- 2020 MAP to Growth operating improvement program fuels
excellent third-quarter operating leverage
- Third-quarter reported diluted EPS of $0.09; adjusted diluted
EPS of $0.23, increases 76.9% over prior-year quarter and exceeds
guidance
- Third-quarter net income of $11.9 million; adjusted EBIT of
$60.5 million, increases 30.4% over prior-year quarter
- Cash provided by operating activities increases $236 million
year over year due to improved working capital management and
operating improvement initiatives
- Financial guidance and stock buyback suspended due to
uncertainty created by COVID-19
- RPM well positioned to weather the pandemic due to strong
balance sheet, significant liquidity, maintenance nature of
products, potential for DIY uptick, and margin improvements from
restructuring
RPM International Inc. (NYSE: RPM), a world leader in specialty
coatings, sealants and building materials, today reported financial
results for its fiscal 2020 third quarter ended February 29,
2020.
“Our financial performance was strong during the third quarter
and was achieved prior to the global COVID-19 pandemic, when
underlying market conditions were robust. We are doing our part to
control the spread of the virus, with our priorities being to
protect the health and well-being of our associates and their
family members, support our local communities to control the spread
of the virus, and serve our customers by maintaining the continuity
and success of our business operations,” stated RPM chairman and
CEO Frank C. Sullivan. “We are taking actions to adjust our
business activities during this period of uncertainty and are
well-positioned with a strong balance sheet and $1.14 billion in
liquidity.”
Third-Quarter Consolidated Results
Fiscal 2020 third-quarter net sales were $1.17 billion, an
increase of 2.9% over the $1.14 billion reported a year ago.
Third-quarter net income was $11.9 million, compared to the $14.2
million reported in the year-ago period, and diluted earnings per
share (EPS) were $0.09, compared to $0.11 in the year-ago quarter.
Income before income taxes (IBT) was $16.3 million compared to $4.5
million reported in the fiscal 2019 third quarter. RPM’s
consolidated earnings before interest and taxes (EBIT) were up
68.0% to $44.1 million compared to $26.3 million reported in the
fiscal 2019 third quarter.
The third quarter included restructuring-related charges and
acquisition expenses of $16.3 million during fiscal 2020 and $20.1
million in fiscal 2019. Excluding these charges, RPM’s adjusted
EBIT was up 30.4% to $60.5 million compared to $46.4 million during
the year-ago period. In addition, the company has continued to
exclude the impact of all gains and losses from marketable
securities from adjusted EPS, as their inherent volatility is
outside of management’s control and cannot be predicted with any
level of certainty. These investments resulted in a net after-tax
loss of $4.9 million for the third quarter of fiscal 2020 and a net
after-tax benefit of $1.5 million during the same quarter last
year. Excluding the restructuring and other adjustments, as well as
investment losses and gains, fiscal 2020 third-quarter adjusted
diluted EPS increased 76.9% to $0.23 compared to $0.13 in fiscal
2019.
“Initiatives under our MAP to Growth operating improvement
program continued to gain momentum during the third quarter,
fueling our excellent bottom-line performance and enabling us to
continue to outpace the earnings growth of our peers. These
initiatives included enacting operational improvements at our
production facilities, consolidating manufacturing plants,
delayering management and rationalizing product lines. Also
positively impacting results were the benefits of pricing and
moderating raw material costs,” stated Sullivan. “We are pleased
with our top-line growth during the third quarter, which typically
generates our most modest results each year because it falls during
the winter months, when painting and construction activity slow.
Market share gains and pricing contributed to organic sales growth
of 3.0%. This was partially offset by foreign currency translation
of 0.8%, while acquisitions contributed 0.7% to sales. Our
year-to-date cash flow from operations improved by $236 million
over last year due to better working capital management and margin
improvement from our MAP to Growth program.”
Third-Quarter Segment Sales and Earnings
Construction Products Group net sales increased 4.7%, to $372.1
million during the fiscal 2020 third quarter, compared to fiscal
2019 third-quarter net sales of $355.3 million, reflecting organic
growth of 5.1% and acquisitions contributing an additional 1.0%.
Foreign currency translation reduced sales by 1.4%. Segment IBT was
a loss of $0.5 million compared with a loss of $4.0 million a year
ago. EBIT was $1.7 million, up 207.6% compared to an EBIT loss of
$1.5 million in the fiscal 2019 third quarter. The segment incurred
$4.4 million in restructuring-related expenses during the third
quarter of fiscal 2020 and $1.2 million in restructuring-related
and other expenses during the same period of fiscal 2019. Excluding
these charges, fiscal 2020 adjusted EBIT increased to $6.0 million
compared to an adjusted EBIT loss of $0.3 million reported during
the year-ago period.
“In the Construction Products Group, we registered strong sales
growth from market share gains and the introduction of innovative
new products, with the fastest growth being generated in our
roofing, below-grade waterproofing and concrete admixtures
businesses,” stated Sullivan. “Driving earnings growth were
pricing, moderating raw material costs, MAP to Growth savings and
the favorable leverage impact of higher sales volume.”
Performance Coatings Group net sales increased 1.0% to $255.7
million during the fiscal 2020 third quarter as compared to net
sales of $253.2 million reported a year ago. Organic growth was
1.6% and acquisitions contributed an additional 0.2%. Foreign
currency translation reduced sales by 0.8%. Segment IBT was $22.2
million compared with IBT of $14.4 million reported a year ago.
EBIT was $22.1 million, an increase of 53.3% compared to EBIT of
$14.4 million in the fiscal 2019 third quarter. The segment
reported third-quarter restructuring-related charges and
acquisition costs of $2.1 million in fiscal 2020 and
restructuring-related charges of $3.7 million in fiscal 2019.
Adjusted EBIT, which excludes these charges, increased 33.2% to
$24.2 million during the third quarter of fiscal 2020 from adjusted
EBIT of $18.2 million during the year-ago period.
“A focus on higher margin product and service offerings, as well
as MAP to Growth business rationalization initiatives, drove a
significant adjusted EBIT margin improvement of 230 basis points in
the Performance Coatings Segment,” stated Sullivan. “On the top
line, sales growth in the segment was mixed. Its highway and bridge
maintenance businesses were slowed by government budget
constraints, particularly in the U.K. However, its protective and
marine coatings business unit increased market share and its
continental European operations grew solidly, driven by a new
global management structure.”
Consumer Group net sales were $398.7 million during the third
quarter of fiscal 2020, an increase of 5.4% compared to net sales
of $378.3 million reported in the third quarter of fiscal 2019.
Organic sales increased 6.0%. There was no impact from
acquisitions. Foreign currency translation reduced sales by 0.6%.
Consumer Group IBT was $29.8 million compared with IBT of $25.3
million in the prior-year period. EBIT was up 17.6% to $29.9
million compared to EBIT of $25.4 million in the fiscal 2019 third
quarter. The segment incurred restructuring-related expenses of
$2.3 million during fiscal 2020 and $1.6 million during fiscal
2019. Excluding these charges, fiscal 2020 third-quarter adjusted
EBIT was $32.1 million, an increase of 19.2% over adjusted EBIT of
$27.0 million reported during the prior period.
“Third-quarter sales growth in the Consumer Group was up solidly
during what is typically a seasonally modest growth period, aided
by market share gains and unseasonably warm winter weather in North
America that enabled consumers to complete more DIY home
improvement projects. The fastest growth was achieved in our
caulks, sealants, and patch and repair product lines,” stated
Sullivan. “On the bottom line, savings from the MAP to Growth
operating improvement plan were partially offset by inflation in
certain raw materials and channel mix.”
The Specialty Products Group reported net sales of $147.5
million during the third quarter of fiscal 2020, compared to net
sales of $153.8 million in the fiscal 2019 third quarter. Organic
sales decreased 7.1%, while acquisitions contributed 3.3% to sales.
Foreign currency translation reduced sales by 0.3%. Segment IBT was
$12.9 million compared with $16.1 million in the prior-year period.
EBIT was $13.0 million compared to EBIT of $16.0 million in the
fiscal 2019 third quarter. The segment reported third-quarter
restructuring-related charges and acquisition costs of $4.6 million
in fiscal 2020 and restructuring-related charges of $4.2 million in
fiscal 2019. Adjusted EBIT, which excludes these charges, was $17.5
million in the fiscal 2020 third quarter, compared to adjusted EBIT
of $20.2 million in fiscal 2019.
“On the top line, the Specialty Products Group’s wood coatings
business successfully outperformed its peers in a challenging
market. However, sales of the segment’s water damage restoration
products faced a difficult comparison to the prior year when demand
was exceptionally high due to significant weather events in North
America. Sales were down in our OEM fluorescent pigments, nail
polish and edible coatings businesses,” Sullivan stated. “Savings
from our operating improvement program helped to mitigate the
impact of declining sales volume on earnings. In addition, we have
new management in place and are implementing cost cutting measures
and new processes to reignite growth, which will benefit the
segment in the coming quarters.”
Nine-Month Results
Fiscal 2020 nine-month net sales increased 2.1% to $4.05 billion
from $3.96 billion during the first nine months of fiscal 2020.
Organic growth was 2.0%, with acquisitions adding 1.3% and foreign
currency translation reducing sales by 1.2%. Net income was $195.1
million, an increase of 46.5% compared to $133.2 million in the
fiscal 2019 nine-month period. Diluted EPS increased 50.0% to $1.50
versus $1.00 a year ago. IBT was $260.9 million compared to $163.0
million reported in the fiscal 2019 nine-month period. EBIT was
$329.2 million, an increase of 38.9% versus the $236.9 million
reported last year.
The fiscal 2020 nine-month period included restructuring and
other charges related to the company’s 2020 MAP to Growth and
acquisition-related charges of $77.5 million. The same period
during fiscal 2019 included the impact of charges of $89.1 million
primarily for restructuring, acquisitions, convertible debt
extinguishment and other expenses. Excluding these charges, RPM’s
nine-month adjusted EBIT was up 24.7% to $406.7 million compared to
adjusted EBIT of $326.1 million during the year-ago period.
Investments resulted in a net after-tax gain of $3.1 million for
the nine-month period of fiscal 2020 and an after-tax loss of $6.0
million during the same period last year. Excluding the
restructuring and other charges, as well as investment gains and
losses, adjusted diluted EPS increased 30.2% to $1.94 compared to
$1.49 in fiscal 2019.
Nine-Month Segment Sales and Earnings
Construction Products Group fiscal 2020 nine-month sales
increased 5.0% to $1.41 billion from $1.34 billion during the
fiscal 2019 first nine months. Organic sales increased 4.2%, while
acquisitions added 2.4%. Foreign currency translation reduced sales
by 1.6%. IBT was $139.3 million versus year-ago IBT of $96.4
million. Segment EBIT was $145.6 million, an increase of 40.8% over
EBIT of $103.3 million during the first nine months of fiscal 2019.
The segment incurred restructuring- and acquisition-related
expenses of $9.3 million during the first nine months of fiscal
2020 and $10.1 million during the same period of fiscal 2019.
Excluding these charges, fiscal 2020 adjusted EBIT increased 36.5%
to $154.8 million from adjusted EBIT of $113.4 million reported
during the year-ago period.
Performance Coatings Group fiscal 2020 nine-month sales
increased 0.5% to $845.6 million from $841.6 million during the
fiscal 2019 first nine months. Organic sales increased 1.2%, while
acquisitions added 0.7%. Foreign currency translation reduced sales
by 1.4%. IBT was $83.6 million versus year-ago IBT of $45.0
million. Segment EBIT was $83.6 million, an increase of 84.2% over
EBIT of $45.4 million during the first nine months of fiscal 2019.
The segment reported nine-month restructuring-related charges and
acquisition costs of $14.5 million in fiscal 2020 and
restructuring, acquisition and other charges of $33.8 million in
fiscal 2019. Adjusted EBIT, which excludes these charges, increased
23.9% to $98.1 million during the first nine months of fiscal 2020
from adjusted EBIT of $79.2 million during the year-ago period.
In the Consumer Group, fiscal 2020 nine-month sales were up 3.8%
to $1.33 billion from $1.28 billion during the first nine months of
fiscal 2019. Organic sales improved 4.0%, while acquisitions added
0.7%. Foreign currency reduced sales by 0.9%. IBT was $123.4
million, compared to year-ago IBT of $118.1 million. Consumer Group
fiscal 2020 nine-month EBIT was $123.6 million, an increase of 4.3%
compared to $118.5 million reported during the first nine months a
year ago. The segment incurred restructuring-related expenses of
$24.9 million during fiscal 2020 and $3.6 million during fiscal
2019. Excluding these charges, fiscal 2020 nine-month adjusted EBIT
was $148.5 million, an increase of 21.6% over adjusted EBIT of
$122.1 million reported during the prior period.
Specialty Products Group fiscal 2020 nine-month sales were
$465.7 million compared to $500.5 million during the first nine
months a year ago. Organic sales decreased 7.4%. Acquisitions added
1.0%, while foreign currency translation reduced sales by 0.6%. IBT
was $55.0 million versus year-ago IBT of $66.0 million. Fiscal 2020
nine-month EBIT in the segment was $55.0 million versus $65.7
million in the same period a year ago. The segment reported
nine-month restructuring-related charges and acquisition costs of
$14.3 million in fiscal 2020 and restructuring-related charges of
$9.6 million in fiscal 2019. Adjusted EBIT, which excludes these
charges, was $69.3 million during the first nine-months of fiscal
2020 and $75.4 million during the same period of fiscal 2019.
Cash Flow and Financial Position
For the first nine months of fiscal 2020, cash from operations
was $381.2 million, compared to $145.5 million during the first
nine months of fiscal 2019. Capital expenditures during the current
nine-month period of $105.4 million compare to $84.5 million over
the same time in fiscal 2019. Total debt at the end of the first
nine months of fiscal 2020 was $2.56 billion compared to $2.52
billion a year ago and $2.53 billion at the end of fiscal 2019.
RPM’s net (of cash) debt-to-total capitalization ratio was 63.5%
compared to 61.8% at February 28, 2019 and 62.1% at May 31,
2019.
In February of this fiscal year, RPM took proactive measures to
bolster its financial flexibility and improve the amount of
available liquidity under its revolving credit facility by securing
$400 million of term loans that mature on February 21, 2023, and
have a blended interest rate of approximately 0.6%. The proceeds
were used to repay a portion of the outstanding borrowings under
RPM’s revolving credit facility. At February 29, 2020, RPM’s total
liquidity, including cash and committed revolving credit
facilities, was $1.14 billion.
“In March 2020, subsequent to the end of the third quarter, we
repurchased approximately $25 million of our common shares. This is
in addition to the $300 million we repurchased during fiscal 2019
and the first three quarters of fiscal 2020, coupled with the $200
million cash redemption of our convertible notes in November of
2018. Given recent macroeconomic uncertainty resulting from the
COVID-19 pandemic, we have suspended our share buyback program,”
stated Sullivan.
Business Outlook
“The fourth quarter is seasonally our strongest and was off to a
good start in March, with consolidated sales up approximately 5%
over the prior year. Many of our products are used for
construction, maintenance and repair projects, which are deemed
essential in many cases and are relatively recession resistant. A
large number of our North American customers, such as those in
construction and DIY home and hardware retail, are also considered
essential and currently remain open for business. With people
spending more time in their homes, there is potential for increased
activity in DIY projects. Demand is strong for our professional and
consumer cleaning and disinfectant brands, some of which are
effective against Coronavirus. Raw material cost inflation seems to
be moderating in a number of our key product categories. Our global
supply chain remains strong, and our distribution and operations
associates continue to work diligently to meet customer demand,”
stated Sullivan.
“However, like most companies, we expect our financial results
to be impacted by the disruption and uncertainty COVID-19 is having
on the global economy. As we cannot predict the duration or scope
of the pandemic, the financial impact to our results cannot be
reasonably estimated, but could be material.
“COVID-19 is also disrupting our ability to implement new
initiatives under our restructuring program. While there are some
activities that can be carried out virtually, many require a
physical presence that is being hindered by limits on travel and
access to facilities. Because of this, we will be extending the
timeline for achieving our MAP to Growth goals. As markets
stabilize and we gain more clarity into business conditions, we
will communicate our new MAP to Growth timeline.
“According to current government projections, it appears that
the crisis will reach its peak in April or May. This is a fluid
situation, and the information available to us is rapidly changing.
As of today, we anticipate that our consolidated fourth-quarter
revenue will be down 10% to 15% year over year. This assumes that
our strong March results are counterbalanced by sales drops in
April and May of 15% to 20%. Given the uncertainties around this
crisis, we are withdrawing our prior earnings guidance for the
fourth quarter and full year of fiscal 2020,” stated Sullivan.
“We continue to assess the situation and the long-term impact of
COVID-19. In this environment, we are taking aggressive actions to
manage cash flow by reducing working capital, capital expenditures
and discretionary spending. The MAP to Growth program timing has
been fortunate for us in this regard since we have improved margins
and are starting to see the benefits of our working capital
reduction program, resulting in improved cash flow this year.
Additionally, we have significant liquidity and a strong balance
sheet, which we anticipate will keep us in a solid financial
position,” Sullivan stated.
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 800-708-4540 or 847-619-6397 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 April 8, 2020 until
11:59 p.m. EDT on April 15, 2020. The replay can be accessed by
dialing 888-843-7419 or 630-652-3042 for international callers. The
access code is 49217722. 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. The company operates across four reportable segments:
consumer, construction products, performance coatings and specialty
products. RPM has a diverse portfolio with hundreds of
market-leading brands, including Rust-Oleum, DAP, Zinsser,
Varathane, Day-Glo, Legend Brands, Stonhard, Carboline, Tremco and
Dryvit. From homes and workplaces, to infrastructure and precious
landmarks, RPM’s brands are trusted by consumers and professionals
alike to help build a better world. The company employs
approximately 15,000 individuals worldwide. Visit www.rpminc.com to
learn more.
For more information, contact Russell L. Gordon, vice president
and chief financial officer, at 330-273-5090 or
rgordon@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 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 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 and investment income
or expense 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 and
adjusted EBIT to income before income taxes, and adjusted earnings
per share to earnings per share. We have not provided a
reconciliation of our fiscal 2020 adjusted EBIT and adjusted
earnings per share guidance, because material terms that impact
such measures are not in our control and/or cannot be reasonably
predicted, and therefore a reconciliation of such measures is not
available without unreasonable effort.
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) the timing of and the realization of
anticipated cost savings from restructuring initiatives and the
ability to identify additional cost savings opportunities; (j)
risks related to the adequacy of our contingent liability reserves;
and (k) risks relating to the recent outbreak of the coronavirus
(COVID-19); and (l) 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,
2019, 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
Nine Months Ended
February 29,
February 28,
February 29,
February 28,
2020
2019
2020
2019
Net Sales
$
1,173,976
$
1,140,630
$
4,048,033
$
3,963,150
Cost of sales
739,229
731,208
2,509,133
2,510,643
Gross profit
434,747
409,422
1,538,900
1,452,507
Selling, general & administrative expenses
381,866
374,153
1,185,791
1,175,049
Restructuring charges
7,343
8,679
18,766
36,479
Interest expense
23,972
26,525
78,630
74,058
Investment expense (income), net
3,836
(4,726
)
(10,354
)
(126
)
Other expense, net
1,422
327
5,158
4,052
Income before income taxes
16,308
4,464
260,909
162,995
(Benefit) Provision for income taxes
4,218
(10,032
)
65,002
29,140
Net income
12,090
14,496
195,907
133,855
Less: Net income attributable to noncontrolling interests
237
306
835
677
Net income attributable to RPM
International Inc. Stockholders
$
11,853
$
14,190
$
195,072
$
133,178
Earnings per share of common stock attributable to RPM
International Inc. Stockholders: Basic
$
0.09
$
0.11
$
1.51
$
1.01
Diluted
$
0.09
$
0.11
$
1.50
$
1.00
Average shares of common stock outstanding - basic
128,426
130,105
128,572
131,019
Average shares of common stock outstanding - diluted
130,028
131,889
129,238
132,829
SUPPLEMENTAL SEGMENT INFORMATION IN THOUSANDS (Unaudited)
Three Months Ended
Nine Months Ended
February 29,
February 28,
February 29,
February 28,
2020
2019
2020
2019
Net Sales: CPG Segment
$
372,082
$
355,332
$
1,407,697
$
1,340,122
PCG Segment
255,686
253,225
845,639
841,605
Consumer Segment
398,743
378,313
1,328,974
1,280,931
Specialty Segment
147,465
153,760
465,723
500,492
Total
$
1,173,976
$
1,140,630
$
4,048,033
$
3,963,150
Income Before Income Taxes: CPG Segment
Income/(Expense) Before Income Taxes (a)
$
(478
)
$
(4,025
)
$
139,324
$
96,375
Interest (Expense), Net (b)
(2,130
)
(2,489
)
(6,231
)
(6,968
)
EBIT (c)
1,652
(1,536
)
145,555
103,343
2020 MAP to Growth related initiatives (d)
4,383
1,144
8,711
8,909
Acquisition-related costs (e)
-
60
548
1,168
Adjusted EBIT
$
6,035
$
(332
)
$
154,814
$
113,420
PCG Segment Income Before Income Taxes (a)
$
22,240
$
14,365
$
83,617
$
44,990
Interest Income (Expense), Net (b)
123
(62
)
20
(401
)
EBIT (c)
22,117
14,427
83,597
45,391
2020 MAP to Growth related initiatives (d)
1,980
3,728
14,394
31,460
Acquisition-related costs (e)
83
-
118
1,823
Loss on South Africa Business (g)
-
-
-
540
Adjusted EBIT
$
24,180
$
18,155
$
98,109
$
79,214
Consumer Segment Income Before Income Taxes (a)
$
29,798
$
25,272
$
123,413
$
118,078
Interest (Expense), Net (b)
(57
)
(119
)
(219
)
(417
)
EBIT (c)
29,855
25,391
123,632
118,495
2020 MAP to Growth related initiatives (d)
2,291
1,582
24,894
3,603
Adjusted EBIT
$
32,146
$
26,973
$
148,526
$
122,098
Specialty Segment Income Before Income Taxes (a)
$
12,942
$
16,115
$
55,031
$
66,049
Interest Income (Expense), Net (b)
(24
)
135
(6
)
332
EBIT (c)
12,966
15,980
55,037
65,717
2020 MAP to Growth related initiatives (d)
4,369
4,185
14,113
9,642
Acquisition-related costs (e)
188
-
188
-
Adjusted EBIT
$
17,523
$
20,165
$
69,338
$
75,359
Corporate/Other
-
(Expense) Before Income Taxes (a)
$
(48,194
)
$
(47,263
)
$
(140,476
)
$
(162,497
)
Interest (Expense), Net (b)
(25,720
)
(19,264
)
(61,840
)
(66,478
)
EBIT (c)
(22,474
)
(27,999
)
(78,636
)
(96,019
)
2020 MAP to Growth related initiatives (d)
3,041
9,392
14,542
28,940
Convertible debt extinguishment (f)
-
-
-
3,052
Adjusted EBIT
$
(19,433
)
$
(18,607
)
$
(64,094
)
$
(64,027
)
Consolidated Income Before Income Taxes (a)
$
16,308
$
4,464
$
260,909
$
162,995
Interest (Expense)
(23,972
)
(26,525
)
(78,630
)
(74,058
)
Investment Income (Expense), Net
(3,836
)
4,726
10,354
126
EBIT (c)
44,116
26,263
329,185
236,927
2020 MAP to Growth related initiatives (d)
16,064
20,031
76,654
82,554
Acquisition-related costs (e)
271
60
854
2,991
Convertible debt extinguishment (f)
-
-
-
3,052
Loss on South Africa Business (g)
-
-
-
540
Adjusted EBIT
$
60,451
$
46,354
$
406,693
$
326,064
(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 and Adjusted EBIT.
(b)
Interest income (expense), net includes the combination of interest
income (expense) and investment income (expense), net.
(c)
EBIT is defined as earnings (loss) before interest and taxes, with
Adjusted EBIT provided for the purpose of adjusting for items
impacting earnings 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 and investment income
or expense 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.
(d)
Reflects restructuring and other charges, all of which have been
incurred in relation to our 2020 Margin Acceleration Plan
initiatives, as follows.
During fiscal
2020: headcount reductions, closures of facilities and
related costs, all of which have been recorded in restructuring
expense; inventory-related charges recorded in cost of goods sold
that reflect product line, SKU rationalization, and closure of a
business at our Consumer Segment, as well as inventory write-offs
in connection with restructuring activities at our Construction
Products, Performance Coatings, and Specialty Products Segments;
accelerated expense related to the shortened useful lives of
facilities, equipment, ERP systems, and intangibles that are
currently in use, but are in the process of being retired
associated with facility closures, exiting a business, and ERP
consolidation; increases in our allowance for doubtful accounts
deemed uncollectible as a result of a change in market and
leadership strategy, costs associated with exiting unprofitable
product lines & regions, and implementation costs associated
with our ERP consolidation plan, professional fees incurred in
connection with our 2020 MAP to Growth, all of which have been
recorded in SG&A.
During fiscal
2019: headcount reductions, closures of facilities, and
accelerated vesting of equity awards in connection with key
executives, all of which are included in restructuring expense;
inventory-related charges reflecting a true-up of fiscal 2018
inventory write-offs at our Consumer Segment during the first
quarter of fiscal 2019, inventory write-offs and disposals at our
Construction Products and Performance Coatings Segments, and
accelerated depreciation expense related to the shortened useful
lives of facilities being prepared for closure; increases in our
allowance for doubtful accounts deemed uncollectible as a result of
a change in market and leadership strategy, implementation costs
associated with our ERP consolidation plan, and professional fees
incurred in connection with our restructuring plan implementation
as well as the negotiation of a cooperation agreement, all of which
have been recorded in SG&A.
(e)
Acquisition costs reflect amounts included in gross profit for
inventory disposals and step-ups related to recent acquisitions.
(f)
Reflects the net loss on redemption of our convertible notes
incurred during the second quarter of fiscal 2019.
(g)
Reflects other expense associated with a change in ownership of a
business in South Africa, as required by local legislation in order
to qualify for doing business in South Africa.
SUPPLEMENTAL
INFORMATION RECONCILIATION OF "REPORTED" TO "ADJUSTED"
AMOUNTS (Unaudited)
Three Months Ended
Nine Months Ended
February 29,
February 28,
February 29,
February 28,
2020
2019
2020
2019
Reconciliation of Reported Earnings
per Diluted Share to Adjusted Earnings per Diluted Share (All
amounts presented after-tax): Reported Earnings per
Diluted Share
$
0.09
$
0.11
$
1.50
$
1.00
2020 MAP to Growth related initiatives (d)
0.10
0.11
0.45
0.50
Acquisition-related costs (e)
-
-
0.01
0.02
Investment returns (h)
0.04
(0.01
)
(0.02
)
0.05
Discrete Tax Adjustment (i)
-
(0.08
)
-
(0.08
)
Adjusted Earnings per Diluted Share (j)
$
0.23
$
0.13
$
1.94
$
1.49
(d)
Reflects restructuring and other charges, all of which have been
incurred in relation to our 2020 Margin Acceleration Plan
initiatives, as follows. During fiscal 2020: headcount reductions,
closures of facilities and related costs, all of which have been
recorded in restructuring expense; inventory-related charges
recorded in cost of goods sold that reflect product line, SKU
rationalization, and closure of a business at our Consumer Segment,
as well as inventory write-offs in connection with restructuring
activities at our Construction Products, Performance Coatings, and
Specialty Products Segments; accelerated expense related to the
shortened useful lives of facilities, equipment, ERP systems, and
intangibles that are currently in use, but are in the process of
being retired associated with facility closures, exiting a
business, and ERP consolidation; increases in our allowance for
doubtful accounts deemed uncollectible as a result of a change in
market and leadership strategy, costs associated with exiting
unprofitable product lines & regions, and implementation costs
associated with our ERP consolidation plan, professional fees
incurred in connection with our 2020 MAP to Growth, all of which
have been recorded in SG&A. During fiscal 2019: headcount
reductions, closures of facilities, and accelerated vesting of
equity awards in connection with key executives, all of which are
included in restructuring expense; inventory-related charges
reflecting a true-up of fiscal 2018 inventory write-offs at our
Consumer Segment during the first quarter of fiscal 2019, inventory
write-offs and disposals at our Construction Products and
Performance Coatings Segments, and accelerated depreciation expense
related to the shortened useful lives of facilities being prepared
for closure; increases in our allowance for doubtful accounts
deemed uncollectible as a result of a change in market and
leadership strategy, implementation costs associated with our ERP
consolidation plan, and professional fees incurred in connection
with our restructuring plan implementation as well as the
negotiation of a cooperation agreement, all of which have been
recorded in SG&A.
(e)
Acquisition costs reflect amounts included in gross profit for
inventory disposals and step-ups related to recent acquisitions.
(h)
Investment returns include realized net gains and losses on sales
of investments and unrealized net gains and losses on equity
securities, which are adjusted due to their inherent volatility.
Management does not consider these gains and losses, which cannot
be predicted with any level of certainty, to be reflective of the
company's core business operations.
(i)
Discrete tax adjustments due to U.S. income tax reform.
(j)
Adjusted EPS is provided for the purpose of adjusting diluted
earnings per share for items impacting earnings that are not
considered by management to be indicative of ongoing operations.
CONSOLIDATED BALANCE SHEETS IN THOUSANDS (Unaudited)
February 29, 2020
February 28, 2019
May 31, 2019
Assets Current Assets Cash and cash
equivalents
$
212,242
$
195,169
$
223,168
Trade accounts receivable
1,006,843
1,016,088
1,287,098
Allowance for doubtful accounts
(58,492)
(54,460)
(54,748)
Net trade accounts receivable
948,351
961,628
1,232,350
Inventories
914,197
916,361
841,873
Prepaid expenses and other current assets
240,678
226,553
220,701
Total current assets
2,315,468
2,299,711
2,518,092
Property, Plant and Equipment, at Cost
1,731,101
1,652,071
1,662,859
Allowance for depreciation
(900,368
)
(850,019
)
(843,648
)
Property, plant and equipment, net
830,733
802,052
819,211
Other Assets Goodwill
1,265,237
1,262,326
1,245,762
Other intangible assets, net of amortization
597,018
620,453
601,082
Operating lease right-of-use assets
289,654
-
-
Deferred income taxes, non-current
36,601
21,098
34,908
Other
231,159
213,796
222,300
Total other assets
2,419,669
2,117,673
2,104,052
Total Assets
$
5,565,870
$
5,219,436
$
5,441,355
Liabilities and Stockholders' Equity Current
Liabilities Accounts payable
$
475,613
$
425,170
$
556,696
Current portion of long-term debt
71,234
453,501
552,446
Accrued compensation and benefits
154,129
143,160
193,345
Accrued losses
22,831
23,424
19,899
Other accrued liabilities
238,324
224,956
217,019
Total current liabilities
962,131
1,270,211
1,539,405
Long-Term Liabilities Long-term debt, less current
maturities
2,488,529
2,070,717
1,973,462
Operating lease liabilities
247,685
-
-
Other long-term liabilities
391,677
318,969
405,040
Deferred income taxes
122,499
117,272
114,843
Total long-term liabilities
3,250,390
2,506,958
2,493,345
Total liabilities
4,212,521
3,777,169
4,032,750
Stockholders' Equity Preferred stock; none issued
-
-
-
Common stock (outstanding 129,879; 131,544; 130,995)
1,299
1,315
1,310
Paid-in capital
1,013,561
984,358
994,508
Treasury stock, at cost
(553,663
)
(406,367
)
(437,290
)
Accumulated other comprehensive (loss)
(592,024
)
(477,657
)
(577,628
)
Retained earnings
1,481,339
1,337,545
1,425,052
Total RPM International Inc. stockholders' equity
1,350,512
1,439,194
1,405,952
Noncontrolling interest
2,837
3,073
2,653
Total equity
1,353,349
1,442,267
1,408,605
Total Liabilities and Stockholders' Equity
$
5,565,870
$
5,219,436
$
5,441,355
CONSOLIDATED STATEMENTS OF CASH FLOWS IN THOUSANDS
(Unaudited)
Nine Months Ended
February 29,
February 28,
2020
2019
Cash Flows From Operating Activities: Net
income
$
195,907
$
133,855
Adjustments to reconcile net income to net cash provided by (used
for) operating activities: Depreciation and amortization
113,520
107,546
Restructuring charges, net of payments
(132
)
9,296
Fair value adjustments to contingent earnout obligations, net
-
1,558
Deferred income taxes
2,505
(8,747
)
Stock-based compensation expense
18,881
20,892
Other non-cash interest expense
-
1,552
Realized/unrealized (gains) losses on sales of marketable
securities
(3,063
)
5,906
Loss on extinguishment of debt
-
3,051
Other
(371
)
179
Changes in assets and liabilities, net of effect from purchases and
sales of businesses: Decrease in receivables
282,052
152,622
(Increase) in inventory
(73,566
)
(80,686
)
Decrease in prepaid expenses and other current and long-term assets
19,747
11,593
(Decrease) in accounts payable
(70,286
)
(166,951
)
(Decrease) in accrued compensation and benefits
(38,468
)
(32,503
)
Increase in accrued losses
3,120
1,578
(Decrease) in other accrued liabilities
(68,906
)
(20,952
)
Other
237
5,716
Cash Provided By Operating Activities
381,177
145,505
Cash Flows From Investing Activities: Capital expenditures
(105,430
)
(84,491
)
Acquisition of businesses, net of cash acquired
(65,102
)
(167,712
)
Purchase of marketable securities
(17,076
)
(16,644
)
Proceeds from sales of marketable securities
21,325
67,550
Other
2,203
1,294
Cash (Used For) Investing Activities
(164,080
)
(200,003
)
Cash Flows From Financing Activities: Additions to long-term
and short-term debt
698,256
596,222
Reductions of long-term and short-term debt
(664,040
)
(253,343
)
Cash dividends
(138,784
)
(135,535
)
Repurchases of common stock
(100,000
)
(173,222
)
Shares of common stock returned for taxes
(16,579
)
(17,834
)
Payments of acquisition-related contingent consideration
(227
)
(3,598
)
Other
(665
)
(640
)
Cash (Used For) Provided By Financing Activities
(222,039
)
12,050
Effect of Exchange Rate Changes on Cash and Cash
Equivalents
(5,984
)
(6,805
)
Net Change in Cash and Cash Equivalents
(10,926
)
(49,253
)
Cash and Cash Equivalents at Beginning of Period
223,168
244,422
Cash and Cash Equivalents at End of Period
$
212,242
$
195,169
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200408005193/en/
Russell L. Gordon 330-273-5090 rgordon@rpminc.com
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