RPM International Inc. has announced that “unusually strong performance in its prior-year first quarter dampened comparative results for the fiscal 2015 first quarter ended August 31, 2014,” but that it is maintaining its full-year earnings guidance for fiscal 2015 issued July 28, 2014. Full-year guidance for the fiscal year ending May 31, 2015 anticipates growth in diluted earnings per share of 9% to 11%, or a range of $2.38 to $2.42 per diluted share.

Fiscal 2015 first-quarter net sales of $1.204 billion increased 3.4% over the $1.165 billion reported a year ago. RPM’s consolidated earnings before interest and taxes (EBIT) declined 0.2% to $163.7 million from $164.0 million reported in the fiscal 2014 first quarter. First-quarter net income declined 3.9% to $99.1 million from $103.1 million in the year-ago period, and diluted earnings per share declined 5.2% to $0.73 from $0.77 in the fiscal 2014 first quarter.

“As we announced in an 8-K filing on September 4, 2014, we anticipate that quarterly results during fiscal 2015 will follow a different pattern compared to fiscal 2014, particularly in the first quarter. During last year’s first quarter, our Synta and Kirker subsidiaries had exceptionally strong performance due to highly successful new product introductions and distribution expansion since being acquired by RPM,” stated Frank C. Sullivan, chairman and chief executive officer. “We expect to resume improved financial performance for the remainder of this fiscal year.”

Non-recurring costs in this year’s first quarter totaled $5.6 million pre-tax, and were related primarily to legal expenses incurred in conjunction with a Securities and Exchange Commission investigation of timing of expense accruals in the 2013 fiscal year, which did not affect full-year earnings, along with the proposed Specialty Products Holding Corp. (SPHC) settlement, and a voluntary self-disclosure agreement with the state of Delaware for unclaimed property.

RPM’s consumer segment, which includes both the Kirker and Synta business units, reported a 0.8% decrease in sales to $430.0 million from $433.4 million in the fiscal 2014 first quarter. Organic sales declined 2.0%, including favorable foreign exchange of 0.1%, while acquisition growth contributed 1.2%. Consumer segment EBIT declined 7.3% to $76.7 million from $82.7 million in the fiscal 2014 first quarter. 

“While performance for both Kirker and Synta during the first quarter of fiscal 2015 was down significantly from the prior year, the balance of our consumer segment showed a sales increase in the mid-single digits, with EBIT growth in the mid-teens, which is consistent with continued market share gains, and the recovery in the U.S. housing market,” stated Sullivan. “Clearly, the tough comparisons to last year for Synta and Kirker had a significant impact on the segment’s overall performance this quarter.”

The company’s industrial segment net sales improved 5.8%, to $773.9 million from $731.2 million reported a year ago, with 4.5% in organic growth, including 0.1% in favorable foreign exchange, while acquisitions added 1.3%. Industrial segment EBIT grew 5.0% to $105.1 million from $100.1 million in the fiscal 2014 first quarter.

“We continue to see improvement in the U.S. commercial construction market, which is reflected in solid sales growth in concrete admixtures, commercial sealants and industrial and commercial polymer flooring. In Europe, growth has been more modest in comparison to the rebound in performance last year, as anticipated,” stated Sullivan.

During the fiscal 2015 first quarter, cash from operations was a negative $125.2 million compared to a negative $129.5 million a year ago. Capital expenditures were $12.1 million in the quarter, compared to $10.7 million in the year-ago period. Depreciation was $15.0 million during the first quarter of fiscal 2015, compared to $14.4 million for the same period last year. 

Total debt at August 31, 2014 of $1.5 billion compares to $1.4 billion at May 31, 2014 and $1.4 billion at the end of last year’s first quarter. Net (of cash) debt-to-total capital was 46.6%, versus 49.1% at the end of last year’s first quarter and 42.4% at the end of the prior fiscal year. Liquidity, including cash, was $893 million, compared to $896 million a year ago and $1.1 billion at May 31, 2014.

“RPM’s strong cash and liquidity position enables us to continue our support of a growing cash dividend, our acquisition program, and the first installment of $450 million to fund the 524(g) trust as part of the SPHC settlement anticipated later this fiscal year,” Sullivan stated. “RPM’s debt-to-total capital ratio remains within our traditional range, and we continue to pursue acquisitions that complement our core growth strategies.”

“Our full-year outlook for fiscal 2015 remains the same as previously announced, with industrial sales increasing 6% to 8%, consumer sales increasing 5% to 7% and consolidated sales increasing 6% to 8%, which is expected to translate into net income and diluted earnings per share growth over the prior year of 9% to 11%, or $2.38 to $2.42,” Sullivan stated.

SPHC Files Plan of Reorganization
On September 26, 2014, SPHC filed its plan of reorganization in Delaware Bankruptcy Court. The plan memorializes the settlement in principle reached with representatives of current and future asbestos claimants. The financial terms of that settlement were previously disclosed in an investor communication of July 28, 2014. As previously reported, on the effective date of the plan, a trust will be established to resolve all current and future Bondex asbestos claims, an injunction will be issued by the court that will permanently protect SPHC, RPM International Inc., their affiliates, and other parties from current and future asbestos claims, and SPHC will emerge from bankruptcy and will be reconsolidated with RPM. RPM currently anticipates that the plan’s effective date and the reconsolidation of SPHC’s financial results will occur in RPM’s fiscal 2015 third quarter (December 2014 – February 2015), but the actual timeline could change based on a variety of factors beyond the control of SPHC and RPM. The impact of the completion of this transaction on RPM’s 2015 fiscal year will be dependent on specific timing and related transaction costs. On an annualized basis, SPHC has revenues of approximately $400 million.

“We look forward to plan confirmation for SPHC and its emergence from bankruptcy. While the amounts required to fund a 524(g) trust are substantial from a financial perspective, this transaction will be good for RPM shareholders, both in terms of our ongoing operations and as a process which will bring finality to the Bondex asbestos liability. On a reconsolidated basis, excluding estimated transaction costs, we believe that RPM will be in a position to deliver $2.70 to $2.90 in diluted earnings per share for the fiscal year ending May 31, 2016. We hope to be in a position to provide greater detail on both the impact of the SPHC reconsolidation on fiscal 2015 and our guidance for fiscal 2016 when we talk to investors during our second quarter earnings conference call in January 2015,” stated Sullivan.