RPM International Inc.  reported record sales, net income and diluted earnings per share for its fiscal fourth quarter and year ended May 31, 2016.

Fourth-Quarter Results

Fourth-quarter net sales increased 3.9% to $1.43 billion from $1.37 billion. Net income for the fourth quarter was up 19.5% to $152.9 million from $128.0 million reported in the fourth quarter of fiscal 2015. Diluted earnings per share were $1.13, up 20.2% from $0.94 reported a year ago.  Consolidated earnings before interest and taxes (EBIT) improved 7.9% to $220.4 million, from $204.3 million a year ago.

“RPM turned in a solid performance for our fourth quarter, especially in light of the headwinds posed by the continuing strong U.S. dollar, slow growth in many international regions and a worldwide recession in the energy and heavy manufacturing segments of the economy,” stated Frank C. Sullivan, RPM chairman and chief executive officer. 

Fourth-Quarter Segment Sales and Earnings

Fiscal 2016 fourth-quarter industrial segment sales declined 0.7% to $686.6 million from $691.8 million a year ago. Organic sales improved 1.6%, while acquisition growth added 0.5%. Foreign currency translation negatively impacted sales by 2.8%. Industrial segment EBIT was up 15.4% to $107.9 million from $93.5 million in the fiscal 2015 fourth quarter. Industrial segment EBIT included a one-time gain of $8.0 million as a result of the revaluation of the company’s Carboline subsidiary’s 49% ownership in Carboline Dalian Paint Production Co., Ltd. that occurred in conjunction with the acquisition of the remaining 51% of the Chinese business on May 18, 2016. Excluding this one-time gain, industrial segment EBIT increased approximately 7.0%.

“Industrial results included strong performance in the U.S. by our concrete admixture and commercial sealants businesses, which benefited from continued momentum in commercial construction. We saw strong results in U.S. dollars from our sealants business in Germany and our polymer flooring business in the U.K. Many of our other overseas businesses posted improved sales in local currencies, but suffered from currency exchange translation. We continue to see depressed conditions in the global energy and heavy industrial markets,” stated Sullivan.

Sales in RPM’s specialty segment increased 5.1% to $196.2 million from $186.7 million a year ago. Organic sales increased 1.7% and acquisition growth added 4.2%. Sales were negatively impacted by 0.8% in foreign currency translation. Specialty segment EBIT increased 20.1% to $32.7 million from $27.2 million in the fiscal 2015 fourth quarter. 

“Several smaller acquisitions completed during the year drove the segment’s sales growth into the mid-single-digit range. We were also pleased with the significant leverage to the bottom line from these predominately U.S. based businesses,” stated Sullivan.

Net sales for RPM’s consumer segment increased 9.9% to $543.8 million from $494.7 million in the fiscal 2015 fourth quarter. Organic sales were up 9.9%, while acquisition growth added 1.4%. Foreign exchange translation reduced sales by 1.4%. Consumer segment EBIT declined 2.6% in the fiscal 2016 fourth quarter to $98.0 million from $100.6 million. Fiscal 2015 fourth-quarter EBIT included the benefit of an earn-out reversal of $9.9 million, and fiscal 2016 fourth-quarter EBIT included the impact of a $9.3 million legal settlement charge related to deck coatings.  Excluding these two one-time adjustments, consumer segment EBIT increased 18.2% quarter over quarter.

“Our larger core consumer businesses performed exceptionally well in the quarter, with nearly double-digit growth driven by several product rollouts resulting in market share gains and new product placements early in the 2016 fiscal year. Additionally, consumer segment European businesses had double-digit growth during the quarter. We were also very pleased with the strong leverage to the EBIT line, excluding the two one-time adjustments,” stated Sullivan.

Cash Flow and Financial Position

For fiscal 2016, cash from operations was $474.7 million, up 43.7% from $330.4 million in fiscal 2015. Total debt at the end of fiscal 2016 was $1.65 billion, compared to $1.66 billion at the end of fiscal 2015. RPM’s net (of cash) debt-to-total capitalization ratio was 50.2%, compared to 53.4% at May 31, 2015.

“Our total liquidity of $1.1 billion, including $265.2 million in cash and long-term committed available credit, compares to $963.8 million a year ago. We have plenty of resources to fund a growing cash dividend, invest in our businesses and pursue a robust acquisition program. As we stated last year, fiscal 2016 was going to be characterized as a year of investing in growth initiatives, even during a time of global uncertainty. During fiscal 2016, capital expenditures were $117.2 million, or roughly 40% higher than the $85.4 million spent last year,” Sullivan stated.

Fiscal 2016 Full-Year Consolidated Sales and Earnings

Fiscal 2016 consolidated full-year net sales increased 4.8% to $4.81 billion from $4.59 billion in fiscal 2015. Net income increased 48.1% to $354.7 million from the reported $239.5 million in fiscal 2015. Diluted earnings per share of $2.63 were up 47.8% from $1.78 a year ago. Consolidated EBIT was up 8.1% to $564.8 million from $522.3 million in fiscal 2015.

Fiscal 2015 net income included an adjustment of $83.5 million in the third quarter for a non-cash, net charge for a tax accrual, as previously disclosed. Fiscal 2016 net income was up 9.8% compared to an adjusted $323.0 million in the prior fiscal year, while diluted earnings per share were up 10.5% from an adjusted $2.38 in fiscal 2015.

Fiscal 2016 Segment Sales and Earnings

Fiscal 2016 sales for RPM’s industrial segment declined 3.5% to $2.44 billion from $2.53 billion in fiscal 2015. Organic sales increased 2.5%, with acquisition growth contributing 0.6%. Foreign currency translation negatively impacted sales by 6.6%. Industrial segment EBIT improved 1.4% to $258.8 million from $255.2 million in fiscal 2015. Excluding the one-time Dalian gain of $8.0 million during the fiscal fourth quarter, EBIT would have declined year-over-year by 1.7%.

Specialty segment sales increased 60.1% to $732.1 million from $457.2 million in fiscal 2015. Organic sales improved 2.7% and acquisitions added 60.4%, primarily due to inclusion of a full year’s results from the reconsolidation of SPHC companies, which occurred in January 2015. Foreign currency translation reduced sales by 3.0%. Specialty segment EBIT was up 64.0% to $111.2 million from $67.8 million a year ago.

Consumer segment sales for fiscal 2016 increased 2.1% to $1.64 billion from $1.60 billion in fiscal 2015. Organic sales increased by 3.3%, and acquisition growth added 0.9%. Currency translation negatively impacted sales by 2.1%. Consumer segment EBIT decreased 2.1%, to $268.2 million from $274.0 million. Consumer segment EBIT for fiscal 2016 was negatively impacted by the $9.3 million fourth-quarter legal settlement charge and positively impacted by a $14.5 million second-quarter earn-out reversal. Fiscal 2015 EBIT included the benefits of a $9.9 million earn-out reversal during the fourth quarter and a $17.0 million earn-out reversal in the second quarter. Excluding these four one-time adjustments, consumer segment EBIT increased 6.4% year over year.

Business Outlook

“In fiscal 2017, we are expecting overall sales growth in the 4% to 6% range, with the consumer and specialty segments up in the mid-single-digit range and the industrial segment up in the low-single-digit range. We expect continued improvement in the U.S. commercial construction and housing sectors, while global markets will remain somewhat choppy, especially those serving energy and heavy industry, along with currency headwinds, especially the British pound.

“From a diluted earnings per share perspective, there were certain one-time items in fiscal 2016 that will not repeat in fiscal 2017, including the benefit of the Kirker earn-out reversal in the second quarter ($0.08 per share) and the Dalian gain ($0.06 per share) in the fourth quarter, which were partially offset by a loss of $0.05 per share on the legal settlement charge, also in the fourth quarter. Excluding these three items from the full-year fiscal 2016 diluted earnings per share of $2.63, an ‘apples-to-apples’ starting point for fiscal 2017 would be $2.54. We expect our core business to leverage 4% to 6% sales growth into 10% to 12% growth in earnings. However, in fiscal 2017 we anticipate approximately $0.06 per share in additional unfavorable currency translation driven largely by the devaluation of the British pound against the U.S. dollar and $0.05 per share in higher pension costs due to the continued decline in the discount rates. As a result of these factors, our earnings guidance for fiscal 2017 is $2.68 to $2.78 per diluted share,” stated Sullivan.