uploads/2018/04/Part-4-post-earnings-Consumer-segment-3Q18-1.png

Why RPM’s Consumer Earnings Margins Narrowed

By

Updated

RPM’s Consumer segment

RPM International’s (RPM) Consumer segment is the second-biggest contributor to RPM’s overall revenue. The segment had a revenue share of 33% in fiscal 3Q18, compared with 33.4% in fiscal 3Q17, marking a decline of 0.4 percentage points YoY (year-over-year). The segment’s revenue grew 6.4% to $363.4 million in fiscal 3Q18 from $341.4 million in fiscal 3Q17.

The segment’s revenue growth was primarily headed by acquisition growth, which totaled 4.2%. Foreign currency exchange boosted the segment’s revenue growth by 1.5%, and organic sales improved by 0.7%, driven by caulks and sealants.

Article continues below advertisement

Earnings and margins

In fiscal 3Q18, RPM’s Consumer segment reported EBIT (earnings before interest and tax) of $29.3 million, compared with $29.9 million in fiscal 3Q17, implying a decline of 2.1% YoY. As a result, the segment’s margin narrowed 70 basis points. The decline in the segment’s EBIT and EBIT margin was due to an intangible impairment charge related to the Synta product line.

Outlook

Acquisition-related growth is expected to continue to be this segment’s main driver. However, organic growth is a concern. RPM plans to advertise to boost sales. The segment may also benefit from foreign currency exchange.

Investors seeking indirect exposure to RPM International could consider the SPDR S&P Dividend ETF (SDY), which has invested 1.0% of its holdings in RPM. The fund’s other holdings include Caterpillar (CAT), Praxair (PX), and 3M (MMM), which had weights of 0.75%, 0.8%, and 0.80%, respectively, as of April 6, 2018. In the next part, we’ll look at RPM International’s Specialty segment’s performance in fiscal 3Q18.

Advertisement

More From Market Realist