MEDINA, OH -- RPM International Inc. reported sharply improved net sales for its fiscal 2012 second quarter ended Nov. 30, 2011. Net income increased slightly and earnings per diluted share were flat, due to higher raw material and acquisition-related expenses.

Second-Quarter Results

Net sales grew 10.9% to $916.1 million from $826.3 million a year ago. Consolidated EBIT increased 4.0%, to $93.0 million from $89.4 million in the year-ago second quarter. Net income attributable to RPM stockholders was up 2.3%, to $49.9 million from $48.8 million in the fiscal 2011 second quarter. Earnings per diluted share for the second quarter were $0.38 in both years.

"Investments in future growth, including much higher acquisition expenses associated with the roughly $165 million in annualized sales from businesses acquired so far this fiscal year, and higher raw material costs were the primary factors behind our net income lagging sales growth," stated Frank C. Sullivan, chairman and chief executive officer. "Raw material costs continued to be a challenge during our second quarter and typically have a more significant impact on our consumer segment, which faces longer lead times in adjusting prices than our industrial segment," he stated.

Earnings for the second quarter of fiscal 2011 and 2012 were both impacted by "one-time" items. As previously reported, last year's second quarter contained approximately $7.5 million in non-recurring items, representing an after-tax benefit of approximately $0.04 per share.

This year's second quarter results of $0.38 per share include the benefit of the company's equity ownership in Kemrock Industries and Exports Ltd. of $0.04 per share, partially offset by $0.03 per share from the impact of higher acquisition-related expenses.

Excluding "one-time" items from both years, diluted earnings per share for the fiscal 2012 second quarter of $0.37 exceeded diluted earnings per share for the same quarter last year of $0.34, for an increase of 8.8%.

Second-Quarter Segment Sales and Earnings

During the second quarter, industrial segment sales grew 10.1% to $641.5 million from $582.5 million in the fiscal 2011 second quarter. Organic sales improved 5.9%, including 0.2% in foreign exchange translation losses, while acquisition growth added 4.2%. Industrial segment EBIT increased 14.0%, to $78.3 million from $68.7 million in the fiscal 2011 second quarter.

In the second quarter, RPM's ownership position in Kemrock, India's leading producer of reinforced polymer composites, exceeded 20% for the first time, thereby triggering a reportable equity ownership position in a portion of Kemrock's earnings. As a result, the industrial segment's EBIT included $5.2 million in equity in earnings of Kemrock, of which $4.6 million related to a one-time cumulative catch-up benefit. Industrial EBIT also included higher acquisition-related expenses of $1.8 million, partially offsetting the Kemrock benefit.

"High performance corrosion control coatings, commercial flooring, bridge deck products and edible shellac products all posted double digit sales increases, with most other industrial products having solid sales improvements," Sullivan said.

RPM's consumer segment sales increased 12.6% to $274.6 million from $243.8 million in the fiscal 2011 second quarter. Organic sales improved 12.5%, with no foreign exchange impact, while acquisition growth added 0.1%. Consumer segment EBIT fell 2.0%, to $26.8 million from $27.3 million a year ago.

"Our consumer product lines enjoyed solid organic sales volume growth due to strong market acceptance of higher end new products and increased market share, but their difficulty in quickly passing along higher raw material costs kept this sales increase from immediately carrying to the bottom line," said Sullivan.

Corporate and other expenses were higher by approximately $5.4 million, due primarily to higher acquisition costs of $3.0 million and insurance recoveries of $2.9 million realized in the prior-year second quarter.

Cash Flow and Financial Position

For the first half of fiscal 2011, cash from operations was $110.0 million compared to $183.1 million a year ago. Although RPM experienced a favorable decline in accounts receivable during the strong sales quarter, higher inventory attributable to higher raw material costs, a drop in accounts payable due to the timing of payments and a decrease in other accrued liabilities were the primary drivers to the overall cash shortfall to last year. Capital expenditures of $18.4 million compare to depreciation of $25.9 million during the first half of this fiscal year. Total debt at the end of the first half was $1.094 billion compared to $925.1 million at the end of the fiscal 2011 second quarter and $1.109 billion at the end of the 2011 fiscal year. RPM's net (of cash) debt-to-total capitalization ratio was 38.7%, compared to 34.8% at May 31, 2011, and it continues to be at the low end of the company's historic norms. At Nov. 30, 2011, liquidity stood at $803.9 million, including cash of $301.0 million and $502.9 million in long-term committed available credit.

"In addition to supporting our growing cash dividend and internal capital investments, this solid cash and liquidity position enables RPM to continue a more robust acquisition program. Businesses with approximately $165 million in annual sales have been acquired so far this fiscal year, all of which will be accretive to earnings within a year," Sullivan said.

First-Half Sales and Earnings

Fiscal 2012 first-half net sales, net income and diluted earnings per share all improved. Net sales increased 10.5% to $1.90 billion from $1.72 billion during the first six months of fiscal 2011. Consolidated EBIT increased 8.6% to $229.5 million from $211.4 million during the first six months of fiscal 2011. Net income attributable to RPM stockholders improved 7.6% to $126.7 million from $117.8 million in the fiscal 2011 first half. Diluted earnings per share attributable to RPM stockholders grew 6.6% to $0.97 from $0.91 a year ago.

First-Half Segment Sales and Earnings

RPM's industrial segment first-half sales improved 10.4%, to $1.31 billion from $1.18 billion in the fiscal 2011 first half. The organic sales increase was 7.5%, including net foreign exchange translation gains of 2.4%, while acquisition growth added 2.9%. Industrial segment EBIT grew 12.3% to $170.8 million from $152.0 million a year ago, including $5.2 million, or 3.4%, from the recognition of RPM's share of Kemrock's net earnings, of which $4.6 million related to a one-time cumulative catch-up benefit.

First-half sales for the consumer segment increased 10.6% to $593.4 million from $536.3 million a year ago. Organic sales increased 10.7%, including net foreign exchange gains of 1.1%. A small divestiture reduced the improvement by 0.1%. Consumer segment EBIT increased 2.5% to $78.3 million from $76.3 million in the first half a year ago.

Acquisitions

During the second quarter and subsequent to it, RPM announced acquisitions with sales totaling more than $130 million, all of which are expected to be accretive to earnings within one year.

On Sept. 30, 2011, the company's RPM2 business unit acquired the Legend Brands group of companies, which provide equipment and solutions for water and fire damage restoration, professional cleaning and environmental control. Based in Burlington, WA, the business has annual sales of more than $70 million.

The RPM Performance Coatings Group announced the acquisition of the Grupo P&V group of companies on Oct. 5, 2011. Grupo P&V is a leading vertically integrated supplier of passive fire protection and insulation products based in Barcelona, Spain. Annual sales are approximately $23 million.

Subsequent to the close of the fiscal 2012 second quarter, the RPM Building Solutions Group completed the acquisition of FEMA Farben + Putze GmbH on Jan. 3, 2012. This business, with annual sales of more than $40 million, is a leading supplier of external insulating and finish systems and related products to the German and French construction markets.

Business Outlook

"We reiterate our full year guidance announced on July 25, 2011, which anticipated sales growth of 8% to 10% and growth in diluted earnings per share of 10% to 15%. As usual, we expect weaker results for the seasonally difficult fiscal third quarter ending Feb. 29, 2012, but anticipate a strong fiscal fourth quarter, with continued strength in top-line sales from both our industrial and consumer segments, combined with a moderating of raw material costs and improved gross margin contribution," Sullivan said.

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,

 

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Sales

 

$         916,085

 

$          826,343

 

$          1,902,003

 

$          1,721,153

 

Cost of sales

 

547,064

 

486,846

 

1,123,356

 

1,006,230

 

Gross profit

 

369,021

 

339,497

 

778,647

 

714,923

 

Selling, general & administrative expenses

 

281,874

 

250,648

 

555,817

 

504,670

 

Interest expense

 

17,909

 

16,468

 

35,715

 

32,510

 

Investment (income), net

 

(1,045)

 

(4,309)

 

(1,069)

 

(6,286)

 

Other (income), net

 

(5,887)

 

(578)

 

(6,690)

 

(1,179)

 

Income before income taxes

 

76,170

 

77,268

 

194,874

 

185,208

 

Provision for income taxes

 

22,251

 

23,765

 

57,615

 

56,711

 

Net income

 

53,919

 

53,503

 

137,259

 

128,497

 

Less:  Net income attributable to noncontrolling interests

 

3,988

 

4,712

 

10,517

 

10,710

 

Net income attributable to RPM International Inc. Stockholders

 

$           49,931

 

$            48,791

 

$             126,742

 

$             117,787

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share of common stock attributable
to RPM International Inc. Stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$               0.38

 

$                0.38

 

$                   0.97

 

$                   0.91

 

 

 

 

 

 

 

 

 

 

 

 

Diluted

 

$               0.38

 

$                0.38

 

$                   0.97

 

$                   0.91

 

 

 

 

 

 

 

 

 

 

 

 

Average shares of common stock outstanding - basic

 

127,986

 

127,012

 

128,048

 

127,491

 

 

 

 

 

 

 

 

 

 

 

 

Average shares of common stock outstanding - diluted

 

128,432

 

127,670

 

128,537

 

128,050

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL SEGMENT INFORMATION

 

 

 

 

 

 

 

 

 

IN THOUSANDS

 

 

 

 

 

 

 

 

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

 

November 30,

 

November 30,

 

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

Net Sales:

 

 

 

 

 

 

 

 

 

 

Industrial Segment

 

$         641,538

 

$          582,508

 

$          1,308,554

 

$          1,184,822

 

 

Consumer Segment

 

274,547

 

243,835

 

593,449

 

536,331

 

 

    Total

 

$         916,085

 

$          826,343

 

$          1,902,003

 

$          1,721,153

 

 

 

 

 

 

 

 

 

 

 

 

Income Before Income Taxes (b):

 

 

 

 

 

 

 

 

 

 

Industrial Segment

 

 

 

 

 

 

 

 

 

 

    Income Before Income Taxes (a)

 

$           77,224

 

$            67,672

 

$             168,770

 

$             150,151

 

 

    Interest (Expense), Net (b)

 

(1,065)

 

(1,008)

 

(1,982)

 

(1,869)

 

 

    EBIT (c)

 

$           78,289

 

$            68,680

 

$             170,752

 

$             152,020

 

 

Consumer Segment

 

 

 

 

 

 

 

 

 

 

    Income Before Income Taxes (a)

 

$           26,753

 

$            27,352

 

$               78,265

 

$               76,379

 

 

    Interest (Expense), Net (b)

 

(21)

 

20

 

15

 

30

 

 

    EBIT (c)

 

$           26,774

 

$            27,332

 

$               78,250

 

$               76,349

 

 

Corporate/Other

 

 

 

 

 

 

 

 

 

 

    (Expense) Before Income Taxes (a)

 

$         (27,807)

 

$          (17,756)

 

$             (52,161)

 

$              (41,322)

 

 

    Interest (Expense), Net (b)

 

(15,778)

 

(11,171)

 

(32,679)

 

(24,385)

 

 

    EBIT (c)

 

$         (12,029)

 

$            (6,585)

 

$             (19,482)

 

$              (16,937)

 

 

    Consolidated

 

 

 

 

 

 

 

 

 

 

         Income Before Income Taxes (a)

 

$           76,170

 

$            77,268

 

$             194,874

 

$             185,208

 

 

         Interest (Expense), Net (b)

 

(16,864)

 

(12,159)

 

(34,646)

 

(26,224)

 

 

         EBIT (c)

 

$           93,034

 

$            89,427

 

$             229,520

 

$             211,432

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CONSOLIDATED BALANCE SHEETS

 

IN THOUSANDS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

November 30, 2011

 

November 30, 2010

 

May 31, 2011

 

 

 

(Unaudited)

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

Cash and cash equivalents

$                     300,955

 

$                     299,157

 

$                     435,011

 

 

Trade accounts receivable

689,664

 

595,873

 

740,460

 

 

Allowance for doubtful accounts

(27,839)

 

(21,198)

 

(27,597)

 

 

Net trade accounts receivable

661,825

 

574,675

 

712,863

 

 

Inventories

510,527

 

433,792

 

463,120

 

 

Deferred income taxes

16,950

 

20,524

 

17,764

 

 

Prepaid expenses and other current assets

230,954

 

194,218

 

239,212

 

 

Total current assets

1,721,211

 

1,522,366

 

1,867,970

 

 

 

 

 

 

 

 

 

Property, Plant and Equipment, at Cost

1,010,673

 

953,128

 

998,245

 

 

Allowance for depreciation and amortization

(628,546)

 

(574,981)

 

(608,218)

 

 

Property, plant and equipment, net

382,127

 

378,147

 

390,027

 

Other Assets

 

 

 

 

 

 

 

Goodwill

865,529

 

794,092

 

831,489

 

 

Other intangible assets, net of amortization

353,652

 

309,466

 

312,867

 

 

Other

109,494

 

114,484

 

112,676

 

 

Total other assets

1,328,675

 

1,218,042

 

1,257,032

 

 

 

 

 

 

 

 

 

Total Assets

$                  3,432,013

 

$                  3,118,555

 

$                  3,515,029

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

Accounts payable

$                     324,519

 

$                     274,313

 

$                     358,790

 

 

Current portion of long-term debt

1,950

 

2,674

 

2,549

 

 

Accrued compensation and benefits

124,262

 

115,757

 

156,981

 

 

Accrued loss reserves

52,783

 

63,751

 

57,645

 

 

Other accrued liabilities

149,266

 

143,746

 

159,324

 

 

Total current liabilities

652,780

 

600,241

 

735,289

 

 

 

 

 

 

 

 

 

Long-Term Liabilities

 

 

 

 

 

 

 

Long-term debt, less current maturities

1,092,454

 

922,463

 

1,106,304

 

 

Other long-term liabilities

225,519

 

255,797

 

224,026

 

 

Deferred income taxes

73,233

 

55,773

 

62,042

 

 

Total long-term liabilities

1,391,206

 

1,234,033

 

1,392,372

 

 

  Total liabilities

2,043,986

 

1,834,274

 

2,127,661

 

 

 

 

 

 

 

 

 

Stockholders' Equity

 

 

 

 

 

 

 

Preferred stock; none issued

 

 

 

 

 

 

 

Common stock (outstanding 131,233; 130,037; 130,580)

1,312

 

1,300

 

1,306

 

 

Paid-in capital

743,118

 

733,813

 

735,245

 

 

Treasury stock, at cost

(68,494)

 

(61,586)

 

(62,495)

 

 

Accumulated other comprehensive income (loss)

(74,999)

 

(52,547)

 

6,073

 

 

Retained earnings

654,157

 

566,438

 

583,035

 

 

    Total RPM International Inc. stockholders' equity

1,255,094

 

1,187,418

 

1,263,164

 

 

Noncontrolling interest

132,933

 

96,863

 

124,204

 

 

    Total equity

1,388,027

 

1,284,281

 

1,387,368

 

 

 

 

 

 

 

 

 

Total Liabilities and Stockholders' Equity

$                  3,432,013

 

$                  3,118,555

 

$                  3,515,029

 

 

 

 

 

 

 

 

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS 

 

(UNAUDITED) IN THOUSANDS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

 

 

November 30,

 

 

 

 

2011

 

2010

 

 

 

 

 

 

 

 

Cash Flows From Operating Activities:

 

 

 

 

 Net income

 

 

$         137,259

 

$            128,497

 

 Adjustments to reconcile net income to net

 

 

 

 

         cash provided by operating activities:

 

 

 

 

              Depreciation

 

25,891

 

26,788

 

              Amortization

 

11,027

 

9,906

 

              Deferred income taxes

 

(1,620)

 

5,323

 

              Stock-based compensation expense

6,692

 

6,027

 

              Other

 

(5,204)

 

(64)

 

 Changes in assets and liabilities, net of effect

 

 

 

 

         from purchases and sales of businesses:

 

 

 

 

              Decrease in receivables

 

76,864

 

66,393

 

              (Increase) in inventory

 

(24,687)

 

(44,880)

 

              (Increase) in prepaid expenses and other

 

 

 

 

                   current and long-term assets

(10,040)

 

(11,155)

 

              (Decrease) in accounts payable

(46,345)

 

(27,969)

 

              (Decrease) in accrued compensation and benefits

(36,662)

 

(21,700)

 

              (Decrease) in accrued loss reserves

(5,313)

 

(2,092)

 

              (Decrease) increase in other accrued liabilities

(14,952)

 

45,067

 

              Other

 

(2,880)

 

2,973

 

                   Cash From Operating Activities

110,030

 

183,114

 

Cash Flows From Investing Activities:

 

 

 

 

    Capital expenditures

 

(18,353)

 

(15,333)

 

    Acquisition of businesses, net of cash acquired

(132,905)

 

(20,669)

 

    Purchase of marketable securities

 

(39,337)

 

(37,282)

 

    Proceeds from sales of marketable securities

36,937

 

38,828

 

    Other

 

 

4,072

 

(1,324)

 

                   Cash (Used For) Investing Activities

(149,586)

 

(35,780)

 

Cash Flows From Financing Activities:

 

 

 

 

    Additions to long-term and short-term debt

7,215

 

24,913

 

    Reductions of long-term and short-term debt

(22,845)

 

(28,391)

 

    Cash dividends

 

(55,620)

 

(53,911)

 

    Repurchase of stock

 

(5,999)

 

(20,916)

 

    Exercise of stock options

 

3,181

 

2,614

 

                   Cash (Used For) Financing Activities

(74,068)

 

(75,691)

 

 

 

 

 

 

 

 

Effect of Exchange Rate Changes on Cash and

 

 

 

 

    Cash Equivalents

(20,432)

 

12,159

 

 

 

 

 

 

 

 

Net Change in Cash and Cash Equivalents

(134,056)

 

83,802

 

 

 

 

 

 

 

 

Cash and Cash Equivalents at Beginning of Period

435,011

 

215,355

 

 

 

 

 

 

 

 

Cash and Cash Equivalents at End of Period

$         300,955

 

$            299,157

 

 

 

 

 

 

 

 

 

Source: RPM International Inc.

 

 

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