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Why RPM’s Industrial Segment Grew in Fiscal 3Q18

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RPM’s Industrial segment

RPM International’s (RPM) Industrial segment has been the largest contributor to RPM’s overall revenue, comprising 51.6% of revenue in fiscal 3Q18 and 51.0% in fiscal 3Q17. YoY (year-over-year), its share grew 0.6 percentage points. The segment’s revenue grew 9.2% YoY to $569.2 million in fiscal 3Q18 from $521.4 million in fiscal 3Q17.

The segment’s revenue growth was primarily driven by acquisition and organic growth. Organic sales grew 2.2% while acquisition revenue grew 2.8%. Whereas RPM’s Tremco Roofing and international polymer flooring businesses performed well, the Brazilian market remained the weakest link and Europe’s performance was mixed. Foreign currency exchange boosted the segment’s revenue by 4.2%.

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Earnings and margins

In fiscal 3Q18, RPM’s Industrial segment reported EBIT (earnings before interest and taxes) of $20.3 million, compared with $14.6 million in fiscal 3Q17, which implies 39.0% growth. The segment’s revenue and EBIT growth have resulted in the segment’s EBIT margin improving by 80 basis points, from 2.8% to 3.6%. The EBIT and EBIT margin growth was primarily due to a reduction in the segment’s selling, general, and administrative expenses as a percentage of sales.

Outlook

RPM expects the segment to grow by mid-to-upper single digits, led by the Tremco Roofing business. Foreign currency exchange is expected to boost the segment’s revenue growth. RPM’s aim to improve operational efficiency could help the segment’s EBIT margins.

Investors seeking indirect exposure to RPM International could consider the iShares US Basic Materials ETF (IYM), which has invested 1.0% of its holdings in RPM. The fund’s other holdings include Monsanto (MON), Praxair (PX), and Air Products and Chemicals (APD), which had weights of 8.0%, 6.4%, and 5.5%, respectively, as of April 6, 2018. In the next part, we’ll look at how RPM International’s Consumer segment performed in fiscal 3Q18.

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