"It's all about innovation and organic growth, and the fact that probably two-thirds of our products are maintenance, repair or redecorating, as opposed to new construction or cyclical products," RPM Chairman and CEO Frank Sullivan told Jim Cramer of CNBC's "Mad Money" on Thursday.
CLEVELAND, Ohio -- RPM International Inc.'s Chairman and Chief Executive made his third appearance on CNBC's "Mad Money" with Jim Cramer on Thursday, talking about the company's 20-percent jump in second-quarter profits, and some of the reasons why.
Cramer introduced the five-minute segment by asking the audience to keep in mind that shareholder anxieties about China, for example, shouldn't overshadow solid opportunities to invest. "Can we please, please, please remember that these hideous market-wide selloffs can ultimately create bargains for high-quality stocks?" he asked.
"Consider RPM International. You know this company: It's the maker of paints, coatings, roofing systems -- You've probably used their sealants, adhesives -- for both consumer and industrial end markets. You know, Rust-Oleum, Leakseal, and NeverWet [waterproof sealant].
"It's getting no respect in this market whatsoever, even though just yesterday the company reported its second good quarter in a row," Cramer said. "How's this make sense?"
Highlights of their conversation include:
-- RPM has subsidiaries and sells its products around the world -- but is not very dependent on China. "It's a real company that makes real things -- and not a lot of things in China," Cramer said.
Sullivan agreed: "Our exposure to Asia is less than 3 percent; 70 percent of our revenues are generated in North America, 20 percent in Europe."
-- RPM relies on the U.S housing market for 30 percent of its sales, but it's not overly tied to the ups and downs of new construction.
"Our businesses are doing well," Sullivan said. "We reported earnings yesterday up 20 percent year-over-year on an 8 percent sales growth, and expect the rest of the year -- we're on a May 31 fiscal year -- to be pretty solid."
"It's all about innovation and organic growth, and the fact that probably two-thirds of our products are maintenance, repair or redecorating, as opposed to new construction or cyclical products," he added.
-- Beachwood-based Tremco Roofing is especially poised to do well. Sullivan showed a sample of EPM rubber roofing. Popular in the 1970s and 1980s, more than 1 billion square feet of such roofing is "coming off warranty at the end of their useful life now."
"Our Tremco Roofing business has come up with a proprietary, polyurethane system [called AlphaGuard] that can extend the life of those roofs 10 or 20 years at one-third the cost of the rip-off and replacement," he told Cramer.
"You totally eliminate any of the fill up the landfills with ripped-off roofs. Very exciting, great margins, and it's all re-roofing, not new construction-exposed at all," he said.
-- RPM is a third-generation family-run business with a record 42 straight years of returning money to shareholders via growing dividends.
At its annual shareholders' meeting in October, RPM raised its dividend to $0.275 per share, a 5.8 percent increase over last year's 26-cent dividend, making RPM among the top 46, or less than half of 1 percent, of all 19,000 publicly traded U.S. companies.
"Our goal is to raise it every year," Sullivan said. "Albert Einstein was quoted as saying that 'Compounded interest is the eighth wonder of the world.' Well, if you like compounded interest, you'll like a dividend that grows modestly every year, because it's even better."
-- RPM grows by acquiring new companies, keeping their entrepreneurs in charge of those companies, and by improving the products it already owns.
"It's not like Rust-Oleum is the same Rust-Oleum that my Mom used," Cramer said.
Sullivan said: "That's totally a credit to the Rust-Oleum people. Great team, great innovators, new products, really exciting."
"Our job is to please our consumers and our customers, to be innovative. Innovation is the lifeblood of any business. We try and cannibalize our existing products with new and better products. Rust-Oleum is coming out [with] -- you'll see it introduced in stores at all of our big customers in February -- RockSolid.
"A great entrepreneur, Patrick Ilfrey, came to RPM. Nobody can attract entrepreneurs and their companies like we can. We're very proud of that.
"We innovated garage-floor coatings about eight years ago, created the market and it was an over-the-weekend project. Through RockSolid, we now are bringing industrial technology that's consumer-friendly, and it's an overnight project. You can start on Saturday, Sunday night you're done. Better looks, better finish, and quicker for the consumer.
"So it's constantly trying to improve on our existing products and then also bringing new ideas," Sullivan said.
Cramer said: "You've got an innovation team that has created one of the greatest companies in the country with a great compound dividend. That's kind of what I want. Thank you, Frank, for explaining to us that there is real business being done."