RPM Shares Tumble After Weak Construction Demand Hits Q2 Earnings
The specialty chemicals maker missed analyst forecasts and announced a $100 million cost-saving plan, citing project delays from a government shutdown and margin pressures.
Shares of RPM International Inc. (NYSE: RPM) fell more than 3% after the specialty coatings and sealants manufacturer reported second-quarter financial results that missed Wall Street expectations, citing a slowdown in the construction market and operational headwinds.
The Medina, Ohio-based company posted adjusted earnings of $1.20 per share for the quarter ending November 30, significantly below analyst estimates of $1.41. While RPM achieved record quarterly sales of $1.91 billion, this figure also fell short of the consensus forecast of $1.93 billion. In morning trading following the announcement, the stock dropped approximately 3.3% to $101.41.
While total sales grew 3.5% year-over-year, the increase was primarily driven by acquisitions. According to the company's official earnings release, organic sales declined by 0.5%, signaling underlying weakness in its core markets. Net income attributable to RPM stockholders was $161.2 million, a notable decrease from $183.2 million in the prior-year period.
Frank C. Sullivan, RPM's chairman and chief executive, pointed to a challenging market environment for the disappointing results. “Sales were at the low end of our guidance as a prolonged government shutdown contributed to further slowing in lead times on construction projects and pressured consumer sentiment," Sullivan stated. He noted that sales growth, which was positive at the start of the quarter, turned negative as the period progressed.
Sullivan also disclosed that the company faced "temporary margin headwinds from the consolidation of several plant and warehouse facilities." This, combined with lower-than-expected sales, prevented the company from leveraging recent growth investments.
In response to the challenging conditions and to bolster profitability, RPM announced a new strategic cost-saving initiative. The company is implementing an SG&A-focused optimization plan expected to generate approximately $100 million in annualized savings. RPM anticipates realizing about $5 million of these benefits in the third quarter of fiscal 2026, with an additional $20 million in the fourth quarter and the remaining $75 million in fiscal 2027.
Despite the quarterly miss, RPM's management provided a cautiously optimistic outlook. For the fiscal third quarter, the company forecasts mid-single-digit sales growth and an increase in adjusted EBIT in the mid- to high-single digits. For the full fiscal year, the company maintained its guidance for mid-single-digit percentage growth in both sales and adjusted EBIT, aided by the new cost-saving measures.
Prior to the report, RPM's stock had been trading near the middle of its 52-week range of $93.92 to $128.50. The company, which has a market capitalization of approximately $13.75 billion, is a global leader in specialty chemicals for the industrial, consumer, and construction markets, with brands including Rust-Oleum, DAP, and Tremco.