RPM International (RPM) to Post Q1 Earnings: What’s Up?

RPM International Inc. RPM is scheduled to report first-quarter fiscal 2020 results on Oct 2, before the opening bell.

In fiscal fourth-quarter 2019, the company’s earnings topped the Zacks Consensus Estimate by 8.8% but revenues missed the same by 0.2%. However, RPM International missed the consensus mark in two of the trailing four quarters, with average negative earnings surprise of 6.2%.

In the last reported quarter, its bottom line increased 21.6% year over year. Net sales also improved 2.8% from a year ago, mainly attributed to strong organic growth of 3.5% and 1.9% contribution of acquisitions to sales growth. Yet, labor and distribution costs, along with the adverse effect of transactional foreign exchange continue to impact its results.

How are Estimates Faring?

Let’s take a look at the estimate revision trend in order to get a clear picture of what analysts are thinking about the company prior to the earnings release.

The Zacks Consensus Estimate for earnings per share for the quarter to be reported is currently pegged at 91 cents, remaining unchanged over the past 60 days. This indicates an increase of 75% from the year-ago reported figure of 52 cents per share. Revenues are expected to be $1.49 billion, suggesting a 2.2% year-over-year improvement.

Let’s see how things are shaping up for this announcement.

Key Factors

The company is likely to register modest sales growth during the quarter, mainly due to global macroeconomic factors. For the first quarter of fiscal 2020, it anticipates revenues to be up 1-2% year over year.

Slow construction activities will likely affect sales in North America, the company’s largest market, in the quarter to be reported. In addition, weak economic conditions in South America and Europe also added to the woes. Notably, Europe is RPM International’s second largest market. Translational foreign exchange is expected to be a headwind in the quarter.

Nonetheless, focus on strategic acquisitions to drive top-line growth and gain market share bodes well. The company’s 2020 MAP to Growth operating improvement plan comprising efforts to reduce costs by closing plants, merging IT system, centralizing more of its back-office functions and rationalizing its manufacturing footprint is expected to boost margin and the bottom line despite modest top-line growth. For the fiscal first quarter, the company also projects 20% adjusted EBIT and EPS improvement each, despite tepid sales growth expectation.

Importantly, RPM International has realigned the existing reporting structure into four reportable segments — Consumer Group, Specialty Products Group, Construction Products Group and Performance Coatings Group — to provide greater visibility into the business. Also, from the beginning of the fiscal first quarter, the company will reclassify shipping costs paid to third-party shippers from selling, general and administrative expenses into cost of goods sold.

Meanwhile, increasing costs for distribution and labor have been a major concern for RPM International, which shares space with Nippon Paint Holdings Co., Ltd. NPCPF in Zacks Paints and Related Products industry. That said, the company has been aggressively pursuing price increases to offset the increasing costs and protect gross profit margins. This is likely to contribute to bottom-line growth. In a nutshell, the company’s multi-year restructuring plan — the 2020 Margin Acceleration Plan (“2020 MAP to Growth”) — will help it maintain a balance between its segments’ performance and drive growth.

What Our Model Indicates

Our proven model does not suggest that RPM International is likely to beat estimates in the quarter to be reported. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, that is not the case here, as you will see below.

Earnings ESP: The Earnings ESP for the company is 0.00% as the Most Accurate Estimate and the Zacks Consensus Estimate are both pegged at $1.14. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: RPM International currently has a Zacks Rank #3, which increases the predictive power of ESP. However, the company’s 0.00% ESP makes surprise prediction difficult.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks Worth a Look

Here are some companies, which according to our model have the right combination of elements to post an earnings beat in their respective quarters to be reported.

Lowe's Companies, Inc. LOW has an Earnings ESP of +0.24% and a Zacks Rank #2.

Toll Brothers Inc. TOL has an Earnings ESP of +1.65% and holds a Zacks Rank #3.

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