RPM International Is About To Get A Lot Cheaper

Weak Guidance Weighs On RPM International 

RPM International NYSE: RPM has had a great year supported by both pandemic trends and its own MAP to Growth strategy. The company says it has completed the MAP to Growth and exceeded its original target of $290 million IN annualized savings by $30 million. With MAP 2.0 already in play, it looks like the company's profitability is set to improve again. The problem, as with competitor PPG Incorporated, is that systemic manufacturing, supply, and shipping issues are not only curbing revenue growth but they're beginning to cut into profits as well. What makes it worse is the fact the comps are about to start overlapping a record year and they aren't going to look pretty.

RPM International Caps A Strong Year With Solid Results

RPM International had a great fiscal fourth-quarter and 2021 producing sustained double-digit growth, margin improvement, and better-than-expected results. The $1.74 billion in net consolidated revenue is a sequential increase, up 19.2% from last year, up 8.7% over the past two years, and beat the consensus by 300 basis points. The company reports strength in all segments with the Specialty Coating segment-leading. Specialty Coating sales improved 50% over the fourth quarter of last year while Construction Materials grew 33.2%, Performance Coatings 20.5%, and the Consumer by 2%.

Moving down the report, the company was able to widen margins for the full year versus the previous fiscal year but those margins came under pressure in the 4th quarter. The company reported $1.20 in GAAP earnings which is up 43% from last year but missed the consensus by a dime. On an adjusted basis, excluding repositioning costs, the company produced $1.28 in earnings which were in line with the expectation. 

Looking forward, the company is still expecting to grow in fiscal 2020 to but earnings will once again come under pressure. The company is expecting revenue to grow in the range of low to mid-single digits which is right in line with the consensus but issued a warning for a 25% to 30% decline in earnings. The discrepancy is due largely to mix, the company is expecting to see growth in three of its four segments offset by weakness in the Consumer group. The Consumer group posted record growth in fiscal 2020 making this year's comparison difficult indeed. 

RPM International Has A High-Performance Dividend

RPM International pays a market average 1.75% yield but one that is much safer than the average S&P 500 company. At the current level, the payout ratio is 36% of last year's earnings and about 30% of this year's earnings which at least gives the appearance of safety. That safety is backed up by a strong and strengthening balance sheet that includes a high level of capitalization, relatively low debt, and ample coverage. Based on the company's history and metrics we are expecting to see a dividend increase sometime this year but we don't expect it to be a very large one.

The Technical Outlook: RPM International Pulls Back To Support 

Shares of RPM International are down more than 2% in premarket action and maybe heading lower. While price action is still above a key support level, that level is in danger of being violated. A move below the $86 level could be very bearish and might lead this stock lower in the near to midterm. In our view, RPM International is still a strong company and set up for success but its growth metrics for the year make it less attractive than some other stocks in the market. A move below $86 could take price action down To the $80 level where it would present an even better value and yield.