RPM International Inc. today reported record sales, net income and diluted earnings per share for its fiscal 2014 second quarter ended November 30, 2013, driven by volume increases in both its industrial and consumer segments and improved operating margins at most of its business units. Based on these results and expectations for the second half, the company increased its full-year earnings guidance for fiscal 2014.
Second-Quarter Results
Net sales increased 5.3% to $1.07 billion from $1.02 billion a year ago. Consolidated EBIT increased 30.0%, to $116.4 million from $89.5 million in the fiscal 2013 second quarter. Fiscal 2014 second-quarter net income was up 52.5% to $63.6 million from $41.7 million in the fiscal 2013 second quarter. Earnings per diluted share increased 54.8% to $0.48 from $0.31 a year ago.
In the fiscal 2013 second quarter, RPM incurred a one-time, non-cash charge of $10.8 million, or $0.09 per diluted share, for the write-down of RPM's remaining equity investment in Kemrock Industries and Exports Ltd. in India. Excluding the Kemrock charge, fiscal 2014 second-quarter consolidated EBIT improved 16.1% from an adjusted $100.4 million a year ago. Second-quarter net income grew 21.1% from an adjusted $52.5 million in the fiscal 2013 second quarter, while earnings per diluted share improved 20.0% from an adjusted $0.40 a year ago.
"Second-quarter operating performance was strong, with a vast majority of our operating units posting solid increases in sales and EBIT," stated Frank C. Sullivan, chairman and chief executive officer. "Sales increases in both of our business segments were primarily driven by improved unit volume, with relatively minimal acquisition growth or pricing," he stated.
Second-Quarter Segment Sales and Earnings
During the fiscal 2014 second quarter, industrial segment sales grew 2.6% to $708.7 million from $691.1 million in the fiscal 2013 second quarter. Organic sales improved 2.2%, including 0.9% in foreign exchange translation losses, while acquisition growth added 0.4%. Industrial segment EBIT increased 7.4% to $83.9 million from $78.1 million in the same period a year ago.
"Most of our industrial product lines are leveraging relatively modest sales increases into more significant gains in EBIT as a result of prior-year cost reductions in the face of a moderate economic recovery. While we experienced slight declines in North American roofing, we continue to be encouraged by the improvement in most of our European industrial operating companies, as well as the continued gradual recovery in our businesses serving commercial construction markets," Sullivan stated.
RPM's fiscal 2014 second-quarter consumer segment sales increased 11.2% to $362.8 million from $326.4 million a year ago. Organic sales improved 9.5%, including foreign exchange losses of 0.6%, while acquisition growth added 1.7%. Consumer segment EBIT improved 34.0%, to $51.7 million from $38.6 million a year ago.
"Our consumer product lines continue to enjoy high levels of organic sales volume growth as a result of continued momentum in the U.S. housing market, combined with successful, high-growth consumer segment acquisitions made in the prior fiscal year and strong consumer take-away for higher-end new products," stated Sullivan.
Cash Flow and Financial Position
For the first half of fiscal 2014, cash from operations was $21.8 million compared to $127.6 million a year ago. The decrease was primarily attributable to a $61.9 million settlement payment by the company's roofing division to the U.S. General Services Administration during the fiscal 2014 first quarter, which was accrued in fiscal 2013, and increased working capital needs during the first half associated with higher sales volumes. Capital expenditures of $34.6 million compare to depreciation of $29.1 million during the first half of this fiscal year. Total debt at November 30, 2013 was $1.37 billion, compared to $1.42 billion at November 30, 2012 and $1.37 billion at May 31, 2013. RPM's net (of cash) debt-to-total capitalization ratio was 46.4%, compared to 46.2% at May 31, 2013. At November 30, 2013, liquidity stood at $970 million, including cash of $224 million and $746 million in long-term committed available credit.
On December 9, 2013, RPM completed the issuance of $205 million of 2.25% convertible senior notes due 2020. Substantially all of the net proceeds from the sale were used to repay $200 million in principal amount of unsecured senior notes due December 15, 2013, which carried an interest rate of 6.25%. Following the sale of these notes, virtually all of RPM's total debt is at fixed rates, which average approximately 5.0%.
"RPM's solid cash and liquidity position continues to provide great flexibility in pursuing strategic acquisitions, while supporting our growing cash dividend and increased capital investments for organic growth," Sullivan stated.
First-Half Sales and Earnings
Fiscal 2014 first-half net sales improved 8.3% to $2.24 billion from $2.06 billion during the first six months of fiscal 2013. Consolidated EBIT increased 62.0% to $280.4 million from $173.1 million during the first six months of fiscal 2013. Net income was up 120.5% to $166.7 million from $75.6 million in the fiscal 2013 first half. Diluted earnings per share increased 119.3% to $1.25 from $0.57 a year ago.
The fiscal 2013 first half included Kemrock-related adjustments of $56.1 million, along with a one-time charge of $11.0 million associated with a strategic decision to exit certain unprofitable roofing contracts outside North America. Excluding these adjustments, sales for the fiscal 2014 first half increased 8.2% from $2.07 billion and first-half EBIT was up 16.8% from an adjusted $240.2 million a year ago. First-half net income grew 21.4% from an adjusted $137.3 million in the fiscal 2013 first half. Fiscal 2014 first-half earnings per diluted share were up 20.2% from an adjusted $1.04 a year ago.
First-Half Segment Sales and Earnings
RPM's industrial segment fiscal 2014 first-half sales improved 3.3%, to $1.44 billion from $1.39 billion in the fiscal 2013 first half. Organic sales increased 2.7%, including net foreign exchange translation losses of 0.6%, while acquisition growth added 0.6%. Industrial segment EBIT increased 18.7% to $184.0 million from $155.0 million a year ago.
Compared to adjusted results in the fiscal 2013 first half, industrial segment first-half net sales improved 3.1%, from $1.40 billion a year ago. Industrial segment EBIT grew 4.7% from an adjusted $175.8 million in the 2013 first half.
First-half sales for the consumer segment increased 18.9% to $796.2 million from $669.7 million a year ago. Organic sales increased 9.1%, including net foreign exchange losses of 0.5%, and acquisition growth added 9.8%. Consumer segment EBIT increased 38.0% to $134.4 million from $97.4 million in the first half of fiscal 2013
