RPM International (NYSE:RPM) Gains Momentum, Shares Fall

RPM International Is Well-Positioned For 2021

Business at RPM International (NYSE:RPM) has been revving up since the calendar 2Q bottom and the outlook for 2021 is only getting better. The company is well-positioned for the coming year as a maker of specialty chemicals for industrial, commercial, and residential use. Among the many products it makes are weatherproofing, paint, stains, and adhesives for home and construction use. With home demand at record levels and rising this is only one avenue for growth facing the company this year.

A Record Quarter For RPM International

RPM International is not only riding a wave of demand driven by the pandemic and reopening but it is also reaping the benefits of a long-term reorganization and growth plan. The MAP To Growth helped the company leverage it’s 6.4% in YOY revenue growth to a 65% increase in net income. The revenue of $1.49 billion also topped the consensus by 270 basis points putting the company on track to beat not only the fiscal 3rd quarter consensus but the full-year as well.

“Our MAP to Growth program continues to have tremendous momentum. As previously announced, the disruption caused by the outbreak of Covid-19 has delayed the finalization of MAP to Growth past the original target completion date of December 31, 2020. We expect that we will reach the planned run rate of $290 million in annualized savings by the conclusion of our fiscal year ending May 31, 2021,” stated Frank C. Sullivan, chairman and CEO.

On a segment basis, the Consumer Products Group is by far the strongest performing this year. The Consumer Products segment grew 21.4% on 15% organic and 6% acquisitional growth compared to more tepid results from the other segments. The Specialty Products Group is the second strongest performing and it only saw revenue increase 11%. It is also the smallest operating segment so has the least impact on the bottom line. The Construction Products Group saw its revenue grow about 0.8% on a 1.2% increase in organic sales offset by some FX impacts while Specialty Coatings fell 11%.

Moving down the report, the company reported record cash flow from operations in the quarter as well. Cash from ops grew to $579.5 million in the first half of the year on margin improvement and capital management. As for earrings, the GAAP and adjusted earnings both beat their consensus targets growing 66% and 40% respectively. Looking forward, the company is expecting revenue growth to continue at a moderate pace and for the MAP To Growth to generate additional profit leverage.

“Looking ahead to the fiscal 2021 third quarter, we anticipate consolidated sales to grow in the mid-single-digit range with strong leverage to the bottom line for adjusted EBIT growth of 30% or more.”

RPM International Is A Prince Of Dividend Payers

RPM International has been increasing its annual payout for 46 consecutive years and there is no reason to think this trend will end. In fact, with revenue growth in the forecast and leveraged earnings to boot, there is a chance for accelerated dividend growth as well. The company is only paying out about 35% of its earnings now and the consensus figures that is based on are too low. Add in a relatively sound balance sheet and the odds of a more-substantial than usual increase rise significantly. The stock is yielding about 1.70% with shares trading near $88.

The Technical Outlook: RPM Falls But Don’t Expect A Deep Decline

Shares of RPM International are falling in early trading following the 2Q release. The price action is bearish but looks weak and may not result in a very deep decline. The next target for support is near the $86 level which is only about 2.5% lower. Longer-term, it looks like this stock may trade within a range until the spring when a clearer picture of economic reopening and general business conditions emerges.