Is RPM International Shifting Into High Gear?

RPM International Leans Into Price Increases For Record Results 

RPM International (NYSE: RPM) reported a mixed quarter but gave favorable guidance that should help lift share prices over the next few months. The caveat is that pricing increases can be blamed on most of the success, and price increases aren’t ending. While RPM International did not give any color on how pricing increases are impacting the sales or volume, we know that competitor PPG Industries (NYSE: PPG) has raised its prices by more than 15% over the last two years. In this light, the YOY growth is still good but less so than it could be and the outlook isn’t that great either. The company is expecting to grow revenue and widen margins but, once again, on the back of increased pricing that we see cutting into volume sales. 

“The company expects to continue implementing price increases as needed and improving operational efficiencies in order to minimize cost pressures and restore margins closer to historical levels. While there is a recessionary undercurrent in the economy, RPM anticipates that demand for its products and services will remain strong,”

RPM International Posts Record Quarter 

RPM International posted a record quarter with revenue of $1.98 billion. This is up 13.8% on top of last year’s 20% gain and 23% above the pre-pandemic levels driven by volume and pricing increases. The revenue beat the consensus by 100 basis points as well; good news but a very slim margin and no catalyst for higher share prices. On a segment basis, 4 of the 3 operating segments posted record revenue, with 3 of the 4 posting record EBITDA. The one outlier is the Consumer Products Group, which is still struggling with inflation and supply chain hang-ups. The Consumer Products Group is about 35% of the net revenue and the segment whose volume is most threatened by impending price increases. 

Moving down the report, the margin news is mixed as well, with 3 of the 4 segments reporting a double-digit increase in EBIT margin and 1, the Consumer Group, reporting a double-digit decline. The net result is a 20 basis point decline in the company-wide EBIT margin that sapped some of the top-line strength. On the bottom line, the $1.42 in adjusted EPS is up 11% from last year but fell short of the Marketbeat.com consensus by a nickel. 

The guidance is as mixed as the results and also underpinned by volume-crushing price increases. The company is calling for revenue growth in the range of 15%, which is better than the consensus and for EPS growth near 22.5%, which is on the weak side. The risk for the market is that pricing increases 1) won’t be enough to offset inflation, and 2) pricing increases will add downward pressure to volume sales, but the outlook isn’t all bad. There is a chance that improved pricing for input materials as well as improved freight (as reported by PPG Industries) will aid margins, but that’s a gamble were not ready to endorse. 

The Technical Outlook: RPM International Slips On Shaky Outlook 

The price action in RPM International took a hit following the Q4 release and fell more than 3.5% at the low of the day. The move confirms resistance at the top of the near-term trading range but supports the short-term moving average. The candle formed is a Hammer Doji that suggests a battle is brewing between the bulls and the bears. If the market can regroup and make another move higher, there is a chance it will break out of the range and set a new high. If not, this stock will most likely trend sideways within the range until there is more clarity in the economic outlook.