RPM International Is Geared For Growth

Another Blow Out Quarter For RPM International 

RPM International (NYSE: RPM) was not immune to the pandemic but it has proven to be a resilient post-pandemic winner with growth in its forecast. The company was deep in its MAP to Growth strategy when the pandemic hit, an important factor in this story, and has since benefited from COVID-driven trends and internal efficiencies. Looking forward, the company is expecting its growth to continue in the double-digit range for at least the next quarter and we think management is being cautious. With things like housing, home improvement, stay-at-home activities, rising demand in the energy sector, and a global economic reopening to look forward to we think RPM International will beat its guidance and then some.

RPM Q3 Accelerates To Record Levels 

RPM International had a record-setting quarter in more ways than one. Not only is the $1.27 billion in revenue up 8.1% from last year but it is also a record for the quarter that includes record cash flow and profits that exceeded consensus estimates. The strength was driven by gains in three of the four operating segments, Performance Coating being the only spot of weakness, and that spot is expected to strengthen along with the global reopening. 

The Construction Products Group saw the slowest growth at 6.4% but this should accelerate with the spring building season. Specialty Coating saw its revenue grow 14.7% but was outpaced by a 19.8% increase in the Consumer segment which is no surprise to us. The past year has been all about the consumer and where the pandemic is spurring spending. Hobbies and home improvement projects that require paint, sealants, glazes, cement, and coatings that include fingernail varnish.

Moving down the report, the company’s margins grew significantly over the past year due to the MAP to Growth and cost-leveraging growth markets driven by the pandemic. The GAAP EBIT grew 42% and the adjusted EBIT 32.2% which in turn drove substantial gains on the bottom line. The GAAP earnings of $0.29 missed the consensus by $0.09 but are up 222% from last year with a smaller yet no-less impressive 68% gain on an adjusted basis. 

The guidance is good as well but it comes with a caveat. The company is expecting the FQ4 period to produce double-digit YOY growth with slightly slower growth in earnings. Earnings are beginning to be affected by rising prices the company is working to mitigate. Among the steps are price increases, contract adjustments, and acquisition of source materials that are expected to take full effect by early 2022. 

RPM International Dividend Growth Is Expected 

RPM International pays a market-beating dividend that yields 1.6% with shares trading near $95 and there is distribution growth in the forecast. The company is only paying out about 35% of its earrings with earnings growth also in the forecast and a healthy balance sheet to boot. The balance sheet is carrying some debt but it is well-managed long-term debt that has the company only lightly leverage with ample free-cash-flow. The last dividend increase was in the calendar 4th quarter of 2020 so we expect to see another about the same time this year. 

The Technical Outlook: RPM International Looks Ready To Rip 

Shares of RPM International opened the session lower but looks like they are ready to rip higher. The bias in price action, if not the trend, is up and support is rising. Support is well above the short-term EMA and the previous highs with a fairly strong signal showing in the stochastics. Price action may fall from this level but, if it does, we would view it as a buying opportunity in this stock. If not, we expect to see buying action hold steady if not drive RPM up and over the $96 level before too long. If there is a clean move above $96 we see this stock rising another $10 to $15 before the end of the year.