RPM International Inc. recently reported financial results for its fiscal 2023 fourth quarter and year ended May 31, 2023. The company recorded fiscal 2023 net sales of $7.26 billion, an increase of 8.2% over the prior year. For the fiscal year, net income was $478.7 million, diluted earnings per share (EPS) was $3.72, and earnings before interest and taxes (EBIT) was a record $758.6 million. The company’s first-quarter outlook calls for sales growth of low-single digits and adjusted EBIT growth of high-single digits. For the year, the company expects sales growth of mid-single digits and adjusted EBIT growth of low-double-digits to mid-teens.  

“RPM generated a sixth consecutive quarter of record sales and adjusted EBIT. While prioritizing cash flow over profitability, we were still able to achieve adjusted EBIT growth primarily through our MAP 2025 initiatives. Our progress on inventory normalization initiatives drove a fourth-quarter record $314 million of cash flow from operations and allowed us to reduce debt by nearly $140 million. These impressive results were due to the hard work, collaboration and agility of our associates, which allowed us to capture growth opportunities and leverage MAP 2025 initiatives to operate more efficiently,” said Frank C. Sullivan, RPM chairman and CEO.

Sullivan continued, “As challenging conditions impacted certain end markets, our nimbleness and balanced business model enabled our growth. Several businesses benefited from their pivot to selling engineered solutions into infrastructure and reshoring-related capital projects, and our strategic focus on maintenance and repair provided resilience in construction end markets. Our operational flexibility, which is a product of MAP 2025 initiatives and our entrepreneurial culture, allowed us to quickly meet a seasonal demand increase at the end of the quarter.”

Three of the four segments achieved record fiscal 2023 fourth-quarter sales, which were driven by increased pricing in response to continued inflation, offset by lower volumes. Volumes grew in certain businesses that positioned themselves to benefit from increased maintenance and construction spending on infrastructure and reshoring capital projects. On a consolidated basis, volumes declined, due in large part to destocking. The volume declines were more pronounced in certain new commercial and residential construction sectors, as well as OEM markets. Customer take-away at retail stores was also negative during most of the quarter, which further compounded the volume declines caused by retailer destocking. However, demand increased late in the quarter with the arrival of warmer weather, and the Consumer Group was able to quickly respond because of process improvements put in place through MAP 2025.

Geographically, sales grew 1.4% in North America, declined 1.9% in Europe, and grew 9.3% in Latin America. Sales also grew 17.5% in Asia-Pacific and 7.9% in Africa and the Middle East, fueled by higher spending on infrastructure projects. Excluding the impact of foreign currency translation, all regions generated positive sales growth.

In terms of business segments, Construction Products Group achieved record fourth-quarter sales despite challenging comparisons to the prior year when sales grew 18.5%. Revenue growth was driven by price increases and strength in concrete admixtures and repair products, which experienced increased demand from capital spending on infrastructure and reshoring-related projects. Restoration systems for roofing, facades, and parking structures also grew and benefited from a strategic focus on repair and maintenance and its differentiated service model. Offsetting this growth, demand was weak in new residential and certain commercial construction markets, which was accentuated by customer destocking.

The Performance Coatings Group generated record fourth-quarter sales driven by volume growth in businesses that serve infrastructure and reshoring capital projects with engineered solutions, including fiberglass grating, protective coatings, and flooring systems. Increased pricing and stronger demand from energy-related capital projects also contributed to growth. Sales included 10.4% organic growth and 0.9% from acquisitions, partially offset by foreign currency translation headwinds of 2.5%.

The Specialty Products Group posted a sales decline in the fourth quarter that was driven by lower volumes at businesses supplying OEM markets, including windows, doors, furniture, cabinets, and RVs, where many customers were destocking. The group faced challenging comparisons to the fiscal fourth quarter 2022 when the disaster restoration business had strong sales as it made significant progress resolving supply chain issues related to microchip shortages, and from the divestiture of the non-core furniture warranty business in the third quarter of fiscal 2023. Sales included a 12.0% organic decline, a 1.8% reduction from divestitures net of acquisitions, and foreign currency translation headwinds of 0.5%.

The Consumer Group’s record fourth-quarter sales were driven by selling price increases in response to continued cost inflation. Volumes declined due to a slowdown in consumer takeaway at retail and customer destocking. However, MAP 2025 process improvements aided in quickly meeting demand following a seasonal increase in consumer takeaway at the end of the quarter. Share gains also helped limit the volume decline. Sales included 5.6% organic growth and 0.3% growth from acquisitions, partially offset by foreign currency translation headwinds of 1.0%.

For the fiscal 2023 consolidated results, all four segments generated record sales results driven by increased pricing in response to inflation, strong demand for engineered solutions for infrastructure and reshoring capital projects, and improvements in supply chain conditions in the first half of the fiscal year. Partially offsetting this growth, volume was negatively impacted in the second half of the fiscal year by customer destocking, a slowdown in certain construction sectors and OEM demand, and reduced consumer takeaway at retailers.

“In the first quarter, we expect certain positive trends to continue, including increasing demand for our engineered solutions serving infrastructure and reshoring projects, and continued benefits from MAP 2025 initiatives. Additionally, several profitability headwinds are expected to moderate during the quarter including foreign currency translation, customer destocking, internal initiatives to normalize inventories and material cost inflation. These positive factors are expected to outweigh challenging market conditions in some businesses and result in a seventh consecutive quarter of record sales and adjusted EBIT, as well as improved cash flow from operations,” Sullivan added.

“Although demand trends remain volatile, we expect many of the positive first-quarter trends to continue throughout most of fiscal year 2024, and our growth will be aided by less challenging comparisons in the second half of the year. This, combined with our MAP 2025 initiatives, our focus on repair and maintenance, and our strategic balance between segments, is expected to result in another year of record revenue and profitability,” he concluded.

Learn more about RPM International at www.rpminc.com