"Calendar year 2015 is still projected to be the first year in roughly eight years where all major sectors of the U.S. new construction market will be in positive territory," Chairman and CEO Frank Sullivan told analysts.
CLEVELAND, Ohio -- RPM International Inc. reported record sales for its third quarter of fiscal 2015, and said they expect even better news next quarter.
The Medina County-based manufacturer of specialty coatings, sealants and building materials said results for the quarter that ended Feb. 28 were battered by foreign currency rates, economic problems in Europe, and brutal winter weather that hurt sales of its industrial products.
RPM also reported a one-time, non-cash net charge of $83.5 million related to the "possible repatriation of overseas earnings" to pay future obligations of its Specialty Products Holding Corp. settlement. SPHC and its Bondex subsidiary emerged from bankruptcy on Dec. 23, 2014, with a plan that included creating a trust to cover their future asbestos personal injury liability claims and absolving the company from further asbestos liability.
The process included returning SPHC's operating units such as Day-Glo Color, DryVit Systems, Kop-Coat and RPM Wood Finishes Group to RPM's consolidated results, which are reflected in the earnings report released Wednesday.
"We are delighted to have these great management teams and companies back in the fold at RPM," RPM Chairman and Chief Executive Frank C. Sullivan said in a written statement. While they were separated from the company, they posted "significant growth" of more than $400 million and developed some new products, he said.
Some of the quarter's financial highlights include:
1. Sales for the third quarter grew 9.6 percent to $946.4 million, up from $863.4 million in the third quarter of fiscal 2014. That was despite economic troubles in Europe and a stronger U.S. dollar that hurt its profits at overseas subsidiaries.
2. RPM's loss of $57.3 million for the quarter, or 44 cents per diluted share, seemed especially severe in comparison to the profits of $16.2 million, or 12 cents per diluted share, earned in the same period last year.
If the company had not paid the $83.5 million charge, third-quarter profits would have risen 61.2 percent t $26.2 million, or 20 cents per diluted share.
3. Sales in RPM's industrial segment increased 10.6 percent to $620 million, from $560.5 million in the same quarter of fiscal 2014.
Because of how much RPM now owns overseas, 40 percent of its sales now come from outside the United States, mostly in Europe, but also in the Latin American countries of Brazil, Colombia, Chile and Argentina.
"Some of our overseas businesses purchased raw materials denominated in dollars and sell their products in local currencies, causing a hit to gross margins," Sullivan told analysts via conference call. "Some of our smaller niche players, particularly those serving the European market, have struggled because of the slowdown in global demand."
While revenues in Europe were nearly flat, RPM's U.S. industrial businesses did well, with many of them posting double-digit sales increases, he said.
4. RPM's core consumer products segment had strong growth during the quarter despite bad weather, including extended winter weather in the Northeast and Midwest.
Consumer segment sales rose 7.8 percent to $326.4 million, up from $302.9 million in the same period last year.
"The residential housing market has had its ups and downs, but overall [we] remain optimistic about the trend, especially in home values, consumer confidence and discretionary spending, all of which bode well for our great branded consumer products and higher-ticket home remodeling and redecoration products," Sullivan told analysts on Wednesday.
"Our businesses serving commercial construction continue to plow forward with slow but steady momentum," he said.
"Calendar year 2015 is still projected to be the first year in roughly eight years where all major sectors of the U.S. new construction market will be in positive territory."
"Our Tremco Sealants, StonHard Flooring, and Euclid Chemical businesses lead the way in this sector," Sullivan said. "Our Euclid Tuf-Strand microfiber products, which we've commented on in the past, continue to gain acceptance in North America and globally, and in our newly opened second manufacturing facility in Atlanta, Georgia, we're nearly out of capacity."
4. Company executives are optimistic about RPM's prospects. "The return of the SPHC businesses bring a number of well-run, strong, U.S.-based businesses back into the fold of RPM and marks the permanent resolution of the Bondex asbestos liability drain on cash flow and management's time and attention over the last decade," Chief Operating Officer Rusty Gordon said.
"As I said back in January, from a long-term perspective, we cannot be more excited about RPM's future."
Sullivan said: "We continue our search for strong acquisition candidates that complement our existing product lines and expand RPM's geographic presence, as reflected in the Rust-Oleum Group acquisition of Spraymate Group in South Africa," producer of the country's No. 1 brand of aerosol paint, for an undisclosed sum last month.
RPM's shares closed at $47.34 on Thursday, up 21 cents from Wednesday's close of $47.13.