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How RPM International Fared in Fiscal 1Q18

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Part 3
How RPM International Fared in Fiscal 1Q18 PART 3 OF 6

How RPM’s Industrial Segment Performed in Fiscal 1Q18

RPM’s Industrial segment

RPM International’s (RPM) Industrial segment had the highest contribution to RPM’s overall revenue. This segment had a revenue share of 54.1% in fiscal 1Q18 as compared to 54.0% in fiscal 1Q17. The segment reported revenue of $729.80 in fiscal 1Q18 as compared to $675.80 in fiscal 1Q17, which implies revenue growth of 8.0% on a year-over-year basis.

How RPM&#8217;s Industrial Segment Performed in Fiscal 1Q18

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The segment’s revenue growth was primarily driven by the combination of 4.3% acquisition growth and 3.2% organic growth. The segment benefitted by 0.5% due to favorable foreign currency. Regionally, some European units showed improved performances. On the other hand, Brazil saw a slowdown due to political instability. Also, RPM’s business, which caters to the oil and gas segment, weakened, impacting the segment’s revenue adversely.

Segment’s EBIT and margins

In fiscal 1Q18, RPM’s Industrial segment reported EBIT (earnings before interest and taxes) of $91.5 million as compared to $91.1 million in fiscal 1Q17, which implies growth of 0.40% on a year-over-year basis. The increase in EBIT was primarily driven by the reduction in the segment’s selling, general, and administrative expenses as a percentage of sales.

However, the segment’s EBIT margin fell by 100 basis points in fiscal 1Q18. The higher cost of sales due to an increase in raw materials has adversely impacted the segment’s margin. The segment’s revenue growth outpaced the EBIT growth on a year-over-year basis.

Outlook

RPM expects mid-single-digit revenue growth in the industrial segment for the remaining fiscal 2018, as it expects a recovery in the business that caters to the oil and gas segment in the second half. RPM also expects re-alignment in the segment, which could help to improve the EBIT and EBIT margin. However, the expected increase in the raw material prices might adversely impact its margins.

Investors looking to invest in RPM International indirectly can invest in the iShares U.S. Basic Materials ETF (IYM), which has invested 1.1% of its holdings in RPM. The other holdings of the fund include Monsanto (MON), Praxair (PX), and Air Products and Chemicals (APD), which have weights of 8.6%, 6.7%, and 5.5%, respectively, as of October 4, 2017.

In the next part, we’ll look into the performance of RPM International’s Consumer Segment performance in fiscal 1Q18.

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