RPM Reports Sharply Improved Fiscal 2011 Third-Quarter Results

MEDINA, Ohio, April 7, 2011 /PRNewswire/ -- RPM International Inc. (NYSE: RPM) today reported a sharp increase in net sales for its fiscal 2011 third quarter ended February 28, 2011, compared to year-earlier pro-forma net sales.  RPM also posted positive net income and earnings per share for the seasonally weak quarter, contrasted with a year-earlier pro-forma loss.  Prior-year pro-forma results assume that the deconsolidation of its Specialty Products Holding Corp. (SPHC) and subsidiaries occurred before fiscal 2010.  The deconsolidation eliminated approximately $300 million in annual revenues from the company's industrial segment beginning June 1, 2010.

Third-Quarter Results

Net sales, net income and earnings per share for the third quarter all posted sharp improvements versus prior-year pro-forma results.  Net sales grew 12.6% to $678.9 million from a pro-forma $603.1 million, while net income attributable to RPM stockholders was $1.1 million, compared to a year earlier pro-forma loss of $9.7 million.  Diluted earnings per share were $0.01, contrasted with a pro-forma loss of $0.08 in the year-ago period. Consolidated earnings before interest and taxes (EBIT) grew 323.8%, to $13.6 million from a pro-forma $3.2 million in the fiscal 2010 third quarter.

"We are extremely pleased with RPM's performance during the typically weak third quarter and in the face of significantly higher raw material costs coupled with severe winter weather conditions across the U.S.  Nearly all of our business units generated strong sales increases and substantially stronger growth in earnings," stated Frank C. Sullivan, chairman and chief executive officer.  

On an as-reported basis, RPM's net sales of $678.9 million were up 1.8% from the $666.6 million reported in the fiscal 2010 third quarter.  Net income attributable to RPM stockholders was $1.1 million, contrasted with a loss of $9.4 million in the third quarter of fiscal 2010, while earnings per diluted share of $0.01 compared to a loss of $0.07 a year ago.  Consolidated EBIT increased 375.8% to $13.6 million from $2.9 million in the fiscal 2010 third period.  

Third-Quarter Segment Sales and Earnings

On a pro-forma basis, industrial segment sales grew 14.0% to $449.1 million in the fiscal 2011 third quarter from a pro-forma $393.9 million a year ago.  Organic sales improved 11.2%, including 0.3% in foreign exchange translation gains, while acquisition growth added 2.8%.  Industrial segment EBIT increased 664.1%, to $13.6 million from a pro-forma $1.8 million in the fiscal 2010 third quarter.

"Following two years of depressed demand for our products serving commercial construction markets, we are starting to see some improvement in our businesses that address this sector of the economy, both domestically and in Europe. At the same time, our high-performance industrial coatings, maintenance products and polymer flooring systems continued their strong sales performance," Sullivan stated.  

RPM's consumer segment, largely unaffected by the deconsolidation, had a 9.8% increase in net sales to $229.8 million from a pro-forma $209.2 million in the fiscal 2010 third quarter. Organic sales were up 9.9%, including foreign exchange translation gains of 0.1%, while the divestiture of a small product line reduced organic growth by 0.1%. Consumer segment EBIT improved 30.1%, to $16.0 million from a pro-forma $12.3 million a year ago.

"Our consumer lines benefited from the gradual economic recovery, consumer acceptance of new product introductions and market share gains achieved during the recent downturn," stated Sullivan.  

Cash Flow and Financial Position

For the first nine months of fiscal 2011, cash from operations was $191.0 million, compared to $188.9 million in the first nine months of fiscal 2010.  Capital expenditures during the current nine-month period of $21.7 million compare to depreciation of $39.5 million.  Total debt at the end of the first nine months was $935.7 million, compared to $928.6 million at the end of fiscal 2010 and $908.1 million at the end of the third quarter of fiscal 2010.  RPM's net (of cash) debt-to-total capitalization ratio was 35.3%, compared to 39.8% at May 31, 2010, and both remain at the low end of the company's historic norms.  

On January 5, 2011, RPM replaced its $400 million bank revolving credit facility, having a December 2011 maturity date, with a new $400 million revolving credit facility, which is due in January 2015.  The new facility reduced the cost of RPM's bank borrowing spread to 2.0% from 2.5% and changed the debt-to-total capitalization ratio limitation to 60% from 55%.    

"We are using our strong cash and liquidity position to support a very robust acquisition pipeline, as well as internal investment.  At February 28, 2011, liquidity, including cash and long-term committed available credit, stood at $715.7 million," Sullivan stated.  

Nine-Month Sales and Earnings

On a pro-forma basis, fiscal 2011 nine-month net sales, net income and earnings per share all posted gains.  Net sales increased 7.6% to $2.4 billion from a pro-forma $2.2 billion during the first nine months of fiscal 2010.  Net income attributable to RPM stockholders improved 16.8% to $118.9 million from a pro-forma $101.7 million in the fiscal 2010 first nine months.  Diluted earnings per share attributable to RPM stockholders grew 15.2% to $0.91 from a pro-forma $0.79 a year ago.  Consolidated EBIT increased 10.6% to $225.0 million from a pro-forma $203.4 million during the first nine months of fiscal 2010.

On an as-reported basis, net sales for the first nine months of fiscal 2011 declined 1.7% to $2.40 billion from the $2.44 billion reported a year ago.  Nine-month net income attributable to RPM stockholders also declined 0.5% to $118.9 million from $119.5 million reported during the first nine months of fiscal 2010. Diluted earnings per share attributable to RPM stockholders fell 2.2% to $0.91 in the fiscal 2011 first nine months from $0.93 a year ago. Consolidated EBIT was $225.0 million, up 3.7% from the $216.9 million reported in the fiscal 2010 first nine months.

Nine-Month Segment Sales and Earnings

Sales for RPM's industrial segment increased 10.1%, to $1.63 billion from a pro-forma $1.48 billion in the fiscal 2010 first nine months.  The organic sales increase was 6.8%, including net foreign exchange losses of 0.7%, and acquisition growth added 3.3%. Industrial segment EBIT grew 12.2% to $165.6 million from a pro-forma $147.5 million in the first nine months of fiscal 2010.  

In the consumer segment, nine-month sales increased 2.7% to $766.2 million from a pro-forma $746.4 million reported in the first nine months of fiscal 2010.  Organic sales increased by 2.6%, including net foreign exchange losses of 0.3%, offset by acquisition growth net of a small divestiture of 0.1%. Consumer segment EBIT fell 2.4%, to $92.3 million from a pro-forma $94.7 million in the first nine months a year ago.  

Corporate and other expenses were lower for the nine-month period by approximately $5.8 million, due primarily to insurance recoveries of $2.9 million and ongoing expense improvements.

Synthetic Fiber Manufacturer Acquired

On February 10, 2011, RPM announced that its Euclid Chemical Company acquired PSI Packaging, Inc. (PSI), a $6 million producer of micro- and macro-fibers for the ready-mixed and pre-cast concrete market.  With headquarters and manufacturing located in LaFayette, GA, PSI will operate as part of Euclid Chemical and will provide both a complementary product line to existing Euclid Chemical fiber products, as well as manufacturing capacity and expertise.  Terms of the transaction, which is expected to be accretive to earnings within one year, were not disclosed.    

Business Outlook

"As a result of the comparatively strong third-quarter performance in a seasonally weak period, as well as our fourth-quarter outlook, we are increasing our fiscal year 2011 guidance.  We now expect sales growth of between 7% and 8% to approximately $3.35 billion from a pro-forma base of $3.12 billion in fiscal 2010 and growth in diluted earnings per share to a range of $1.40 to $1.45, up from a pro-forma $1.26 per share in fiscal 2010. Our original guidance, announced on July 26, 2010, anticipated sales growth of between 4% and 5% to approximately $3.25 billion and growth in diluted earnings per share to a range of $1.35 to $1.40. During the third quarter, we saw signs of improvement in the commercial construction market, while consumer sales also rebounded from a flat first six months.   Both price and availability of raw materials remain challenging, and we expect this environment to continue through the fourth quarter and into the 2012 fiscal year," Sullivan stated.

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 866-362-4829 or 617-597-5346 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 on April 7, 2011 until 11:59 p.m. EDT on April 14, 2011.  The replay can be accessed by dialing 888-286-8010 or 617-801-6888 for international callers. The access code is 38917518.  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, Euco, Flowcrete and Universal Sealants.  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 are available at www.rpminc.com.

For more information, contact Robert L. Matejka, senior vice president and chief financial officer, at 330-273-5090 or [email protected].

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, 2010, 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.

SOURCE RPM International Inc.