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Impairment Charges Dent RPM International’s Consumer Segment

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Consumer segment

The Consumer segment is the second-largest revenue contributor to RPM International’s (RPM) overall revenue. The segment had a revenue share of 33.4% in fiscal 3Q17. The segment reported revenue of $341.40 million in 3Q17—a marginal increase of 0.7% on a YoY (year-over-year) basis. Acquisition-related sales increased the segment’s revenue 5.1% due to contributions from recent acquisitions. On the other hand, organic growth fell 3.6% due to continued deterioration in RPM’s nail enamel products. The revenue from this business fell 37% on a YoY basis.

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Segment’s EBIT

RPM International’s Consumer segment reported EBIT (earnings before interest and tax) of $29.90 million in fiscal 3Q17 compared to $38.76 million in fiscal 3Q16—a decline of 22.9%. The segment’s lower EBIT was primarily driven by the impairment charge and acquisition-related expenses. Frank Sullivan, the company’s chairman and CEO, said, “The decline in organic sales was driven by the timing of orders from our retail customers during the quarter. Impacting segment earnings for the quarter was the Restore impairment charge, along with acquisition-related expenses and the impact on the cost of sales relating to the step-up in inventory.”

Segment’s outlook

Strong demand in the housing market and new products are expected to drive the segment’s revenue. Acquisitions in the third quarter are expected to contribute to the segment’s revenue. However, the deteriorating performance of the nail enamel business is a concern for RPM’s Consumer segment.

Specialty segment highlights

The Specialty segment represents 15.6% of the RPM’s total revenue in 3Q17. The segment reported revenue of $159.7 million compared to $156.90 million in 3Q16—an increase of 1.8% on a YoY basis. The rise in revenue was primarily driven by acquisition-related revenue. Closure of the European facility also hampered its revenue growth.

Investors can invest in RPM International indirectly by investing in the iShares U.S. Basic Materials ETF (IYM). IYM invested 1.2% of its portfolio in RPM. The fund’s top holdings include Dow Chemical (DOW), DuPont (DD), and Monsanto (MON). They have weights of 11.7%, 11.5%, and 8.4%, respectively, as of April 6, 2017.

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