquisition growth added 1.7%. Consumer segment EBIT improved 34.0%, to $51.7 million from $38.6 million a year ago.

"Our consumer product lines continue to enjoy high levels of organic sales volume growth as a result of continued momentum in the U.S. housing market, combined with successful, high-growth consumer segment acquisitions made in the prior fiscal year and strong consumer take-away for higher-end new products," stated Sullivan. 

Cash Flow and Financial Position

For the first half of fiscal 2014, cash from operations was $21.8 million compared to $127.6 million a year ago. The decrease was primarily attributable to a $61.9 million settlement payment by the company's roofing division to the U.S. General Services Administration during the fiscal 2014 first quarter, which was accrued in fiscal 2013, and increased working capital needs during the first half associated with higher sales volumes. Capital expenditures of $34.6 million compare to depreciation of $29.1 million during the first half of this fiscal year. Total debt at November 30, 2013 was $1.37 billion, compared to $1.42 billion at November 30, 2012 and $1.37 billion at May 31, 2013. RPM's net (of cash) debt-to-total capitalization ratio was 46.4%, compared to 46.2% at May 31, 2013. At November 30, 2013, liquidity stood at $970 million, including cash of $224 million and $746 million in long-term committed available credit.

On December 9, 2013, RPM completed the issuance of $205 million of 2.25% convertible senior notes due 2020. Substantially all of the net proceeds from the sale were used to repay $200 million in principal amount of unsecured senior notes due December 15, 2013, which carried an interest rate of 6.25%. Following the sale of these notes, virtually all of RPM's total debt is at fixed rates, which average approximately 5.0%.

"RPM's solid cash and liquidity position continues to provide great flexibility in pursuing strategic acquisitions, while supporting our growing cash dividend and increased capital investments for organic growth," Sullivan stated. 

First-Half Sales and Earnings

Fiscal 2014 first-half net sales improved 8.3% to $2.24 billion from $2.06 billion during the first six months of fiscal 2013. Consolidated EBIT increased 62.0% to $280.4 million from $173.1 million during the first six months of fiscal 2013. Net income was up 120.5% to $166.7 million from $75.6 million in the fiscal 2013 first half. Diluted earnings per share increased 119.3% to $1.25 from $0.57 a year ago. 

The fiscal 2013 first half included Kemrock-related adjustments of $56.1 million, along with a one-time charge of $11.0 million associated with a strategic decision to exit certain unprofitable roofing contracts outside North America. Excluding these adjustments, sales for the fiscal 2014 first half increased 8.2% from $2.07 billion and first-half EBIT was up 16.8% from an adjusted $240.2 million a year ago. First-half net income grew 21.4% from an adjusted $137.3 million in the fiscal 2013 first half. Fiscal 2014 first-half earnings per diluted share were up 20.2% from an adjusted $1.04 a year ago.

First-Half Segment Sales and Earnings

RPM's industrial segment fiscal 2014 first-half sales improved 3.3%, to $1.44 billion from $1.39 billion in the fiscal 2013 first half. Organic sales increased 2.7%, including net foreign exchange translation losses of 0.6%, while acquisition growth added 0.6%. Industrial segment EBIT increased 18.7% to $184.0 million from $155.0 million a year ago.

Compared to adjusted results in the fiscal 2013 first half, industrial segment first-half net sales improved 3.1%, from $1.40 billion a year ago. Industrial segment EBIT grew 4.7% from an adjusted $175.8 million in the 2013 first half.

First-half sales for the consumer segment increased 18.9% to $796.2 million from $669.7 million a year ago. Organic sales increased 9.1%, including net foreign exchange losses of 0.5%, and acquisition growth added 9.8%. Consumer segment EBIT increased 38.0% to $134.4 million from $97.4 million in the first half of fiscal 2013. 

Business Outlook

"Due to the continued improvement in the U.S. residential housing market, combined with the impact of prior-year acquisitions and the continued success of new product introductions, we now anticipate our full-year consumer segment sales growth to be 8% to 10%. This is an increase over last quarter's consumer segment guidance of 6% to 8%. We continue to expect 4% to 6% sales growth in our industrial segment and 5% to 7% consolidated net sales growth for the full year," Sullivan stated. "As a result, we are increasing our full-year EPS guidance to a range of $2.05 to $2.10, or 13% to 15% year-over-year growth, versus the range of $2.00 to $2.07 announced last quarter. This new guidance includes the impact of the convertible bond issued on December 9, 2013, which we expect to be slightly dilutive to our original earnings guidance for the year," he stated.

Webcast and Conference Call Information

Management will host a conference call to further discuss these results beginning at 10:00 a.m. EST today. The call can be accessed by dialing 866-953-6859 or 617-399-3483 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 p.m. EST today until 11:59 p.m. EST on January 15, 2014. The replay can be accessed by dialing 888-286-8010 or 617-801-6888 for international callers. The access code is 21243757. 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, 2013, 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




ADJUSTED (a)







Three Months Ended


Six Months Ended













November 30,


November 30,




Three Months Ended


Six Months Ended







2013


2012


2013


2012




November 30, 2012




































Net Sales





$  1,071,487


$  1,017,426


$  2,236,161


$  2,064,140




$                  1,017,426


$               2,067,018

Cost of sales





613,542


592,425


1,279,144


1,205,259




592,425


1,202,718

Gross profit





457,945


425,001


957,017


858,881




425,001


864,300

Selling, general & administrative expenses





343,048


325,761


678,507


636,701




325,761


626,113

Interest expense





20,809


19,868


41,534


38,298




19,868


38,298

Investment (income), net





(2,005)


(1,364)


(5,899)


(8,338)




(1,364)


(8,338)

Other (income) expense, net





(1,491)


9,694


(1,925)


49,116




(1,125)


(1,976)

Income before income taxes





97,584


71,042


244,800


143,104




81,861


210,203

Provision for income taxes





29,170


24,955


69,497


59,150




24,955


62,918

Net income





68,414


46,087


175,303


83,954




56,906


147,285

Less:  Net income attributable to noncontrolling interests



4,852


4,419


8,643


8,373




4,419


9,979

 

Net income attributable to RPM International Inc. Stockholders

$       63,562


$       41,668


$     166,660


$       75,581




$                       52,487


$                  137,306




















Earnings per share of common stock attributable to
















RPM International Inc. Stockholders:
















Basic





$           0.48


$           0.32


$           1.26


$           0.57




$                           0.40


$                        1.04




















Diluted





$           0.48


$           0.31


$           1.25


$           0.57




$                           0.40


$                        1.04




















Average shares of common stock outstanding - basic 


129,426


128,885


129,385


128,844




128,885


128,844




















Average shares of common stock outstanding - diluted


130,418


129,700


130,359


129,635




129,700


129,635




















(a)  

Refer to the attached page for a reconciliation of as reported figures to adjusted figures presented above.
































































SUPPLEMENTAL SEGMENT INFORMATION
















IN THOUSANDS


















(Unaudited)
























AS REPORTED




ADJUSTED (a)







Three Months Ended


Six Months Ended













November 30,


November 30,




Three Months Ended


Six Months Ended







2013


2012


2013


2012




November 30, 2012

















Net Sales:



















Industrial Segment





$     708,713


$     691,076


$  1,439,939


$  1,394,411




$                     691,076


$               1,397,289


Consumer Segment





362,774


326,350


796,222


669,729




326,350


669,729


     Total





$  1,071,487


$  1,017,426


$  2,236,161


$  2,064,140




$                  1,017,426


$               2,067,018




















Income Before Income Taxes (b):



















Industrial Segment



















     Income Before Income Taxes (b)




$       81,394


$       75,495


$     178,975


$     149,799




$                       75,495


$                  170,541


     Interest (Expense), Net (c)





(2,528)


(2,626)


(5,062)


(5,234)




(2,626)


(5,234)


     EBIT (d)





$       83,922


$       78,121


$     184,037


$     155,033




$                       78,121


$                  175,775


Consumer Segment



















     Income Before Income Taxes (b)




$       51,720


$       38,561


$     134,437


$       97,349




$                       38,561


$                    97,349


     Interest (Expense), Net (c)





26


(19)


65


(19)




(19)


(19)


     EBIT (d)





$       51,694


$       38,580


$     134,372


$       97,368




$                       38,580


$                    97,368


Corporate/Other



















     (Expense) Before Income Taxes (b)




$     (35,530)


$     (43,014)


$     (68,612)


$   (104,044)




$                      (32,195)


$                  (57,687)


     Interest (Expense), Net (c)





(16,302)


(15,859)


(30,638)


(24,707)




(15,859)


(24,707)


     EBIT (d)





$     (19,228)


$     (27,155)


$     (37,974)


$     (79,337)




$                      (16,336)


$                  (32,980)


     Consolidated



















          Income Before Income Taxes (b)




$       97,584


$       71,042


$     244,800


$     143,104




$                       81,861


$                  210,203


          Interest (Expense), Net (c)





(18,804)


(18,504)


(35,635)


(29,960)




(18,504)


(29,960)


          EBIT (d)





$     116,388


$       89,546


$     280,435


$     173,064




$                     100,365


$                  240,163



(a)  

Refer to the attached page for a reconciliation of as reported figures to adjusted figures presented above.

(b)  

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.

(c)  

Interest (expense), net includes the combination of interest (expense) and investment income/(expense), net.

(d)  

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 STATEMENTS OF INCOME












RECONCILIATION OF "AS REPORTED" TO "ADJUSTED"












IN THOUSANDS, EXCEPT PER SHARE DATA










































































Three Months Ended November 30, 2012
























AS REPORTED


Adjustments


ADJUSTED










(Unaudited)




Net Sales





$    1,017,426


$               -


$    1,017,426




Cost of sales




592,425


-


592,425




Gross profit





425,001


-


425,001




Selling, general & administrative expenses




325,761


-


325,761




Interest expense




19,868


-


19,868




Investment expense (income), net




(1,364)


-


(1,364)




Other expense (income), net




9,694


(10,819)

(1)

(1,125)




Income before income taxes




71,042


10,819


81,861




Provision for income taxes




24,955


-


24,955




Net income





46,087


10,819


56,906




Less: Net income attributable to noncontrolling interests




4,419


-


4,419




Net income attributable to RPM International Inc. Stockholders



$         41,668


$       10,819


$         52,487


















Earnings per share attributable to RPM International Inc. Stockholders:
























Basic





$             0.32


$           0.08


$             0.40




Diluted





$             0.31


$           0.09


$             0.40


















(1)     Adjustment removes the impact of the write-down at Corporate of RPM's remaining equity investment in Kemrock of $10,819 to zero in the

          second quarter of fiscal 2013.

































Six Months Ended November 30, 2012
























AS REPORTED


Adjustments


ADJUSTED










(Unaudited)




Net Sales





$    2,064,140


$         2,878


$    2,067,018




Cost of sales




1,205,259


(2,541)


1,202,718




Gross profit





858,881


5,419

(2)

864,300




Selling, general & administrative expenses




636,701


(10,588)

(3)

626,113




Interest expense




38,298


-


38,298




Investment (income), net




(8,338)


-


(8,338)




Other expense (income), net




49,116


(51,092)

(4)

(1,976)




Income before income taxes




143,104


67,099


210,203




Provision for income taxes




59,150


3,768


62,918




Net income





83,954


63,331


147,285




Less: Net income attributable to noncontrolling interests




8,373


1,606


9,979




Net income attributable to RPM International Inc. Stockholders


$         75,581


$       61,725


$       137,306


















Earnings per share attributable to RPM International Inc. Stockholders:
























Basic





$             0.57


$           0.47


$             1.04




Diluted





$             0.57


$           0.47


$             1.04





(2)

Represents an adjustment for revised cost estimates in the Roofing Division in conjunction with unprofitable contracts outside of North America of $5,419 during the first quarter of fiscal 2013 (industrial segment). 


(3)

Adjustment includes $5,588 in Roofing exit costs and $5,000 of bad debt charges relating to a Kemrock receivable during the first quarter of fiscal 2013 (industrial segment).


(4)

Adjustments include the write-downs of Kemrock investments, including $35,538 at Corporate and $4,735 at RPM's Performance Coatings Group (industrial segment) during the first quarter of fiscal 2013 and an additional $10,819 write-down at Corporate in the second quarter of fiscal 2013. 



 

CONSOLIDATED BALANCE SHEETS







IN THOUSANDS


















November 30, 2013


November 30, 2012


May 31, 2013




(Unaudited)


(Unaudited)



Assets







Current Assets








Cash and cash equivalents


$             224,172


$             261,940


$             343,554


Trade accounts receivable


802,453


757,123


816,421


Allowance for doubtful accounts


(30,024)


(29,226)


(28,904)


Net trade accounts receivable


772,429


727,897


787,517


Inventories


597,660


545,678


548,680


Deferred income taxes


38,146


21,041


36,565


Prepaid expenses and other current assets


181,220


160,070


169,956


Total current assets


1,813,627


1,716,626


1,886,272









Property, Plant and Equipment, at Cost


1,144,947


1,138,474


1,128,123


Allowance for depreciation and amortization


(645,594)


(663,784)


(635,760)


Property, plant and equipment, net


499,353


474,690


492,363

Other Assets








Goodwill


1,125,460


1,120,437


1,113,831


Other intangible assets, net of amortization


461,555


478,212


459,613


Other


170,526


175,605


163,447


Total other assets


1,757,541


1,774,254


1,736,891









Total Assets


$          4,070,521


$          3,965,570


$          4,115,526









Liabilities and Stockholders' Equity







Current Liabilities








Accounts payable


$             370,993


$             316,105


$             478,185


Current portion of long-term debt


4,835


2,068


4,521


Accrued compensation and benefits


127,150


118,396


154,844


Accrued loss reserves


22,120


33,667


27,591


Other accrued liabilities


208,983


192,360


262,889


Total current liabilities


734,081


662,596


928,030









Long-Term Liabilities








Long-term debt, less current maturities


1,365,115


1,413,101


1,369,176


Other long-term liabilities


436,335


445,551


417,160


Deferred income taxes


41,130


51,780


46,227


Total long-term liabilities


1,842,580


1,910,432


1,832,563


   Total liabilities


2,576,661


2,573,028


2,760,593









Stockholders' Equity








Preferred stock; none issued








Common stock (outstanding 133,174; 132,347; 132,596)

1,332


1,323


1,326


Paid-in capital


776,363


753,693


763,505


Treasury stock, at cost


(80,370)


(70,574)


(72,494)


Accumulated other comprehensive (loss)


(147,740)


(145,835)


(159,253)


Retained earnings


772,637


704,345


667,774


     Total RPM International Inc. stockholders' equity

1,322,222


1,242,952


1,200,858


Noncontrolling interest


171,638


149,590


154,075


     Total equity


1,493,860


1,392,542


1,354,933









Total Liabilities and Stockholders' Equity


$          4,070,521


$          3,965,570


$          4,115,526

CONSOLIDATED STATEMENTS OF CASH FLOWS




IN THOUSANDS






(Unaudited)









Six Months Ended





November 30,





2013


2012








Cash Flows From Operating Activities:





  Net income



$        175,303


$         83,954

  Adjustments to reconcile net income to net





          cash provided by operating activities:





               Depreciation



29,128


27,644

               Amortization



15,776


14,565

               Impairment loss on investment in Kemrock



51,092

               Deferred income taxes


(8,500)


3,973

               Stock-based compensation expense


9,622


8,135

               Other 



(1,229)


(9,655)

  Changes in assets and liabilities, net of effect





          from purchases and sales of businesses:





               Decrease in receivables


21,971


63,687

               (Increase) in inventory


(44,020)


(25,936)

               (Increase) decrease in prepaid expenses and other




                    current and long-term assets


(750)


19,990

               (Decrease) in accounts payable


(111,598)


(95,485)

               (Decrease) in accrued compensation and benefits

(28,152)


(46,190)

               (Decrease) increase in accrued loss reserves

(5,488)


3,984

               (Decrease) in contingent payment


(61,894)



               Increase in other accrued liabilities


38,304


46,440

               Other



(6,641)


(18,577)

                    Cash Provided By Operating Activities


21,832


127,621

Cash Flows From Investing Activities:





     Capital expenditures



(34,603)


(30,849)

     Acquisition of businesses, net of cash acquired


(20,827)


(396,785)

     Purchase of marketable securities


(33,770)


(68,442)

     Proceeds from sales of marketable securities


19,672


58,194

     Other




1,546


4,103

                    Cash (Used For) Investing Activities


(67,982)


(433,779)

Cash Flows From Financing Activities:





     Additions to long-term and short-term debt


2,776


334,247

     Reductions of long-term and short-term debt


(6,071)


(41,269)

     Cash dividends



(61,796)


(58,054)

     Repurchase of stock



(7,877)


(1,094)

     Other




(1,330)


5,650

                    Cash (Used For) Provided By Financing Activities

(74,298)


239,480








Effect of Exchange Rate Changes on Cash and 




     Cash Equivalents

1,066


12,650








Net Change in Cash and Cash Equivalents

(119,382)


(54,028)








Cash and Cash Equivalents at Beginning of Period

343,554


315,968








Cash and Cash Equivalents at End of Period

$        224,172


$        261,940

 

SOURCE RPM International Inc.



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