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RPM Reports First-Quarter Results

RPM International Inc. reported slight declines in sales, net income and diluted earnings per share for its fiscal 2011 first quarter ended August 31, 2010. The declines were primarily attributable to the deconsolidation of Specialty Products Holding Corp. (SPHC) subsidiaries, all of which reported through RPM's industrial segment, at the end of the company's 2010 fiscal year. The deconsolidation eliminated nearly $300 million in annual revenues from RPM's results, beginning in fiscal 2011. On a pro-forma basis, excluding the effect of the deconsolidation, sales, net income and earnings per diluted share all improved.

First-Quarter Results

On an "as reported" basis, first-quarter net sales of $894.8 million were 2.3% below the $916.0million reported a year ago. Net income attributable to RPM stockholders of $69.0million was off 5.5% from last year's record $73.0 million. First-quarter diluted earnings per share were $0.53, a 7.0% decrease from the $0.57 reported a year ago. Consolidated EBIT was $122.0 million, up 1.1% from the $120.7million in the fiscal 2010 first quarter.

On a pro-forma basis, assuming the deconsolidation of SPHC subsidiaries had been in effect during the first quarter of fiscal 2010, sales increased 6.1%, to $894.8 million from $843.0million a year ago. Pro-forma net income attributable to RPM stockholders improved 8.3%, to $69.0 million from $63.7million in the fiscal 2010 first quarter, while pro-forma diluted earnings per share were up 8.2%, to $0.53 from $0.49. Pro-forma consolidated EBIT grew 7.8%, to $122.0 million from $113.2 million a year ago.
"As announced last quarter, we will gauge our results going forward from the end of our last fiscal year on a pro-forma basis, taking into account the impact of the SPHC deconsolidation. On an apples-to-apples basis, we are pleased with our first-quarter results in this challenging economy. We were especially encouraged by a sharp improvement in sales by our industrial segment," stated Frank C. Sullivan, chairman and chief executive officer.

SPHC subsidiaries were deconsolidated from RPM's financial results when SPHC and its Bondex subsidiary filed Chapter 11 reorganization proceedings on May 31, 2010. As a result of the filing, Bondex asbestos liabilities are no longer carried on RPM's balance sheet. SPHC operating subsidiaries include Chemical Specialties Manufacturing Corp.; Day-Glo Color Corp.; Dryvit Systems, Inc.; Guardian Protection Products, Inc.; Kop-Coat, Inc.; RPM Wood Finishes Group, Inc.; and TCI, Inc.

While RPM continues to own these businesses, they are operating independently and their results are no longer included in RPM's consolidated financial statements.
First-Quarter Segment Sales and Earnings

The company's consumer segment, which was not affected by the deconsolidation, reported a 0.2% increase in sales to $292.5 million from $292.0 million in the fiscal 2010 first quarter. Organic sales were off 0.4%, including 0.5% in foreign exchange translation losses offset by 0.2% in volume increases and 0.6% in acquisition growth. Consumer segment EBIT declined 2.4% to $49.0 million in the fiscal 2011 first quarter from $50.2 million in the fiscal 2010 first period.

"Our consumer segment faced some very tough comparisons in the first quarter, as our year-earlier first quarter had strong double-digit growth in both sales and EBIT. The segment was also impacted by significant increases in raw material costs, as well as a slowdown in consumer spending over the summer," Sullivan stated. "Businesses within the segment continued to hold or gain market share, which should serve RPM well as consumer spending picks up," he stated.

On a pro-forma basis, industrial segment sales improved 9.3%, to $602.3 million from $551.0million a year ago. Pro-forma segment EBIT grew 7.5%, to $83.3 million from $77.6million in the fiscal 2010 first quarter.

"The pro-forma improvements in our industrial segment results reflect growth in industrial capital spending from the depressed levels of the prior year. In addition to continuing strong performance by our polymer flooring and corrosion control coatings, we saw marked improvement in roofing and concrete additives, while sales were flat year-over-year in our domestic and international sealants businesses, which are linked to commercial new construction. Raw material costs were also a challenge across our industrial businesses," stated Sullivan.

Cash Flow and Financial Position

During the fiscal 2011 first quarter, cash from operations was $41.1 million, compared to $52.1million a year ago. Capital expenditures were $3.3 million in the quarter, comparable to the year-ago period. Depreciation was $13.3 million during the first quarter of fiscal 2011. During the quarter, the company repurchased approximately 500,000 shares of its common stock at a cost of $8.6 million under RPM's stock repurchase program.

Total debt at August 31, 2010 of $935.8 million compares to $928.6 million at May 31, 2010 and $906.7 million at the end of last year's first quarter. Net (of cash) debt-to-total capital was 38.6%, versus 34.7% at the end of last year's first quarter and 39.8% at the end of the prior fiscal year. Liquidity, including cash, was $717.3 million, as compared to $635.1 million a year ago and $688.5million at May 31, 2010. "RPM continues to have a strong capital structure and liquidity position that will enable us to bolster our acquisition program, while funding ongoing operating needs and our dividend program," Sullivan stated.

Turkish Acquisition Completed

On September 28, 2010, RPM announced that its Building Solutions Group has acquired Park Dis Ticaret A.S., a leading supplier of sealants, tapes and membranes to the construction markets in Turkey, Russia and the Middle East.
Based in Istanbul, Turkey, Park has annual sales of approximately $10 million and is currently a Tremco illbruck distributor. Terms of the transaction, which is expected to be accretive to earnings within one year, were not disclosed.

Business Outlook

"Based on our first-quarter results, we are holding to our fiscal 2011 guidance issued with our fiscal 2010 year-end earnings release on July 26, 2010. We continue to anticipate sales growth of between 4% and 5% to approximately $3.25 billion, from a pro-forma base of $3.12 billion in fiscal 2010 and growth in earnings per diluted share to a range of $1.35 to $1.40, up from a pro-forma $1.26 in fiscal 2010," stated Sullivan.

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Industrial coatings: 10%
Non-auto OEM: 10%
COATINGS REVENUES: $1.059 billion
TOTAL REVENUES: $1.059 billion
Architectural/Decorative: 90%
Industrial & Automotive: 10%
Coatings REVENUEs: $3.368 billion
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Segment breakdown
Industrial Segment: 67%
Consumer Segment: 33%
Industrial wood coatings: 95%