RPM International Inc. has reported a 20% increase in net income and a 19% increase in earnings per diluted share on an 8% sales increase for its fiscal 2016 second quarter ended November 30, 2015. 

Net sales of $1.16 billion were up 7.9% over the $1.07 billion reported a year ago. Consolidated EBIT (earnings before interest and taxes) increased 17.9%, to $141.6 million from $120.1 million in the fiscal 2015 second quarter. Fiscal 2016 second-quarter net income was up 19.6%, to $83.4 million from $69.8 million in the fiscal 2015 second quarter. Earnings per diluted share increased 19.2%, to $0.62 from $0.52 a year ago.

“During the second quarter, most of our international businesses posted solid sales gains in local currencies, which were reduced by foreign currency translation that lowered reported sales by 6.3% company-wide,” stated Frank C. Sullivan, chairman and chief executive officer. In total, foreign currency, including both translational and transactional, reduced EPS by $0.06 per share. Sales and earnings benefited from the reconsolidation of our Specialty Products Holding Company (SPHC) subsidiary’s businesses, which continued to perform in line with our expectations.”

During the fiscal 2016 second quarter, industrial segment sales declined 5.8%, to $610.2 million from $647.8 million in the fiscal 2015 second quarter. Organic sales improved 1.9%, while acquisition growth added 0.7%. Foreign currency translation reduced sales by 8.4%. Industrial segment EBIT declined 0.4%, to $64.5 million from $64.8 million in the same period a year ago.

“We continued to see solid performance by our businesses serving the U.S. commercial construction market. However, the impact is masked by the strong dollar, because a significant portion of the industrial segment’s revenue is outside U.S. markets. Our great entrepreneurial businesses generating growth in local currencies are seeing those positive results erased by foreign currency translation. For example, in Europe, our second largest market, a 2.2% increase in sales in constant dollars was converted through currency exchange to a 9.6% decline. Additionally, our industrial businesses serving the energy industry have been impacted by the global slowdown in oil and gas drilling, resulting in a decline in sales to that sector of nearly 10%,” Sullivan stated.

Second-quarter sales for the specialty segment increased 164.8%, to $186.7 million from $70.5 million in the fiscal 2015 second period. Organic growth was 3.8%, while acquisitions, principally the reconsolidated SPHC subsidiaries, added 167.1%. Foreign currency translation reduced sales by 6.1%. Specialty segment EBIT improved 104.8%, to $29.1 million from $14.2 million.

“Most of our core specialty businesses, including food coatings, wood protection products, pleasure marine and other high performance coatings, performed well in the quarter, excluding the negative impact from foreign currency,” Sullivan stated.

RPM’s fiscal 2016 second-quarter consumer segment sales increased 1.8%, to $359.1 million from $352.8 million a year ago. Organic sales increased 3.6%, while acquisition growth added 0.7%. Foreign currency translation reduced sales by 2.5%. Consumer segment EBIT improved 6.2%, to $65.4 million from $61.6 million a year ago. During the quarter, the final earn-out accrual of $14.5 million, or approximately $0.07 per share, related to RPM’s acquisition of Kirker in fiscal 2013 was reversed into income, compared to the $17.0 million, or approximately $0.09 per share, that was reversed during the same period last year.

“During the quarter, our largest U.S. consumer businesses performed solidly and in line with expectations, while our nail enamel and Canadian businesses continued to struggle with sales declines,” stated Sullivan. “We expect to benefit from several product roll-outs with various customers in the third and fourth quarters of fiscal 2016.”

For the first half of fiscal 2016, cash from operations was $167.1 million, compared to $55.3 million a year ago. Capital expenditures of $31.3 million compared to $26.5 million during the first half of last year. Total debt at November 30, 2015 was $1.68 billion, compared to $1.43 billion at November 30, 2014 and $1.66 billion at May 31, 2015. RPM’s net (of cash) debt-to-total capitalization ratio was 53.5%, compared to 44.8% at November 30, 2014. At November 30, 2015, liquidity stood at $960.8 million, including cash of $190.6 million and $770.2 million in long-term committed available credit.

Fiscal 2016 first-half net sales improved 5.4%, to $2.40 billion from $2.28 billion during the first six months of fiscal 2015. Consolidated EBIT increased 6.5%, to $302.2 million from $283.8 million in the year-ago first half. Net income was up 8.5%, to $183.2 million from $168.8 million in the fiscal 2015 first half. Diluted earnings per share were $1.36, up 9.7% from $1.24 a year ago.

RPM’s industrial segment fiscal 2016 first-half sales declined 5.1%, to $1.27 billion from $1.34 billion in the fiscal 2015 first half. Organic sales increased 2.9%, while acquisition growth added 0.6%. Foreign currency translation reduced sales by 8.6%. Industrial segment EBIT decreased 2.7%, to $148.7 million from $152.9 million a year ago.

Specialty segment sales grew 146.7%, to $370.4 million from $150.1 million in the 2015 first half. Organic growth was 0.3%, while acquisitions, primarily the reconsolidated SPHC businesses, added 153.6%.  Foreign currency translation reduced sales by 7.2%. For the first half of fiscal 2016, specialty segment EBIT increased 83.0%, to $57.1 million from $31.2 million.

First-half sales for the consumer segment declined 3.6%, to $754.6 million from $782.8 million a year ago. Organic sales decreased 1.3%, and acquisition growth added 0.5%. Foreign currency translation reduced sales by 2.8%. Consumer segment EBIT declined 4.9%, to $131.5 million from $138.2 million in the first half of fiscal 2015.

“In our industrial segment, we anticipate sales to be flat to up slightly for the balance of this fiscal year, principally due to the strength of our businesses serving the U.S. commercial construction markets. In the specialty segment, the second half of fiscal 2016 will have a one-month benefit year over year from the reconsolidation of SPHC. For the remaining months of this fiscal year, we expect sales growth in the specialty segment to be in the mid-to-upper-single-digit range. Consumer segment growth will be in the mid-single digits. Over the last several months, the U.S. dollar has continued to strengthen against most of the major currencies around the world and we expect the negative impact in the back half of fiscal 2016 to be approximately $0.05 per share worse than we originally estimated. In addition, during last year’s third quarter, we recognized a $0.10 per share tax benefit that will not repeat this fiscal year, reducing last year’s EPS to an apples-to-apples comparison to this fiscal year of $0.10 per share. For the full year, however, we are reaffirming our guidance for earnings per diluted share of $2.50,” stated Sullivan.

As part of the earnings call this morning, RPM will present some longer term goals, which will be supported by an online slide presentation that can be accessed at www.rpminc.com.