RPM Reports Record First-Quarter Net Income, Earnings Per Share and Cash Flow (10/5/09)

RPM International Inc. today reported record first-quarter net income, earnings per share and cash flow for the period ended August 31, 2009. During the fiscal 2010 first quarter, the company's consumer segment earnings before interest and taxes (EBIT) more than offset the decline in industrial segment EBIT, as compared to the fiscal 2009 first quarter. Earnings in both business segments benefited from expense reductions implemented during the prior fiscal year and improving gross profit margins.

First-Quarter Results

First-quarter net sales of $916.0 million were 7.1% below the $985.5 million reported a year ago. Core growth declined 3.2% with the balance of 3.9% attributable to negative foreign exchange translation.

Net income of $73.0 million was a first-quarter record, up 5.0% from last year's record $69.5 million. Record first-quarter diluted earnings per share were $0.57, a 7.5% increase over the $0.53 reported a year ago.

"The advantage of our deliberate strategic balance between consumer and industrial markets was evident in the quarter as our consumer segment sales and EBIT growth offset continued weakness in our industrial segment,” said Frank C. Sullivan, chairman and chief executive officer. “It was a solid quarter for RPM, reflecting the benefits of the aggressive actions we took last year to lower our cost base, resulting in net income that was ahead of last year's record first quarter."

Consolidated EBIT was a record $120.6 million, an 8.8% improvement over the record EBIT of $110.9 million in the first quarter of fiscal 2009. The company's gross profit margin improved by 200 basis points, while selling, general and administrative expenses as a percent of sales increased 10 basis points on the lower sales volume, yet declined in absolute terms by 6.6%.

First-Quarter Segment Sales and Earnings

The company's consumer segment, accounting for 34.5% of consolidated first-quarter sales, posted core growth of 12.5% with a negative foreign exchange impact of 2.6%. Consumer sales rose to $316.2 million from $287.9 million a year ago. Consumer segment EBIT increased 54.1% to $53.3 million in the fiscal 2010 first quarter from $34.6 million in the fiscal 2009 first period.

"We were pleased to see how well our consumer businesses performed during the quarter,” said Sullivan. “Volume growth, coupled with our aggressive cost reduction actions last year, is producing excellent operating leverage. While overall consumer spending remains modest, it is clear that our low-cost, high-value maintenance, repair and redecoration products are getting more traction across our retail base. Our history of developing innovative products that meet consumers' demand for value at all price points also enabled our consumer businesses to secure share during this past year's market contraction.”

Sales for RPM's industrial segment, representing 65.5% of the company's consolidated first-quarter sales, declined 14.0% to $599.7 million from $697.6 million a year ago. Core sales growth declined 9.6% and the balance of 4.4% resulted from the negative impact of foreign exchange. Segment EBIT fell 10.3% to $81.9 million from $91.3 million in the fiscal 2009 first quarter.

"As anticipated, our industrial segment continues to face a depressed commercial construction environment and reduced capital spending in many markets,” said Sullivan. “Despite the lack of top-line growth, the impact of aggressive cost reduction actions, coupled with a more stable raw material environment, enabled our industrial companies to generate sequentially higher EBIT that was well ahead of last year's fourth quarter.”

Cash Flow and Financial Position

During the fiscal 2010 first quarter, cash from operations was a record $52.1 million, compared to negative cash from operations of $12.3 million a year ago. Capital expenditures were $3.3 million in the quarter, down from $12.2 million in the fiscal 2009 first quarter. Depreciation was $15.6 million during the first quarter of fiscal 2010.

Total debt at August 31, 2009, of $906.7 million compares to $930.8 million at May 31, 2009, and $972.5 million at the end of last year's first quarter. Net (of cash) debt-to-total capital was 34.7%, versus 37.9% at the end of last year's first quarter and 37.2% at the end of the prior fiscal year. Asbestos indemnity and defense cash costs were $18.6 million in the first quarter of fiscal 2010, as compared to $16.0 million a year ago. The company's total accrued asbestos liability was $471.8 million. Liquidity, including cash, was $635.1 million, as compared to $548.0 million a year ago and $622.0 million at May 31, 2009. "Throughout this extraordinary period of capital market volatility, RPM has improved on an already strong capital structure and liquidity position. As a result, we are well prepared to fund operations, pursue acquisitions and continue our dividend program," Sullivan said.

Business Outlook

"Our first-quarter results were better than we anticipated, which certainly gives us a good start to the fiscal year,” said Sullivan. “The sequential increase in sales from the fiscal 2009 fourth quarter of 6.8% is a marked change from previous years where the first quarter is typically lower than the fourth quarter. We see this as a bullish sign of a slowly improving economy. The strength of our first quarter makes us more comfortable that we will be at the higher end of our previously stated guidance of full-year earnings per share growth of 5% to 25% over the adjusted $1.05 earned in fiscal 2009.”

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