• Record sales reported, increasing 4% in the fourth quarter and 7% for the fiscal year
• Fourth-quarter net income decreased 33%; adjusted net income increased 3%
• Full-year net income increased 86%; adjusted net income increased 18%
• Implementing operating improvement plan to enhance shareholder value

MEDINA, Ohio--(BUSINESS WIRE)--Jul. 19, 2018-- RPM International Inc. (NYSE: RPM) today reported record sales for its fiscal fourth quarter and year ended May 31, 2018. Net income and diluted earnings per share declined in the fourth quarter due to higher raw material costs and extended winter weather, which inhibited outdoor projects, especially in the company’s consumer segment. In addition, the company recorded restructuring and other charges to reduce expenses and position RPM for long-term growth, as well as inventory-related charges in its consumer segment tied to a strategic shift in direction. For the full 2018 fiscal year, net income and diluted earnings per share increased over the prior year.

“We began addressing operating improvement opportunities with our board over a year ago. We were in the early phases of this initiative when a now major shareholder – Elliott Management – contacted us because they believed that RPM’s stock was undervalued, particularly in relationship to opportunities to improve our operating performance and margin profile. We agree,” stated Frank C. Sullivan, RPM chairman and chief executive officer.

Fourth-Quarter Consolidated Results

Net sales for the fourth-quarter increased 4.4% to $1.56 billion from $1.49 billion a year ago. Net income in the quarter decreased to $85.7 million from $128.1 million reported in the fourth quarter of fiscal 2017. Diluted earnings per share (EPS) were $0.63 compared with $0.94 in the year-ago quarter. Income before income taxes (IBT) was $117.9 million versus $185.7 million a year ago. Consolidated earnings before interest and taxes (EBIT) were $135.0 million compared with $209.1 million a year ago. The fourth quarter of fiscal 2018 included restructuring and other charges, including inventory SKU rationalization, of $62.2 million. The fourth quarter of fiscal 2017 included a severance charge of $15.0 million. Excluding the charges in both periods, net income was $142.1 million in fiscal 2018 versus $138.3 million in fiscal 2017 and EBIT was $197.3 million compared with $224.1 million a year ago. Diluted EPS excluding the charges increased 2.9% to $1.05 from $1.02 a year ago.

“We achieved respectable top-line sales growth in the fourth quarter, particularly in light of the unseasonably cold and rainy spring in North America that delayed coating and construction projects. Bottom-line results were adversely affected by rising raw material costs, as well as the decline in sales in the consumer segment and the resulting lack of leverage, exacerbated by strategic restructuring initiatives introduced by new management at Rust-Oleum,” stated Sullivan.

Fourth-Quarter Segment Sales and Earnings

Industrial segment sales for the fiscal 2018 fourth quarter were up 10.8% to $812.9 million from $733.5 million a year ago. Organic sales improved 6.2%, while acquisition growth added 1.7%. Foreign currency translation contributed 2.9% to sales. Industrial segment IBT increased 4.7% to $96.4 million from $92.1 million a year ago. EBIT was up 6.4% to $99.3 million from $93.4 million in the fiscal 2017 fourth quarter. The fourth quarter included restructuring and related charges of $10.0 million in fiscal 2018 and a $7.7 million severance charge in fiscal 2017. Excluding these charges, industrial segment EBIT was $109.3 million, up 8.1% from $101.1 million a year ago.

“The industrial segment generated strong organic growth for the quarter, primarily driven by our North American waterproofing business. Our European operations produced solid sales growth in the mid-single-digit range and our businesses serving the energy sector generated upper-single-digit sales growth, which was as expected. In Brazil, our businesses remain challenged as the economy continues to struggle. Impacting leverage to our bottom line was raw material inflation and a lag in our ability to achieve price increases,” stated Sullivan. “During the quarter, we closed a polymer flooring facility in North America and an unprofitable business in China. In addition, we reorganized RPM’s global legal function by reducing headcount at the operating companies, mostly within the industrial segment, and consolidating functions at RPM’s corporate headquarters,” Sullivan stated.

Net sales in RPM’s consumer segment were $548.4 million compared with $565.3 million reported in the fiscal 2017 fourth quarter. Organic sales were down 5.4%, while acquisition growth added 1.2% and foreign exchange translation contributed 1.2% to sales. Consumer segment IBT was $25.3 million compared with $99.4 million in the prior year. EBIT in the fiscal 2018 fourth quarter was $25.5 million versus $99.6 million in fiscal 2017. The segment recorded $47.3 million in restructuring and inventory-related charges in the fiscal 2018 fourth quarter and a $4.3 million severance charge in fiscal 2017. Excluding these charges, EBIT was $72.8 million compared with $103.9 million a year ago.

“Sales growth in our consumer segment was hampered by extremely unfavorable weather conditions in North America, the segment’s largest market, which resulted in sluggish consumer takeaway. Our retail partners reacted to the unfavorable weather by reducing inventory, further compounding the problem. The lag in our ability to achieve price increases to offset raw material inflation contributed to the decline in EBIT. During the quarter, Rust-Oleum eliminated approximately 150 positions, announced the closure of two manufacturing facilities and simplified its management structure to lower cost. As part of this initiative, we rationalized product lines, resulting in a $36.5 million charge. These actions will enable Rust-Oleum to better optimize manufacturing, focus on key products, and improve working capital going forward. Also during the quarter, Rust-Oleum was awarded full-chain distribution of its Varathane interior wood stains at The Home Depot and product began shipping in June,” stated Sullivan.

Fourth-quarter sales in the company’s specialty segment increased 1.5% to $196.9 million from $194.0 million in fiscal 2017. Organic sales declined 0.6%, but were offset by acquisition growth of 0.6% and the positive impact of 1.5% in foreign currency translation. Specialty segment IBT increased 5.3% to $32.9 million from $31.2 million last year. EBIT increased 3.8% to $32.3 million from $31.1 million in the prior period. The segment reported a $1.4 million enterprise resource planning (ERP) consolidation charge in the fourth quarter of fiscal 2018 and a $2.9 million severance charge in the fourth quarter of fiscal 2017. Excluding these charges, specialty segment EBIT was $33.7 million versus $34.0 million in the prior year.

“The specialty segment’s top-line improvement was modest, as expected, because of sales lost due to a patent expiration in our food coatings business, which were partially offset by strong sales in our OEM powder coatings and wood finishes businesses. EBIT declined due to unfavorable product mix,” stated Sullivan.

Full-Year Consolidated Results

Fiscal 2018 consolidated full-year net sales increased 7.3% to $5.32 billion from $4.96 billion in fiscal 2017. Net income increased 85.8% to $337.8 million from $181.8 million reported in fiscal 2017. Diluted earnings per share of $2.50 were up 83.8% from $1.36 a year ago. IBT was up 70.7% to $417.0 million from $244.3 million in fiscal 2017. Consolidated EBIT was up 53.1% to $501.2 million from $327.3 million last year. Fiscal 2018 included restructuring and other charges, including inventory SKU rationalization, of $62.2 million. Fiscal 2017 included a $12.3 million charge for closing a Middle East facility, a severance charge of $15.0 million and a goodwill and an intangible impairment charge of $188.3 million. Excluding these items, net income for the year increased 18.3% to $394.2 million from $333.4 million in fiscal 2017 and diluted EPS increased 18.2% to $2.92 from $2.47 last fiscal year. After excluding these same items, EBIT increased 3.8% for fiscal 2018 to $563.4 million from $542.9 million a year ago.

Full-Year Segment Sales and Earnings

Fiscal 2018 sales for RPM's industrial segment improved 9.8% to $2.81 billion from $2.56 billion in fiscal 2017. Organic sales increased 4.4%, with acquisition growth contributing 3.0%. Foreign currency translation positively impacted sales by 2.4%. The industrial segment’s IBT increased 11.3% to $270.8 million from $243.3 million in fiscal 2017. Industrial segment EBIT improved 11.9% to $281.3 million from $251.3 million in fiscal 2017. The segment reported restructuring and related charges of $10.0 million in fiscal 2018, as well as fiscal 2017 charges of $12.3 million to exit a Middle East business and $7.7 million for severance expenses. Excluding these charges, industrial segment EBIT increased 7.4% to $291.3 million from $271.3 million a year ago.

Consumer segment sales for fiscal 2018 increased 4.4% to $1.75 billion from $1.68 billion in fiscal 2017. Organic sales declined by 1.7%, which was offset by the contribution from acquisitions of 5.2% and the positive impact of foreign exchange of 0.9%. IBT increased 192.7% to $171.9 million from $58.7 million in fiscal 2017. Consumer segment EBIT increased 192.3%, to $172.6 million from $59.0 million a year ago. The segment reported charges of $47.3 million in the fiscal 2018 fourth quarter, as well as the fiscal 2017 goodwill and intangible impairment charge of $188.3 million in the second quarter and a severance charge of $4.3 million in the fourth quarter. Excluding these charges, consumer segment EBIT was $219.8 million versus $251.6 million a year ago.

Fiscal 2018 specialty segment sales increased 5.5% to $752.5 million from $713.6 million in fiscal 2017. Organic sales improved 2.0% and acquisitions added 2.6%. Foreign currency translation increased sales by 0.9%. Specialty segment IBT was up 14.3% to $123.3 million from $107.9 million a year ago. EBIT was up 14.0% to $122.4 million from $107.4 million in fiscal 2017. The segment reported charges of $1.4 million in the fiscal 2018 fourth quarter, as well as the fiscal 2017 severance charge of $2.9 million in the fourth quarter. Excluding these charges, specialty segment EBIT increased 12.3% to $123.8 million in fiscal 2018 from $110.3 million a year ago.

Cash Flow and Financial Position

For the 2018 fiscal year, cash from operations was $390.4 million compared to $386.1 million in fiscal 2017. Capital expenditures during fiscal 2018 of $114.6 million compare to $126.1 million over the same time in fiscal 2017. Total debt at the end of fiscal 2018 was $2.17 billion compared to $2.09 billion a year ago. RPM’s net (of cash) debt-to-total capitalization ratio was 54.2% compared to 54.8% at May 31, 2017. RPM’s total liquidity at May 31, 2018, including cash and long-term committed available credit, was $1.0 billion.

Business Outlook

“During fiscal 2019, we expect the challenging raw material environment to continue, perpetuating the stress on gross profit margins. All of our businesses are aggressively pursuing price increases and we expect to see some of that benefit in our consumer segment this fiscal year.

“The industrial segment should benefit from steady construction activity and a mostly stable international backdrop outside of Brazil. Additionally, our industrial coatings business should benefit from the ongoing oil and gas market recovery. We expect industrial segment sales in fiscal 2019 to grow in the mid-single-digit range.

“In our consumer segment, we enter fiscal 2019 with a leaner and more simplified organization structure, along with improved product line focus. With recent market share gains, a stepped-up advertising campaign to support new product placements and the recent purchase of Miracle Sealants, consumer is poised for growth. We expect consumer segment sales in fiscal 2019 to grow in the mid- to upper- single-digit range.

“In our specialty segment, we will annualize last year’s patent expiration at the end of our fiscal 2019 first quarter. We also see extremely difficult year-over-year comparisons for our Legend Brands restoration business, which experienced a sales boost due to three hurricanes last fall. Therefore, we expect sales growth in the specialty segment in fiscal 2019 to be in the low-single-digit range.

“Although, top-line sales will continue to be solid, the first quarter is expected to be the most difficult in terms of bottom-line leverage for several reasons. In consumer, there will be a higher first quarter promotional advertising and load-in spend to support recent market share gains. Furthermore, the gap between current price increases and raw material inflation is at its peak, with our consumer businesses finally realizing some of their price increases now. In our specialty segment, the first quarter of fiscal 2019 is the last quarter of negative comparisons relating to the NatureSeal patent expiration last August.

“During fiscal 2019, we intend to adjust out charges relating to our operational improvement initiative to provide better clarity on the performance of our core businesses. We have committed to announcing a comprehensive update to our operating improvement initiative, which we call our 2020 MAP to Growth, prior to the end of November and have elected not to provide EPS guidance as we navigate through this transitional period,” stated Sullivan.

Webcast and Conference Call Information

Management will host a conference call to discuss these results beginning at 10:00 a.m. EDT today. The call can be accessed by dialing 888-771-4371 or 847-585-4405 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 12:30 p.m. EDT on July 19, 2018 until 11:59 p.m. EDT on July 26, 2018. The replay can be accessed by dialing 888-843-7419 or 630-652-3042 for international callers. The access code is 46126377. 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. owns subsidiaries that are world leaders in specialty coatings, sealants, building materials and related services across three segments. RPM’s industrial products include roofing systems, sealants, corrosion control coatings, flooring coatings and other construction chemicals. Industrial companies include Stonhard, Tremco, illbruck, Carboline, Flowcrete, Euclid Chemical and RPM Belgium Vandex. RPM's consumer products are used by professionals and do-it-yourselfers for home maintenance and improvement and by hobbyists. Consumer brands include Rust-Oleum, DAP, Zinsser, Varathane and Testors. RPM’s specialty products include industrial cleaners, colorants, exterior finishes, specialty OEM coatings, edible coatings, restoration services equipment and specialty glazes for the pharmaceutical and food industries. Specialty segment companies include Day-Glo, Dryvit, RPM Wood Finishes, Mantrose-Haeuser, Legend Brands, Kop-Coat and TCI. 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, at 330-273-5090 or bslifstein@rpminc.com.

Use of Non-GAAP Financial Information

To supplement the financial information presented in accordance with Generally Accepted Accounting Principles in the United States (“GAAP”) in this earnings release, we use EBIT, adjusted EBIT, adjusted net income and adjusted earnings per share, which are all non-GAAP financial measures. EBIT is defined as earnings (loss) before interest and taxes, with adjusted EBIT, adjusted net income and adjusted earnings per share 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. See the financial statement section of this earnings release for a reconciliation of EBIT to income before income taxes.

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 Securities and Exchange Commission, including the risk factors set forth in our Annual Report on Form 10-K for the year ended May 31, 2017, 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.

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Source: RPM International Inc.

RPM International Inc.
Barry M. Slifstein, 330-273-5090
Vice President – Investor Relations
bslifstein@rpminc.com