Why Is RPM International (RPM) Down 1.8% Since Last Earnings Report?

It has been about a month since the last earnings report for RPM International (RPM). Shares have lost about 1.8% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is RPM International due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

RPM International Q3 Earnings Beat

RPM International Inc. reported third-quarter fiscal 2022 (ended Feb 28, 2022) results, wherein earnings and sales topped the Zacks Consensus Estimate. Robust construction and industrial maintenance activity, a rebound in energy markets along with the company’s focus on investments in the fastest-growing areas of its business led to the upside.

Pertaining to the quarterly results, Frank C. Sullivan — RPM International chairman and CEO — said, “We have been fast to respond to supply chain challenges by quickly scaling up in-house resin production at the manufacturing plant we acquired in Texas last September.”

Inside the Headlines

RPM International reported adjusted earnings of 38 cents per share, which topped the consensus mark of 30 cents by 26.7%. The reported figure was in line with the year-ago profit level.

Net sales of $1,433.9 million surpassed the consensus mark of $1,410 million by 1.7% and increased 13% from the prior-year level. The upside was led by strong contributions from four operating segments.

Adjusted EBIT for the reported quarter increased 0.8% year over year to $80.6 million.

Segmental Details

Construction Products Group: For the fiscal third quarter, sales in the segment increased 21.7% from a year ago to $482 million, owing to 23.2% organic growth and 2.2% contribution from buyouts. Innovative building envelope products and differentiated restoration solutions led to the upside. Foreign currency translation negatively impacted sales by 3.7%. Adjusted EBIT was $35.1 million, up 89.7% year over year.

Performance Coatings Group: Segment sales increased 19.6% from a year ago to $270.9 million, owing to a 17.8% rise in organic sales and 3.4% acquisition-related sales contribution. Foreign currency translation reduced sales by 1.6%. Adjusted EBIT increased 89.9% on a year-over-year basis to $26.8 million.

Consumer Group: Sales in the segment grew 2.9% year over year to $491.6 million, owing to a 3.6% rise in organic sales. Yet, unfavorable foreign currency translation impacted sales by 0.7%. Further, the segment’s adjusted EBIT decreased 63.9% from the prior-year level to $17.2 million due to a tough comparison with the prior-year period.

Specialty Products Group: The segment’s sales totaled $189.4 million, which increased 11.9% on a year-over-year basis owing to an 11.9% rise in organic sales. Acquisitions contributed 0.8% to sales, but unfavorable foreign currency translation reduced sales by 0.8%. Adjusted EBIT for the quarter totaled $26.6 million, up 5.4% from the prior-year level.

Balance Sheet

As of Feb 28, 2022, RPM International had cash and cash equivalents of $193.2 million compared with $246.7 million at fiscal 2021-end. Total liquidity (as of Feb 28, 2022) — including cash and revolving credit facilities — was $1.46 billion.

Long-term debt (excluding current maturities) at quarter-end was $1.88 billion compared with $2.38 billion at fiscal 2021-end. Cash provided by operations amounted to $156 million for the first nine months of fiscal 2022, down from $651.9 million in the year-ago period.

Outlook

For fourth-quarter fiscal 2022, RPM International expects sales to increase in low teens. Fourth-quarter fiscal 2021 sales grew 19.6%. The company also expects sales growth in low teens for all its operating segments, backed by strategic investments that it is making to capitalize on market opportunities and industry trends.

Consolidated adjusted EBIT is expected to increase in low teens. The company expects ongoing raw material, freight, and wage inflation as well as the impact on sales volumes from disruptions arising due to the Omicron variant and raw material shortages to weigh on fiscal fourth-quarter earnings.

 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, RPM International has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions looks promising. Notably, RPM International has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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