RPM International) Returns To Growth
RPM International Inc (NYSE:) reported calendar 3rd quarter and blew past the analyst’s consensus. The company’s two largest segments, construction, and consumer products led the company’s business and I can’t say that I am surprised. Not only have the construction and home-improvement industries seen a massive uptick since February but all signs point to accelerating momentum.
According to Everclear ISI, the global chemical sector is in a well-established Vee-shaped recovery and still has room to run. In my opinion, at least in the case of RPM International, that is an understatement.
“Indications of improving durable goods (autos), weak feedstock prices, and some temporary tailwinds from storm outages/low inventories bode well for the 3Q reporting cycle.”
RPM International Beats The Consensus And Guides Higher
RPM International manufactures a wide variety of chemical products in four main categories. The two that count are construction and consumer which both saw positive growth in the quarter. The two smaller segments of the business are industrial and Specialty and they both contracted.
The key takeaways from the report are that revenue grew a net 9.5% to a record $1.61 billion on pent up demand and developing trends within both sectors. Not only did revenue beat the consensus, it beat the consensus by a full 8% which points to considerable strength for the business. According to RPM Chairman and CEO Frank C. Sullivan:
“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,”
Moving down, margins improved on the combination of spending thrift and the company’s MAP To Growth plan. The Map To Growth Plan is a restructuring effort intended to streamline operations and put the focus on new trends and growth. And the plan is working. Cash from operations more than doubled to a record of $318 million. The GAAP earnings of $1.39 and adjusted EPS of $1.44 both beat as well, GAAP by $0.17 and Adj by more than a quarter.
Looking forward, the company is expecting mid-single-digit revenue growth and 20% EBIT growth in the 4th quarter (fiscal 2nd) and both are above consensus. Based on the Q1 results and guidance the company is well on the road to smashing the full-year consensus so upward revisions are likely to follow.
RPM Is Revving Up More Than Earnings (Its The Dividend)
RPM International is a dividend grower, as if the earnings outlook wasn’t enough to get excited about, and is on track to increase the payout this quarter. The company has been increasing on a semi-regular basis since the early 90s and on an annual basis in recent years. The payout ratio is a mere 25% of GAAP earnings and shrinking so there is no reason not to expect a distribution increase soon if not now. The yield isn’t high, about 1.75% with shares trading at $85, but nice enough when compounded by capital and distribution growth.
The Technical Outlook: RPM May Be Ready To Move Higher
The chart of RPM shows a clear Vee-bottom, uptrend, and consolidation. The consolidation is at an all-time high and looks ripe to break higher. The price action is already bouncing from support and the indicators are bullish so I would expect a move up to retest resistance at least. If a new high can be set and maintained this stock could keep rising over the next four quarters. My first target, should resistance fall, is just above the $100 level or about 16% upside.