RPM International Inc. recently reported financial results for its fiscal 2021 first quarter, ended August 31, 2020. The company’s fiscal 2021 first quarter net sales increased 9.1% to a record $1.6 billion, compared to the almost $1.5 billion reported a year ago.
“Our strategically balanced business model, the resiliency of our operating companies and our MAP to Growth operating improvement program have enabled RPM to pull through the depths of the economic slowdown created by the Covid-19 pandemic, and we are now pivoting the business towards resumed growth,” said Frank C. Sullivan, chairman and CEO. “During our fiscal 2021 first quarter, select segments of the global economy began to gain momentum as stay-at-home orders were relaxed, which freed pent-up demand from last year’s fourth quarter. This helped drive our record top-line results, which grew 9.1% over the prior-year period. This was in sharp contrast to the Covid-19-related sales decline we reported for the fiscal 2020 fourth quarter.
“Our two largest segments, the Construction Products Group and the Consumer Group, posted positive growth in the first quarter, while the other two segments declined. Overall, RPM’s results benefitted from the positive impact of our MAP to Growth operating improvement program and our balanced business model, where strength in one segment offsets weakness in another. In addition, much credit for our strong performance is due to our management philosophy, which keeps customer-centric decision making at the operating level and enables our companies to be very nimble in adapting to disruptions, such as those caused by the pandemic. We continue to benefit from successful implementation of our MAP to Growth operating improvement plan, which enabled us to leverage the first-quarter sales growth into even stronger bottom-line results.”
The Construction Products Group’s net sales increased 2.2% to $547.7 million during the fiscal 2021 first quarter, compared to $536.1 million in the year-ago quarter, reflecting organic growth of 3.6%. Foreign currency translation reduced sales by 1.4%.
“Points of strength in the Construction Products Group were sales by our commercial sealants and roofing businesses in North America due to continued success in our restoration and building envelope systems initiatives,” Sullivan said. “First-quarter sales also benefited from easier comparisons to last year, which was hampered by poor weather, as well as a boost from orders that were deferred during the fiscal 2020 fourth quarter. MAP to Growth initiatives, price increases and strong cost management enabled the segment’s bottom line to vastly outpace its modest sales growth.”
Net sales in the Performance Coatings Group were $259.8 million during the fiscal 2021 first quarter, a 12.6% decrease compared to sales of $297.2 million reported a year ago. Organic sales decreased 12.2%, while acquisitions contributed 0.3% to sales. Foreign currency translation reduced sales by 0.7%.
“The Performance Coatings Group’s sales continued to be impacted by Covid-19 restrictions that limited outside contractors’ access to facilities and construction sites, as well as poor energy market conditions that resulted in deferred industrial maintenance spending,” said Sullivan. “In response, the segment has managed its decremental margins well by reducing its breakeven point and aggressively cutting fixed costs. Adjusted EBIT margins would have actually improved during the quarter had it not been for the impact of transactional foreign exchange expense. Savings from MAP to Growth operational improvements benefitted the segment’s earnings.”
In the Consumer Group, sales increased 33.8% to $641.2 million during the first quarter of fiscal 2021, compared to sales of $479.3 million reported in the first quarter of fiscal 2020. Organic sales increased 34.0%, while sales were reduced by 0.2% from foreign currency translation.
“Top- and bottom-line results were up significantly for the businesses in our Consumer Group due to spiking DIY demand as consumers spent more time in their homes completing improvement projects during the pandemic,” Sullivan said. “Our Consumer Group was a large beneficiary of this trend due to our market leadership position in small project paints, caulks, sealants and other related products. We are working around the clock and are also making significant investments in plants, equipment and operational disciplines to expand our capacity and meet unprecedented demand.
“The segment also benefited from an easier comparison to the prior year’s first quarter when its product sales were tempered by extremely wet weather. The segment’s bottom line increased as a result of volume leveraging, MAP to Growth savings, favorable product mix and moderation in some raw material categories. However, future cost pressure is anticipated due to recent inflation in certain raw materials and packaging, as well as additional overhead expenses resulting from ongoing investments in capacity. We anticipate that we will see elevated demand over the next few quarters as housing turnover improves and more DIYers gain successful experience with new home improvement projects.”
The Specialty Products Group reported sales of $158 million during the first quarter of fiscal 2021, a decline of 1.3%, compared to sales of $160.1 million in the fiscal 2020 first quarter. Organic sales decreased 5.7%, while acquisitions contributed 4.1% to sales and foreign currency translation increased sales by 0.3%.
“First-quarter sales in the Specialty Products Group rebounded and were nearly flat compared to last year’s first quarter due to more favorable market conditions that drove demand for some of its products, including marine coatings, wood coatings and protectants, and nail enamels,” said Sullivan. “The bottom line was impacted by unfavorable product mix, operating disruptions associated with Covid-19 and deleveraging on lower volumes, which were partially offset by savings from the MAP to Growth operating improvement program.”
Sullivan provided information regarding the business outlook for the remainder of the fiscal year. “As we look ahead to the second quarter of fiscal 2021, we expect to generate consolidated sales growth in the low- to mid-single digits with strong leverage to the bottom line for more than 20% adjusted EBIT growth, which are rates that are more in line with recent quarters prior to the outbreak of Covid-19,” he said. “Our MAP to Growth program continues to have excellent momentum, and the Ali acquisition, excluding acquisition-related costs, will contribute towards our second-quarter results.
“For the full year of fiscal 2021, our guidance is relatively unchanged from the direction we provided in our fiscal 2020 fourth-quarter earnings release. We anticipate that our Construction Products Group and Performance Coatings Group could experience sales declines for the next two quarters and then turn positive in the fourth quarter. Our Consumer Group should continue its strong sales momentum throughout the fiscal year. The Specialty Products Group is likely to face flat sales comparisons during the second quarter, which should turn positive in the second half of the year. These estimates assume that we do not experience a surge in Covid-19 that results in a second round of stay-at-home orders. Due to continued economic uncertainty related to the impacts of Covid-19 and the upcoming U.S. elections, we are not providing fiscal 2021 full-year earnings guidance.
“The momentum behind our MAP to Growth program continues to accelerate as it drives efficiency and operational excellence throughout the business. We are on track to achieve the program’s targeted run rate of $290 million in annualized savings by the conclusion of our current fiscal year, which ends May 31, 2021. The projected benefits from our center-led procurement initiatives are ahead of plan, and our administrative improvements and ERP consolidations will continue into fiscal 2022. While the MAP to Growth program will be reaching its annualized cost savings target by the end of the fiscal year, we have other opportunities in the pipeline. In addition, the MAP to Growth program has ingrained a culture of continuous improvement and operational excellence that will benefit RPM for years to come.”
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