RPM Stock Slides After Q2 Revenue Miss and Weak Consumer Demand
Shares of the specialty chemicals maker fell after revenue fell short of estimates and the company pointed to soft DIY demand, offsetting strength in construction and coatings.
Shares of RPM International Inc. (RPM) declined in trading on Thursday after the specialty coatings and sealants manufacturer reported second-quarter sales that missed Wall Street expectations, citing a slump in its consumer-facing businesses.
The Medina, Ohio-based company saw its stock fall approximately 2.2% after announcing that consolidated revenue for the quarter ending November 30, 2023, was $1.79 billion. This figure fell short of analyst consensus estimates, which were pegged closer to $1.83 billion. The company posted adjusted earnings per share of $1.22, missing some analyst projections which ranged from $1.23 to $1.41.
Driving the weaker-than-expected top line was a notable softness in the company’s Consumer Group, which saw sales decrease by 5.2% compared to the prior year. RPM attributed the decline to a challenging do-it-yourself (DIY) market and ongoing inventory reductions by retailers. Its Specialty Products Group also faced headwinds, with sales declining 16.6%, impacted by lower demand in specialty OEM markets.
"The second quarter presented a mixed demand environment, with continued momentum in our businesses that serve construction and infrastructure markets, and soft conditions in our consumer-facing and specialty OEM businesses," Frank C. Sullivan, RPM's chairman and CEO, stated in the company's quarterly earnings release.
Despite the consumer-side weakness, RPM delivered strong performance in other key areas. The Construction Products Group was a bright spot, with sales growing 8.1% year-over-year, driven by robust demand for building materials and solutions for infrastructure projects. The Performance Coatings Group also reported a solid 5.1% increase in sales, benefiting from high-performance building and maintenance activity.
This bifurcated result highlights a divergence in the post-pandemic economy. While large-scale infrastructure and construction spending remain resilient, the surge in home improvement projects that defined the lockdown era has continued to wane, impacting companies exposed to the DIY consumer.
Overall, the company's adjusted EBIT for the second quarter decreased by 14.8% to $193.5 million. Still, the company touted its ability to achieve record second-quarter net income despite the mixed sales environment, crediting its MAP 2025 (Margin Achievement Plan) operational improvement initiatives for helping to bolster profitability.
Looking ahead, RPM updated its guidance for the full fiscal year 2024. While it affirmed its outlook for adjusted EBIT growth in the low-double-digit to mid-teen percentage range, it revised its sales forecast. The company now expects consolidated sales growth to be in the low-single-digit range, a downgrade from previous expectations. For the third quarter, RPM anticipates nearly flat sales but projects strong adjusted EBIT growth between 25% and 35%, banking on continued strength in its construction and performance coatings segments.
The market's reaction reflects concerns over the slowing consumer segment and the tempered sales outlook. Even with a majority of analysts holding a 'Buy' or 'Strong Buy' rating on the stock ahead of the report, with an average price target around $130, the results introduce a note of caution for investors betting on the specialty materials sector.