RPM International Inc. recently reported record sales, earnings, and cash from operations for its fiscal 2021 second quarter, ended November 30, 2020. Fiscal 2021 second quarter net sales were nearly $1.5 billion, up 6% over the $1.4 billion reported a year ago.
The fiscal 2021 second quarter included $18.6 million in charges for restructuring related to the company’s MAP to Growth operating improvement plan and other charges, as well as a $2 million charge for the resolution of a legacy investigation by the Securities and Exchange Commission (SEC). The same period of fiscal 2020 included charges of $34.4 million for restructuring and acquisition-related costs.
“Thanks to the efforts of our associates to grow the top line during challenging economic conditions worldwide, coupled with operational improvements, we achieved record second-quarter sales, earnings and cash flow,” said Frank C. Sullivan, RPM chairman and CEO. “Once again, our MAP to Growth program generated strong leverage to the bottom line, despite moderate sales growth. Organic sales grew 3.5% during the second quarter. Acquisitions contributed 2.3% and included the recent addition of Ali Industries, which positively impacted both sales and earnings while also demonstrating our renewed focus on growth. Foreign currency translation added 0.2% to sales as international markets, particularly those in Europe, continued to improve.
“On an adjusted basis, our consolidated EBIT margin increased 240 basis points to 13.4% during the quarter, driven by three of our four segments registering substantial EBIT margin improvements. This was even more impressive given a tough comparison to last year when adjusted EBIT increased by 22.0%.”
During the fiscal 2021 second quarter, the Construction Products Group’s net sales increased 0.8% to $503.5 million from $499.5 million a year ago, reflecting organic growth of 1.2%, which was somewhat offset by foreign currency translation headwinds of 0.4%. The segment incurred restructuring-related expenses and other costs of $4.5 million during the second quarter of fiscal 2021 and $2.7 million during the same period of fiscal 2020.
“Our Construction Products Group was able to leverage modest sales growth into outstanding results on the bottom line, due in large part to our MAP to Growth program, aggressive discretionary cost cuts and proactive management to improve its product mix,” Sullivan said. “This was achieved despite commercial and institutional construction markets that continue to be soft in North America and Europe. The segment was able to maintain its top line by focusing on renovation and restoration projects, expanding its position as a single-source provider of building envelope systems and continuing to take market share with industry-leading construction technologies, including its Nudura insulated concrete forms.”
In the Performance Coatings Group, net sales for the 2021 fiscal second quarter decreased 11.6% to $258.8 million from $292.7 million a year ago, reflecting an organic decline of 12.2%, offset somewhat by foreign currency translation of 0.4% and acquisitions of 0.2%. The segment reported restructuring and other charges related to the company’s MAP to Growth program of $4 million in the fiscal 2021 second quarter and $3.7 million during the same period of fiscal 2020.
“Similar to last quarter, the Performance Coatings Group’s sales continued to be impacted by Covid-19 restrictions that limited access to construction sites and weak energy markets that have caused deferred industrial maintenance spending,” said Sullivan. “Conditions in emerging markets were particularly challenging. In addition, its Carboline business was temporarily disrupted by a series of hurricanes in the Gulf region of the U.S. The segment’s earnings were impacted by declining sales, partially offset by MAP to Growth savings and discretionary cost reductions. Out of all our segments, the Performance Coatings Group has been unfavorably affected the most by the pandemic. However, it also stands to benefit significantly from the pandemic’s end, as its customers catch up on deferred maintenance and construction projects.”
The Consumer Group generated a 21.4% increase in sales, which grew to $547.5 million from $450.9 million in the fiscal 2020 second quarter. Organic sales increased 15.2%, while acquisition growth contributed 5.8% and foreign currency translation increased sales by 0.4%. The top line benefitted from the current-quarter acquisition of Ali Industries, which is the largest acquisition that RPM has executed since fiscal 2013. The segment incurred restructuring and other charges related to the company’s MAP to Growth program and acquisition costs totaling $2.2 million during the second quarter of fiscal 2021 and $20.2 million of restructuring-related costs during the same period of fiscal 2020.
“The Consumer Group’s outstanding performance was driven by our broad distribution and market-leading position as consumers tackled significantly more projects while homebound because of the pandemic,” said Sullivan. “We are investing in paint-making and aerosol filling capacity to help meet this demand. The top line also benefited from brisk cleaning product sales, favorable translational foreign exchange and the recent acquisition of Ali Industries, provider of Gator brand sandpaper and other abrasive products. Raw material costs were stable overall during the second quarter, but are currently rising. High sales volumes and MAP to Growth savings were leveraged to the segment’s strong bottom line.”
During the second quarter of fiscal 2021, the Specialty Products Group reported sales of $176.1 million, an increase of 11.3% compared to $158.2 million in the year-ago period. Organic sales increased 6.6%; a recent acquisition added 3.8%, and foreign currency translation increased sales by 0.9%. The segment reported restructuring and other charges related to the company’s MAP to Growth of $1.1 million in the fiscal 2021 quarter and $4.4 million during the same period of fiscal 2020.
“Recent management changes at the Specialty Products Group have helped to turn around results at the segment this quarter,” said Sullivan. “Sales were boosted by increased hurricane and wildfire activity, which drove demand for our water restoration equipment, as well as fluorescent pigments, which are used in fire retardant tracer dyes. Additionally, we continued to experience strong demand for our expanding lineup of disinfectants, air purification equipment and HEPA filters. A few of this segment’s end markets have improved. For example, sales of its industrial wood protection products increased as a result of a stronger residential market that has driven demand for lumber, furniture and cabinets in the U.S. We also expanded sales in our forestry chemicals business in Australia and New Zealand. The segment’s bottom line increased due to higher sales volumes, operational improvements and MAP to Growth savings.”
In the first half of fiscal 2021, RPM’s net sales increased 7.6% to almost $3.1 billion from about $2.9 billion during the first six months of fiscal 2020. Organic growth was 6.5%, with acquisitions adding 1.4%. Foreign currency translation headwinds reduced sales slightly by 0.3%.
The fiscal 2021 first half included restructuring and other charges of $37.4 million, as well as the $2 million charge for the resolution of the legacy SEC investigation. The same period during fiscal 2020 included the impact of charges of $61.2 million primarily for restructuring and acquisitions.
“Looking ahead to the fiscal 2021 third quarter, we anticipate consolidated sales to grow in the mid-single-digit range with strong leverage to the bottom line for adjusted EBIT growth of 30% or more,” Sullivan said. “Our third quarter typically provides modest sales activity each year because it falls during the winter months when painting and construction activity slow. This seasonal reduction of activity will benefit our Consumer Segment by allowing it to replenish retail inventories after working to meet the unprecedented demand over the last six months.
“On a segment basis, we expect fiscal 2021 third-quarter sales to be flat to negative in the Construction Products Group as it focuses on building restoration, renovation and innovation to outperform its peers in a challenging construction market. We anticipate that negative sales growth will continue in the Performance Coatings Group, which serves our most challenged end markets. The Consumer Group is expected to continue its double-digit sales growth and will benefit on both the top and bottom line from the recent acquisition of Ali Industries, which is performing better than projected. We anticipate positive sales growth from the Specialty Products Group to continue into the third quarter, driven by new management, improved business development initiatives and a recovering OEM customer base. Sales in all four segments should be up in the fiscal 2021 fourth quarter due to an easier comparison to last year’s fourth quarter, which is when the economic interruption caused by the pandemic was most severe.
“Our MAP to Growth program continues to have tremendous momentum. As previously announced, the disruption caused by the outbreak of Covid-19 has delayed the finalization of MAP to Growth past the original target completion date of December 31, 2020. We expect that we will reach the planned run rate of $290 million in annualized savings by the conclusion of our fiscal year ending May 31, 2021. That said, through our culture of continuous improvement, we continue to add to our robust pipeline of cost saving initiatives and operational improvements that will carry into fiscal 2022 and beyond after the formal MAP to Growth program has ended.”
Additional details are available at www.rpminc.com.