MEDINA, Ohio - RPM International Inc. (NYSE: RPM) today said that unusually strong performance in its prior-year first quarter dampened comparative results for the fiscal 2015 first quarter ended August 31, 2014, but that the company is maintaining its full-year earnings guidance for fiscal 2015 issued July 28, 2014. Full-year guidance for the fiscal year ending May 31, 2015 anticipates growth in diluted earnings per share of 9% to 11%, or a range of $2.38 to $2.42 per diluted share.
First-Quarter Results
Fiscal 2015 first-quarter net sales of $1.204 billion increased 3.4% over the $1.165 billion reported a year ago. RPM's consolidated earnings before interest and taxes (EBIT) declined 0.2% to $163.7 million from $164.0 million reported in the fiscal 2014 first quarter. First-quarter net income declined 3.9% to $99.1 million from $103.1 million in the year-ago period, and diluted earnings per share declined 5.2% to $0.73 from $0.77 in the fiscal 2014 first quarter.
"As we announced in an 8-K filing on September 4, 2014, we anticipate that quarterly results during fiscal 2015 will follow a different pattern compared to fiscal 2014, particularly in the first quarter. During last year's first quarter, our Synta and Kirker subsidiaries had exceptionally strong performance due to highly successful new product introductions and distribution expansion since being acquired by RPM," stated Frank C. Sullivan, chairman and chief executive officer. "We expect to resume improved financial performance for the remainder of this fiscal year."
Non-recurring costs in this year's first quarter totaled $5.6 million pre-tax, and were related primarily to legal expenses incurred in conjunction with a Securities and Exchange Commission investigation of timing of expense accruals in the 2013 fiscal year, which did not affect full-year earnings, along with the proposed Specialty Products Holding Corp. (SPHC) settlement, and a voluntary self-disclosure agreement with the state of Delaware for unclaimed property.
First-Quarter Segment Sales and Earnings
RPM's consumer segment, which includes both the Kirker and Synta business units, reported a 0.8% decrease in sales to $430.0 million from $433.4 million in the fiscal 2014 first quarter. Organic sales declined 2.0%, including favorable foreign exchange of 0.1%, while acquisition growth contributed 1.2%. Consumer segment EBIT declined 7.3% to $76.7 million from $82.7 million in the fiscal 2014 first quarter.
"While performance for both Kirker and Synta during the first quarter of fiscal 2015 was down significantly from the prior year, the balance of our consumer segment showed a sales increase in the mid-single digits, with EBIT growth in the mid-teens, which is consistent with continued market share gains, and the recovery in the U.S. housing market," stated Sullivan. "Clearly, the tough comparisons to last year for Synta and Kirker had a significant impact on the segment's overall performance this quarter."
The company's industrial segment net sales improved 5.8%, to $773.9 million from $731.2 million reported a year ago, with 4.5% in organic growth, including 0.1% in favorable foreign exchange, while acquisitions added 1.3%. Industrial segment EBIT grew 5.0% to $105.1 million from $100.1 million in the fiscal 2014 first quarter.
"We continue to see improvement in the U.S. commercial construction market, which is reflected in solid sales growth in concrete admixtures, commercial sealants and industrial and commercial polymer flooring. In Europe, growth has been more modest in comparison to the rebound in performance last year, as anticipated," stated Sullivan.
Cash Flow and Financial Position
During the fiscal 2015 first quarter, cash from operations was a negative $125.2 million compared to a negative $129.5 million a year ago. Capital expenditures were $12.1 million in the quarter, compared to $10.7 million in the year-ago period. Depreciation was $15.0 million during the first quarter of fiscal 2015, compared to $14.4 million for the same period last year.
Total debt at August 31, 2014 of $1.5 billion compares to $1.4 billion at May 31, 2014 and $1.4 billion at the end of last year's first quarter. Net (of cash) debt-to-total capital was 46.6%, versus 49.1% at the end of last year's first quarter and 42.4% at the end of the prior fiscal year. Liquidity, including cash, was $893 million, compared to $896 million a year ago and $1.1 billion at May 31, 2014.
"RPM's strong cash and liquidity position enables us to continue our support of a growing cash dividend, our acquisition program, and the first installment of $450 million to fund the 524(g) trust as part of the SPHC settlement anticipated later this fiscal year," Sullivan stated. "RPM's debt-to-total capital ratio remains within our traditional range, and we continue to pursue acquisitions that complement our core growth strategies."
SPHC Files Plan of Reorganization
On September 26, 2014, SPHC filed its plan of reorganization in Delaware Bankruptcy Court. The plan memorializes the settlement in principle reached with representatives of current and future asbestos claimants. The financial terms of that settlement were previously disclosed in an investor communication of July 28, 2014. As previously reported, on the effective date of the plan, a trust will be established to resolve all current and future Bondex asbestos claims, an injunction will be issued by the court that will permanently protect SPHC, RPM International Inc., their affiliates, and other parties from current and future asbestos claims, and SPHC will emerge from bankruptcy and will be reconsolidated with RPM. RPM currently anticipates that the plan's effective date and the reconsolidation of SPHC's financial results will occur in RPM's fiscal 2015 third quarter (December 2014 – February 2015), but the actual timeline could change based on a variety of factors beyond the control of SPHC and RPM. The impact of the completion of this transaction on RPM's 2015 fiscal year will be dependent on specific timing and related transaction costs. On an annualized basis, SPHC has revenues of approximately $400 million.
"We look forward to plan confirmation for SPHC and its emergence from bankruptcy. While the amounts required to fund a 524(g) trust are substantial from a financial perspective, this transaction will be good for RPM shareholders, both in terms of our ongoing operations and as a process which will bring finality to the Bondex asbestos liability. On a reconsolidated basis, excluding estimated transaction costs, we believe that RPM will be in a position to deliver $2.70 to $2.90 in diluted earnings per share for the fiscal year ending May 31, 2016. We hope to be in a position to provide greater detail on both the impact of the SPHC reconsolidation on fiscal 2015 and our guidance for fiscal 2016 when we talk to investors during our second quarter earnings conference call in January 2015," stated Sullivan.
Business Outlook
"Our full-year outlook for fiscal 2015 remains the same as previously announced, with industrial sales increasing 6% to 8%, consumer sales increasing 5% to 7% and consolidated sales increasing 6% to 8%, which is expected to translate into net income and diluted earnings per share growth over the prior year of 9% to 11%, or $2.38 to $2.42," Sullivan stated.
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CONSOLIDATED STATEMENTS OF INCOME |
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IN THOUSANDS, EXCEPT PER SHARE DATA |
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(Unaudited) |
|||||||||||||||||
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Three Months Ended |
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August 31, |
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2014 |
2013 |
||||||||||||||||
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Net Sales |
$ 1,203,896 |
$ 1,164,674 |
|||||||||||||||
|
Cost of sales |
695,503 |
665,602 |
|||||||||||||||
|
Gross profit |
508,393 |
499,072 |
|||||||||||||||
|
Selling, general & administrative expenses |
346,525 |
335,459 |
|||||||||||||||
|
Interest expense |
19,415 |
20,725 |
|||||||||||||||
|
Investment (income), net |
(3,803) |
(3,894) |
|||||||||||||||
|
Other (income), net |
(1,822) |
(434) |
|||||||||||||||
|
Income before income taxes |
148,078 |
147,216 |
|||||||||||||||
|
Provision for income taxes |
43,239 |
40,327 |
|||||||||||||||
|
Net income |
104,839 |
106,889 |
|||||||||||||||
|
Less: Net income attributable to noncontrolling interests |
5,760 |
3,791 |
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Net income attributable to RPM International Inc. Stockholders |
$ 99,079 |
$ 103,098 |
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Earnings per share of common stock attributable to |
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RPM International Inc. Stockholders: |
|||||||||||||||||
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Basic |
$ 0.74 |
$ 0.78 |
|||||||||||||||
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Diluted |
$ 0.73 |
$ 0.77 |
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Average shares of common stock outstanding - basic |
130,094 |
129,344 |
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Average shares of common stock outstanding - diluted |
135,032 |
130,294 |
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SUPPLEMENTAL SEGMENT INFORMATION |
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IN THOUSANDS |
|||||||||||||||||
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(Unaudited) |
|||||||||||||||||
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Three Months Ended |
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August 31, |
|||||||||||||||||
|
2014 |
2013 |
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Net Sales: |
|||||||||||||||||
|
Industrial Segment |
$ 773,886 |
$ 731,226 |
|||||||||||||||
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Consumer Segment |
430,010 |
433,448 |
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Total |
$ 1,203,896 |
$ 1,164,674 |
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Income Before Income Taxes (a): |
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Industrial Segment |
|||||||||||||||||
|
Income Before Income Taxes (a) |
$ 102,464 |
$ 97,581 |
|||||||||||||||
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Interest (Expense), Net (b) |
(2,633) |
(2,534) |
|||||||||||||||
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EBIT (c) |
$ 105,097 |
$ 100,115 |
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|
Consumer Segment |
|||||||||||||||||
|
Income Before Income Taxes (a) |
$ 76,669 |
$ 82,717 |
|||||||||||||||
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Interest (Expense), Net (b) |
(8) |
39 |
|||||||||||||||
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EBIT (c) |
$ 76,677 |
$ 82,678 |
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Corporate/Other |
|||||||||||||||||
|
(Expense) Before Income Taxes (a) |
$ (31,055) |
$ (33,082) |
|||||||||||||||
|
Interest (Expense), Net (b) |
(12,971) |
(14,336) |
|||||||||||||||
|
EBIT (c) |
$ (18,084) |
$ (18,746) |
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Consolidated |
|||||||||||||||||
|
Income Before Income Taxes (a) |
$ 148,078 |
$ 147,216 |
|||||||||||||||
|
Interest (Expense), Net (b) |
(15,612) |
(16,831) |
|||||||||||||||
|
EBIT (c) |
$ 163,690 |
$ 164,047 |
|||||||||||||||
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(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. |
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(b) |
Interest (expense), net includes the combination of interest (expense) and investment income/(expense), net. |
||||||||||||||||
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(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 |
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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 |
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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 |
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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 |
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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 |
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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 |
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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. |
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CONSOLIDATED BALANCE SHEETS |
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|
IN THOUSANDS |
||||||
|
August 31, 2014 |
August 31, 2013 |
May 31, 2014 |
||||
|
(Unaudited) |
(Unaudited) |
|||||
|
Assets |
||||||
|
Current Assets |
||||||
|
Cash and cash equivalents |
$ 225,025 |
$ 204,903 |
$ 332,868 |
|||
|
Trade accounts receivable |
976,084 |
891,002 |
901,587 |
|||
|
Allowance for doubtful accounts |
(29,197) |
(29,082) |
(27,641) |
|||
|
Net trade accounts receivable |
946,887 |
861,920 |
873,946 |
|||
|
Inventories |
628,463 |
572,148 |
613,644 |
|||
|
Deferred income taxes |
22,251 |
38,427 |
22,281 |
|||
|
Prepaid expenses and other current assets |
216,848 |
172,410 |
219,556 |
|||
|
Total current assets |
2,039,474 |
1,849,808 |
2,062,295 |
|||
|
Property, Plant and Equipment, at Cost |
1,193,599 |
1,126,641 |
1,191,676 |
|||
|
Allowance for depreciation and amortization |
(664,064) |
(641,494) |
(658,871) |
|||
|
Property, plant and equipment, net |
529,535 |
485,147 |
532,805 |
|||
|
Other Assets |
||||||
|
Goodwill |
1,152,318 |
1,108,387 |
1,147,374 |
|||
|
Other intangible assets, net of amortization |
460,579 |
461,717 |
459,536 |
|||
|
Deferred income taxes, non-current |
7,882 |
5,643 |
7,943 |
|||
|
Other |
156,934 |
158,052 |
168,412 |
|||
|
Total other assets |
1,777,713 |
1,733,799 |
1,783,265 |
|||
|
Total Assets |
$ 4,346,722 |
$ 4,068,754 |
$ 4,378,365 |
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|
Liabilities and Stockholders' Equity |
||||||
|
Current Liabilities |
||||||
|
Accounts payable |
$ 408,961 |
$ 394,138 |
$ 525,680 |
|||
|
Current portion of long-term debt |
1,677 |
4,537 |
5,662 |
|||
|
Accrued compensation and benefits |
102,335 |
108,248 |
173,846 |
|||
|
Accrued loss reserves |
19,016 |
26,966 |
27,487 |
|||
|
Other accrued liabilities |
223,012 |
226,287 |
204,411 |
|||
|
Total current liabilities |
755,001 |
760,176 |
937,086 |
|||
|
Long-Term Liabilities |
||||||
|
Long-term debt, less current maturities |
1,476,349 |
1,419,607 |
1,345,965 |
|||
|
Other long-term liabilities |
428,576 |
423,321 |
466,659 |
|||
|
Deferred income taxes |
52,428 |
41,923 |
50,061 |
|||
|
Total long-term liabilities |
1,957,353 |
1,884,851 |
1,862,685 |
|||
|
Total liabilities |
2,712,354 |
2,645,027 |
2,799,771 |
|||
|
Stockholders' Equity |
||||||
|
Preferred stock; none issued |
||||||
|
Common stock (outstanding 133,511; 132,923; 133,273) |
1,335 |
1,329 |
1,333 |
|||
|
Paid-in capital |
796,041 |
770,726 |
790,102 |
|||
|
Treasury stock, at cost |
(90,095) |
(76,497) |
(85,400) |
|||
|
Accumulated other comprehensive (loss) |
(171,829) |
(174,909) |
(156,882) |
|||
|
Retained earnings |
900,782 |
741,035 |
833,691 |
|||
|
Total RPM International Inc. stockholders' equity |
1,436,234 |
1,261,684 |
1,382,844 |
|||
|
Noncontrolling interest |
198,134 |
162,043 |
195,750 |
|||
|
Total equity |
1,634,368 |
1,423,727 |
1,578,594 |
|||
|
Total Liabilities and Stockholders' Equity |
$ 4,346,722 |
$ 4,068,754 |
$ 4,378,365 |
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|
CONSOLIDATED STATEMENTS OF CASH FLOWS |
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|
IN THOUSANDS |
||||||
|
(Unaudited) |
||||||
|
Three Months Ended |
||||||
|
August 31, |
August 31, |
|||||
|
2014 |
2013 |
|||||
|
Cash Flows From Operating Activities: |
||||||
|
Net income |
$ 104,839 |
$ 106,889 |
||||
|
Adjustments to reconcile net income to net |
||||||
|
cash provided by operating activities: |
||||||
|
Depreciation |
15,048 |
14,431 |
||||
|
Amortization |
8,246 |
7,882 |
||||
|
Deferred income taxes |
1,984 |
(11,505) |
||||
|
Stock-based compensation expense |
5,700 |
4,826 |
||||
|
Other |
(605) |
(701) |
||||
|
Changes in assets and liabilities, net of effect |
||||||
|
from purchases and sales of businesses: |
||||||
|
(Increase) in receivables |
(72,292) |
(76,455) |
||||
|
(Increase) in inventory |
(17,338) |
(23,439) |
||||
|
(Increase) in prepaid expenses and other |
||||||
|
current and long-term assets |
(2,307) |
(7,201) |
||||
|
(Decrease) in accounts payable |
(115,686) |
(83,264) |
||||
|
(Decrease) in accrued compensation and benefits |
(70,880) |
(46,001) |
||||
|
(Decrease) in accrued loss reserves |
(8,311) |
(499) |
||||
|
(Decrease) in contingent payment |
(61,894) |
|||||
|
Increase in other accrued liabilities |
29,911 |
47,701 |
||||
|
Other |
(3,542) |
(232) |
||||
|
Cash (Used For) Operating Activities |
(125,233) |
(129,462) |
||||
|
Cash Flows From Investing Activities: |
||||||
|
Capital expenditures |
(12,050) |
(10,696) |
||||
|
Acquisition of businesses, net of cash acquired |
(33,472) |
(12,328) |
||||
|
Purchase of marketable securities |
(5,034) |
(20,152) |
||||
|
Proceeds from sales of marketable securities |
7,512 |
17,786 |
||||
|
Other |
(319) |
3,092 |
||||
|
Cash (Used For) Investing Activities |
(43,363) |
(22,298) |
||||
|
Cash Flows From Financing Activities: |
||||||
|
Additions to long-term and short-term debt |
131,907 |
53,218 |
||||
|
Reductions of long-term and short-term debt |
(5,468) |
(1,936) |
||||
|
Cash dividends |
(31,987) |
(29,836) |
||||
|
Repurchase of stock |
(4,695) |
(4,004) |
||||
|
Payments of acquisition related contingent consideration |
(24,750) |
|||||
|
Other |
244 |
(2,388) |
||||
|
Cash Provided By Financing Activities |
65,251 |
15,054 |
||||
|
Effect of Exchange Rate Changes on Cash and |
||||||
|
Cash Equivalents |
(4,498) |
(1,945) |
||||
|
Net Change in Cash and Cash Equivalents |
(107,843) |
(138,651) |
||||
|
Cash and Cash Equivalents at Beginning of Period |
332,868 |
343,554 |
||||
|
Cash and Cash Equivalents at End of Period |
$ 225,025 |
$ 204,903 |
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Source: RPM International Inc.
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