Why Did RPM’s Industrial Segment See Declining Revenues in 1Q17?



RPM International’s Industrial segment’s revenue in 1Q17

In fiscal 1Q17, RPM International’s Industrial segment reported revenue of $675.8 million, which represented 54% of the company’s total revenue. The company’s Industrial segment is its largest revenue generator. On a year-over-year (or YoY) basis, the segment’s revenue fell marginally by 0.2%. RPM International’s financial reporting period is from June 1 to May 31.

The segment grew organically by 1.2%, and the sales growth from acquisitions had a positive impact on the segment’s revenue of 1%. However, with 50% of the segment’s sales being international, the segment revenue was negatively impacted to the tune of 2.4% because of the foreign exchange translation.

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Industrial segment’s EBIT

RPM International’s Industrial segment reported EBIT (or earnings before interest and taxes) of $91.1 million in fiscal 1Q17, which represents an increase of 5.9% over fiscal 1Q16. The segment’s EBIT margin for 1Q17 stood at 13.5% as compared to 12.7% in 1Q16. This implies an increase of 80 basis points on a year-over-year basis.

Factors influencing the segment

Geographically, this segment had mixed results. The North American commercial construction business continued to post good growth, while the business serving the oil and gas and heavy equipment industries continued its downward trend. The Brazilian business, including Viapol, continued to grow with a combination of acquisitions and internal investments. As mentioned earlier, more than half of the segment’s revenue comes from outside the US, so the segment saw an adverse impact from foreign exchange currency translation on its overall performance. RPM expects the situation to continue for the rest of fiscal 2017.

Investors can invest in RPM International indirectly by investing in the PowerShares DWA Basic Materials Momentum Portfolio (PYZ), which invests 2.8% of its holdings in RPM International as of October 5, 2016. The top holdings of the ETF include PPG Industries (PPG), International Flavors and Fragrances (IFF), and Albemarle (ALB) with weights of 4.2%, 4.3%, and 3.3%, respectively, as of October 6, 2016. In the next parts, we’ll look into RPM’s Specialty segment.


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