RPM Reports Record Net Income and Cash Flow for Fiscal 2010 Second Quarter
- Operating leverage drives strong operating profit across both consumer and industrial segments
- Liquidity and cash flow at record levels
- Fiscal 2010 earnings guidance increased
MEDINA, Ohio, Jan. 6 /PRNewswire-FirstCall/ -- RPM International Inc. (NYSE: RPM) today reported record net income and cash flow, despite a small decline in net sales, for its fiscal 2010 second quarter ended November 30, 2009.
Second-Quarter Results
RPM's net sales of $858.7 million were down 3.5% from the $890.0 million reported in the fiscal 2009 second quarter. Organic sales declined 6.5%, offset in part by 2.2% in net foreign exchange gains. Net acquisition growth of 0.8% also offset part of the organic decline.
Net income for the quarter grew 34.0%, to a record $55.9 million from $41.7 million a year ago, while diluted earnings per share improved 30.3%, to $0.43 from $0.33.
"Our net income in the second quarter continued to benefit from cost reduction programs initiated in the prior fiscal year. Modest consumer segment sales growth continued, while sales in our larger industrial segment remained under pressure in line with our previously stated expectations," stated Frank C. Sullivan, chairman and chief executive officer.
Consolidated earnings before interest and taxes (EBIT) increased 19.4% to a record $92.9 million from the $77.7 million reported in the fiscal 2009 second quarter. "In addition to our own cost reduction efforts, RPM benefited from more stable raw material costs compared to year-ago levels," stated Sullivan.
Second-Quarter Segment Sales and Earnings
Sales in RPM's industrial segment, representing 71.4% of total sales, declined 6.0% to $613.5 million from $652.7 million in the year-ago second quarter. Organic sales declined 9.5%, offset in part by acquisition growth of 1.0% and net foreign exchange gains of 2.5%. Industrial segment EBIT for the second quarter improved 4.5% to $74.2 million, compared to EBIT of $71.0 million a year ago.
"Industrial sales in international markets, as well as certain product lines, including roofing and polymer flooring, held up reasonably well despite the troubled global economy. Other industrial product lines, particularly those that serve domestic commercial construction markets, struggled as tight credit markets continued to dampen both new commercial construction and major renovation projects," Sullivan stated.
Sales in RPM's consumer segment, which accounted for 28.6% of total sales, grew 3.3% to $245.2 million from $237.2 million a year ago. All of the increase was organic, including 1.5% in net foreign exchange gains. Consumer segment EBIT improved to $31.8 million from $15.6 million a year ago.
"Our consumer businesses are benefiting from gains in market share during the past fiscal year, new product introductions and strength in our small project, maintenance and repair, and redecoration products, despite consumers being cautious about spending on major home renovation projects. Increasing sales, coupled with cost reduction efforts, produced outstanding EBIT growth for the consumer segment," Sullivan stated.
Cash Flow and Financial Position
For the first half of fiscal 2010, cash from operations was $184.7 million, a 77.5% increase over the $104.0 million in the first half of fiscal 2009. Capital expenditures of $8.3 million compare to depreciation of $31.1 million over the same period in fiscal 2010. Total debt at the end of the first half was $906.2 million, compared to $930.8 million at the end of fiscal 2009 and $962.6 million at the end of the second quarter of fiscal 2009. RPM's net (of cash) debt-to-total capitalization ratio was 29.7%, compared to 37.2% at May 31, 2009, and both remain at the low end of the company's historic norms. "We are continuing to build on our existing strong cash and liquidity position in anticipation of a return to our normal level of acquisition growth. At November 30, 2009, liquidity, including cash and long-term committed available credit, stood at a record $853.7 million," Sullivan stated.
On October 6, 2009, RPM announced the sale of $300 million aggregate principal amount of 6.125% notes due October 15, 2019. Proceeds were used to redeem $164 million in principal amount of RPM unsecured senior notes due October 15, 2009, and to pay down $120 million in short-term borrowings under the company's accounts receivable securitization program, with the remainder used for general corporate purposes.
During the quarter, RPM paid $18.9 million in pre-tax asbestos costs, compared to $16.4 million in the year-ago period. RPM's total asbestos reserve balance stood at $452.8 million at November 30, 2009.
First-Half Sales and Earnings
Net sales for the first half of fiscal 2010 decreased 5.4% to $1.77 billion from $1.88 billion a year ago. Net income improved 15.9% to a record $128.9 million from $111.2 million in the fiscal 2009 first half.
Diluted earnings per share for the first half of fiscal 2010 increased 16.3%, to a record $1.00 from $0.86 a year ago. Record first-half EBIT was $213.5 million, up 13.2% over the $188.6 million reported a year ago.
RPM's industrial segment sales declined 10.2% in the fiscal 2010 first half, to $1.24 billion from $1.38 billion a year ago. The organic sales decline was 11.1%, including net foreign exchange losses of 1.1%, partially offset by acquisition growth of 0.9%. Industrial segment EBIT declined 3.6% to $159.1 million from $165.1 million in the fiscal 2009 first half.
First-half sales for the consumer segment grew 7.9% to $537.1 million from $497.6 million reported in the first half of fiscal 2009. Organic sales improved by 7.9%, including net foreign exchange losses of 0.7%. Consumer segment EBIT was up 73.1%, to $82.1 million from $47.4 million a year ago.
Business Outlook
"We are encouraged by the year-to-date improvements in our gross margin that have resulted from productivity gains, operating efficiencies and cost reduction actions undertaken during our last fiscal year. Additionally, while still materially above historical norms, raw material costs have declined from last year's extraordinary levels," stated Sullivan. "We continue to anticipate a loss for the seasonally weak fiscal third quarter ending February 28, 2010, but operating results should be significantly improved from the same period last year," he stated. "As a result, we are revising our fiscal 2010 guidance upward to a range of $1.30 to $1.45 compared to the adjusted $1.05 per diluted share earned last 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. EST today. The call can be accessed by dialing 866-713-8564 or 617-597-5312 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. EST on January 6, 2010 until 11:59 p.m. EST on January 13, 2010. The replay can be accessed by dialing 888-286-8010 or 617-801-6888 for international callers. The access code is 87918256. 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, Day-Glo, Euco and Dryvit. RPM's consumer products are used by professionals and do-it-yourselfers for home maintenance and improvement, boat repair and maintenance, 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 P. Kelly Tompkins, executive 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, including for asbestos-related claims and warranty obligations; 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, 2009, 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)
Three Months Ended Six Months Ended
November 30, November 30,
------------ ------------
2009 2008 2009 2008
---- ---- ---- ----
Net
Sales $858,658 $889,965 $1,774,611 $1,875,430
Cost
of
sales 495,447 533,239 1,017,570 1,115,115
------- ------- --------- ---------
Gross
profit 363,211 356,726 757,041 760,315
Selling,
General &
administrative
expenses 270,352 278,982 543,551 571,672
Interest
expense 14,672 15,203 27,469 29,959
Investment
expense
(income), net (2,057) 2,191 (3,151) (1,979)
------ ----- ------ ------
Income before
income taxes 80,244 60,350 189,172 160,663
Provision
for income
taxes 24,351 18,624 60,254 49,420
------ ------ ------ ------
Net Income $55,893 $41,726 $128,918 $111,243
======= ======= ======== ========
Basic earnings
per share
of common
stock (a) $0.44 $0.33 $1.00 $0.87
===== ===== ===== =====
Diluted
Earnings per
share of
common stock
(a) $0.43 $0.33 $1.00 $0.86
===== ===== ===== =====
Average
shares of
common
stock
outstanding -
basic (a) 127,373 127,090 126,868 126,158
======= ======= ======= =======
Average
shares
of common
stock
outstanding -
diluted (a) 129,164 127,601 127,378 128,671
(a) The above information reflects our June 1, 2009
adoption of a new accounting pronouncement which
requires all unvested restricted stock awards that pay
dividends to be considered participating securities for
the purpose of computing earnings per share.
SUPPLEMENTAL SEGMENT INFORMATION
IN THOUSANDS
(UNAUDITED)
Three Months Ended Six Months Ended
November 30, November 30,
------------ ------------
2009 2008 2009 2008
---- ---- ---- ----
Net Sales (e):
Industrial Segment $613,495 $652,735 $1,237,523 $1,377,810
Consumer Segment 245,163 237,230 537,088 497,620
------- ------- ------- -------
Total $858,658 $889,965 $1,774,611 $1,875,430
======== ======== ========== ==========
Gross Profit (e):
Industrial Segment $266,576 $276,348 $542,951 $580,332
Consumer Segment 96,635 80,378 214,090 179,983
------ ------ ------- -------
Total $363,211 $356,726 $757,041 $760,315
======== ======== ======== ========
Income Before Income
Taxes (b,e):
Industrial Segment
Income Before
Income Taxes
(b) $73,921 $70,996 $158,747 $165,073
Interest
(Expense),
Net (c) (258) (7) (368) (36)
---- --- ---- ---
EBIT (d) $74,179 $71,003 $159,115 $165,109
======= ======= ======== ========
Consumer Segment
Income Before
Income Taxes
(b) $31,828 $14,515 $82,076 $44,939
Interest
(Expense),
Net (c) (3) (1,105) (9) (2,477)
--- ------ --- ------
EBIT (d) $31,831 $15,620 $82,085 $47,416
======= ======= ======= =======
Corporate/Other
(Expense)
Before Income
Taxes (b) $(25,505) $(25,161) $(51,651) $(49,349)
Interest
(Expense),
Net (c) (12,354) (16,282) (23,941) (25,467)
------- ------- ------- -------
EBIT (d) $(13,151) $(8,879) $(27,710) $(23,882)
======== ======= ======== ========
Consolidated
Income Before
Income Taxes
(b) $80,244 $60,350 $189,172 $160,663
Interest
(Expense),
Net (c) (12,615) (17,394) (24,318) (27,980)
------- ------- ------- -------
EBIT (d) $92,859 $77,744 $213,490 $188,643
(b) The presentation includes a reconciliation of Income (Loss) Before
Income Taxes, a measure defined by Generally Accepted Accounting
Principles (GAAP) in the United States, 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. We believe
EBIT is useful to investors for this purpose as well, using EBIT 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.
(e) The presentation reflects a change in the composition of our
reportable segments, which occurred during the second fiscal quarter
of 2010. Some business units formerly accounted for in our Consumer
reportable segment are now included in our Industrial reportable
segment based on the current nature of their business, customers and
markets served.
CONSOLIDATED BALANCE SHEETS
IN THOUSANDS
November 30, 2009 November 30, 2008 May 31, 2009
----------------- ----------------- ------------
(Unaudited) (Unaudited)
Assets
Current Assets
Cash and cash
equivalents $363,928 $205,289 $253,387
Trade accounts
receivable 608,588 627,653 661,593
Allowance for
doubtful
accounts (25,299) (20,464) (22,934)
------- ------- -------
Net trade
accounts
receivable 583,289 607,189 638,659
Inventories 434,230 493,241 406,175
Deferred
income taxes 44,489 36,974 44,540
Prepaid
expenses and
other current
assets 204,388 194,596 210,155
------- ------- -------
Total current
assets 1,630,324 1,537,289 1,552,916
--------- --------- ---------
Property,
Plant and
Equipment, at
Cost 1,070,943 1,007,208 1,056,555
Allowance for
depreciation
and
amortization (614,989) (552,053) (586,452)
-------- -------- --------
Property,
plant and
equipment,
net 455,954 455,155 470,103
------- ------- -------
Other Assets
Goodwill 871,393 844,980 856,166
Other
intangible
assets, net
of
amortization 359,762 348,770 358,097
Deferred
income taxes,
non-current 71,175 98,172 92,500
Other 89,931 68,836 80,139
------ ------ ------
Total other
assets 1,392,261 1,360,758 1,386,902
--------- --------- ---------
Total Assets $3,478,539 $3,353,202 $3,409,921
========== ========== ==========
Liabilities
and
Stockholders'
Equity
Current
Liabilities
Accounts
payable $249,432 $282,429 $294,814
Current
portion of
long-term
debt 2,940 171,247 168,547
Accrued
compensation
and benefits 115,749 102,716 124,138
Accrued loss
reserves 75,250 73,673 77,393
Asbestos-
related
liabilities 75,000 65,000 65,000
Other accrued
liabilities 145,682 126,106 119,270
------- ------- -------
Total current
liabilities 664,053 821,171 849,162
------- ------- -------
Long-Term
Liabilities
Long-term
debt, less
current
maturities 903,285 791,364 762,295
Asbestos-
related
liabilities 377,847 462,309 425,328
Other long-
term
liabilities 225,591 136,537 204,021
Deferred
income taxes 25,920 19,729 23,815
------ ------ ------
Total long-
term
liabilities 1,532,643 1,409,939 1,415,459
--------- --------- ---------
Total
liabilities 2,196,696 2,231,110 2,264,621
--------- --------- ---------
Stockholders'
Equity
Preferred
stock; none
issued
Common stock
(outstanding
129,490;
128,381;
128,501) 1,295 1,284 1,285
Paid-in
capital 795,080 790,933 796,441
Treasury
stock, at
cost (40,237) (50,279) (50,453)
Accumulated
other
comprehensive
income (loss) 21,069 (92,933) (29,928)
Retained
earnings 504,636 473,087 427,955
------- ------- -------
Total
stockholders'
equity 1,281,843 1,122,092 1,145,300
--------- --------- ---------
Total
Liabilities
and
Stockholders'
Equity $3,478,539 $3,353,202 $3,409,921
========== ========== ==========
CONSOLIDATED STATEMENTS OF CASH FLOWS
IN THOUSANDS
(UNAUDITED)
Six Months Ended
November 30,
------------
2009 2008
---- ----
Cash Flows From Operating
Activities:
Net income $128,918 $111,243
Adjustments to reconcile net
income to net
cash provided by operating
activities:
Depreciation 31,107 32,175
Amortization 11,128 11,254
Other-than-temporary impairments
on marketable 146 3,370
securities
Provision for asbestos-related
liabilities
Deferred income taxes 18,924 5,034
Other 4,149 3,935
Changes in assets and liabilities,
net of effect
from purchases and sales of
businesses:
Decrease in receivables 59,658 212,078
(Increase) in inventory (26,394) (15,607)
(Increase) decrease in prepaid
expenses and other
current and long-term assets (723) 18,138
(Decrease) in accounts payable (47,476) (130,500)
(Decrease) in accrued compensation
and benefits (8,697) (48,776)
(Decrease) increase in accrued
loss reserves (2,141) 1,693
Increase (decrease) in other
accrued liabilities 47,092 (37,428)
Payments made for asbestos-
related claims (37,481) (32,436)
Other 6,484 (30,125)
----- -------
Cash From Operating Activities 184,694 104,048
------- -------
Cash Flows From Investing
Activities:
Capital expenditures (8,287) (24,887)
Acquisition of businesses, net of
cash acquired (9,042) (3,733)
Purchase of marketable securities (38,809) (69,133)
Proceeds from sales of marketable
securities 36,658 63,612
Proceeds from the sales of assets
or businesses
Other (322) 3,296
---- -----
Cash (Used For) Investing
Activities (19,802) (30,845)
------- -------
Cash Flows From Financing
Activities:
Additions to long-term and short-
term debt 304,203 87,209
Reductions of long-term and
short-term debt (327,133) (49,576)
Cash dividends (52,237) (50,470)
Repurchase of stock (45,184)
Exercise of stock options 5,294 1,690
Tax benefit from exercise of stock
options
Cash From (Used For) Financing
Activities (69,873) (56,331)
------- -------
Effect of Exchange Rate
Changes on Cash and Cash
Equivalents 15,522 (42,834)
------ -------
Net Change in Cash and Cash
Equivalents 110,541 (25,962)
Cash and Cash Equivalents at
Beginning of Period 253,387 231,251
------- -------
Cash and Cash Equivalents at
End of Period $363,928 $205,289
======== ========
SOURCE RPM International Inc.
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