MEDINA, OH - RPM International Inc. reported record sales for its fiscal 2015 third quarter ended February 28, 2015, but incurred an as-reported loss for the quarter due to a one-time, non-cash net charge for a tax accrual related to the possible repatriation of overseas earnings to fund future obligations for the company's Specialty Products Holding Corp. (SPHC) settlement.
SPHC and its Bondex subsidiary emerged from bankruptcy on December 23, 2014, following approval of a plan of reorganization by the United States Bankruptcy Court in Delaware and the United States District Court in Delaware. The plan included the establishment of a 524(g) trust to assume their current and future asbestos personal injury liability claims, and absolved SPHC and Bondex from any further asbestos liability. An initial $450.0 million payment was made to the trust using funds from RPM's revolving line of credit in December 2014.
While SPHC and its operating units continued to be owned by RPM during the bankruptcy process, which began May 31, 2010, their financial results were not included in RPM's consolidated results. SPHC results were reconsolidated, effective January 1, 2015, and RPM's fiscal 2015 third-quarter results reflect two months of SPHC operations. SPHC operating units include Day-Glo Color, Dryvit Systems, Kop-Coat, RPM Wood Finishes Group, TCI, ValvTect Petroleum Products and Chemical Specialties Manufacturing.
"We are delighted to have these great management teams and companies back in the fold at RPM. During the period while they were deconsolidated, they demonstrated significant organic growth with current-day sales of more than $400 million on an annualized basis and developed some very exciting new products," said Frank C. Sullivan, RPM Chairman and Chief Executive Officer.
Third-Quarter Results
Net sales grew 9.6% to $946.4 million in the fiscal 2015 third quarter from $863.4 million in the fiscal 2014 third quarter. Consolidated earnings before interest and taxes (EBIT) were $34.2 million, down 7.9% from $37.2 million a year ago. The as-reported loss for the quarter was $57.3 million, or $0.44 per diluted share, compared to fiscal 2014 third-quarter net income of $16.2 million, or $0.12 per diluted share. Fiscal 2015 third-quarter results reflected the impact of the non-cash, net charge of $83.5 million for the tax accrual.
Excluding the non-cash, net charge, on an as-adjusted basis, fiscal 2015 third-quarter net income grew 61.2% to $26.2 million, or $0.20 per diluted share. This includes approximately $0.05 per share of unfavorable foreign currency impact, and $0.01 per share of dilution attributable to SPHC, due principally to inventory step-up expense and the non-recurring charges associated with the SPHC settlement, which offset the otherwise positive performance from the reconsolidated companies.
Third-Quarter Segment Sales and Earnings
Industrial segment sales grew 10.6% to $620.0 million from $560.5 million in the fiscal 2014 third quarter. Organic sales improved 5.5%, while acquisitions added 12.4%. The reconsolidated SPHC businesses, all of which are in RPM's industrial segment, are included in acquisition growth. Foreign currency negatively impacted sales by 7.3%. Industrial segment EBIT for the quarter, including $5.0 million in stepped-up inventory expense from SPHC, was $18.2 million, a 19.6% decline from EBIT of $22.7 million a year ago.
Sales in RPM's consumer segment increased 7.8% to $326.4 million from $302.9 million in the fiscal 2014 third quarter. Organic sales increased 9.1%, while acquisitions added 1.2%. Foreign currency negatively impacted sales by 2.5%. Consumer segment EBIT increased 13.9% to $35.0 million from $30.8 million a year ago.
Business Outlook
"For the fourth quarter of our fiscal year, we expect our consumer segment to benefit from continued innovation and consistent growth in consumer DIY spending. In our industrial segment, we do not see a near-term turnaround in the European economies and expect a very strong U.S. dollar to continue negatively impacting results," said Sullivan. "Our businesses serving the energy sector are beginning to see the effects of a slowdown in production due to the decline in oil prices. However, we do expect continued positive momentum in our businesses serving the U.S. commercial construction markets."
"Based on these factors, along with an anticipated benefit from the SPHC companies in the fourth quarter, we expect to be at the upper end of our current EPS guidance range of $2.25 to $2.30 per share for the full 2015 fiscal year, on an as-adjusted basis."
"From a longer-term perspective, we are optimistic given the return of our SPHC businesses and the elimination of their asbestos liability. We can now accelerate growth investments in our businesses and more aggressively return capital to shareholders when appropriate," said Sullivan.