Breaking Down RPM International Inc. (RPM) Financial Health: Key Insights for Investors

Understanding RPM International Inc. (RPM) Revenue Streams

Understanding RPM International Inc.’s Revenue Streams

The company generates revenue through several primary sources, including its various segments: Consumer Products Group (CPG), Performance Coatings Group (PCG), Consumer Segment, and Specialty Products Group (SPG). Each segment contributes differently to the overall revenue.

Revenue Breakdown by Segment

Year-over-Year Revenue Growth Rate

The consolidated revenue for Q1 2025 was $1,968.8 million, reflecting a 2.1% decline compared to $2,011.9 million in Q1 2024. The following table highlights the year-over-year growth rates for each segment:

Contribution of Different Business Segments to Overall Revenue

For the three months ended August 31, 2024, the contribution of each segment to total revenue was as follows:

Analysis of Significant Changes in Revenue Streams

In Q1 2025, the CPG segment experienced organic sales growth primarily driven by high-performance building construction projects. However, the Consumer segment faced declines due to reduced DIY sales and customer destocking, leading to a 6.1% decrease in revenue. The overall consolidated revenue declined by 2.1%, influenced by unfavorable foreign exchange translations and a decline in demand across some segments.

The following table summarizes the significant changes in revenue streams:

A Deep Dive into RPM International Inc. (RPM) Profitability

Profitability Metrics

Gross Profit Margin: The gross profit margin for the three months ended August 31, 2024, was 42.5%, compared to 41.2% for the same period in 2023. This increase of approximately 1.3% or 130 basis points resulted primarily from operational efficiency improvements and cost management initiatives.

Operating Profit Margin: The operating profit margin for the latest quarter was 11.6% of net sales, up from 10.0% a year earlier. This reflects effective cost control measures and enhanced operational efficiencies.

Net Profit Margin: The net profit margin for the three months ended August 31, 2024, was 11.6%, compared to 10.0% for the same period in 2023.

Trends in Profitability Over Time

The trends in profitability metrics show a consistent improvement in gross, operating, and net profit margins over the past year. The net income attributable to stockholders was $227.7 million for the quarter, an increase from $201.1 million the previous year.

Comparison of Profitability Ratios with Industry Averages

Analysis of Operational Efficiency

The operational efficiency is highlighted by a decrease in Selling, General and Administrative (SG&A) expenses to 26.7% of net sales, down from 26.4% the previous year. This reduction was attributed to lower bad debt expenses and effective cost management strategies.

Additionally, the consolidated SG&A expense decreased by $4.9 million compared to the same period last year.

Debt vs. Equity: How RPM International Inc. (RPM) Finances Its Growth

Debt vs. Equity: How RPM International Inc. Finances Its Growth

As of August 31, 2024, the company's total debt, including the current portion, stood at $2,052.2 million, with a fair value of $1,958.8 million . This represents a decrease from the previous quarter, where the total debt was $2,127.1 million .

The debt-to-equity ratio is a critical measure of financial leverage. RPM International Inc. reported a debt-to-equity ratio of 0.77, which is below the industry average of approximately 1.0, indicating a conservative approach to leveraging .

In the recent quarter, RPM International Inc. issued $37.8 million in new borrowings on its revolving credit facility while repaying $130.0 million on its accounts receivable securitization program . The company’s interest expense for the quarter was $24.4 million, down from $31.8 million in the same period last year, reflecting a reduction in average interest rates to 4.57% .

The company’s total equity as of August 31, 2024, was $2,651.5 million, an increase from $2,512.2 million as of May 31, 2024 . This growth in equity occurred alongside an increase in net income attributable to shareholders, which reached $227.7 million for the quarter .

RPM International Inc. maintains a balanced approach between debt financing and equity funding. The company has a $1.44 billion liquidity position, comprising cash, cash equivalents, and available credit . This robust liquidity enables the company to invest in growth opportunities while managing its debt levels prudently.

In summary, RPM International Inc.'s financial strategy emphasizes a careful balance between debt and equity, with strong liquidity and a favorable debt-to-equity ratio that positions the company well for future growth and stability.

Assessing RPM International Inc. (RPM) Liquidity

Assessing RPM International Inc. Liquidity

Current Ratio: As of August 31, 2024, the current ratio stood at 1.40, indicating a healthy liquidity position with current assets of $2.96 billion against current liabilities of $2.11 billion.

Quick Ratio: The quick ratio was calculated at 1.02, reflecting a strong ability to meet short-term obligations without relying on inventory.

Analysis of Working Capital Trends

Working capital, defined as current assets minus current liabilities, was approximately $850 million as of August 31, 2024. This is an increase from $780 million reported in the previous fiscal year, demonstrating effective management of operational cash flow.

Cash Flow Statements Overview

Operating Cash Flow

For the first quarter of fiscal 2025, cash provided by operating activities was $248.1 million, a decrease from $359.2 million in the same quarter of the previous year. This decline was attributed to increased cash outflow from inventory purchases and changes in accounts receivable.

Investing Cash Flow

Cash used in investing activities was $64.1 million, slightly higher than $61.5 million in the prior year, driven mainly by business acquisitions.

Financing Cash Flow

Cash used in financing activities amounted to $186.0 million, down from $274.3 million in the same period last year. This decrease was primarily due to lower repayments on the accounts receivable securitization program.

Liquidity Concerns or Strengths

Despite a reduction in operating cash flow, the company maintains a solid liquid position with total available liquidity of $1.44 billion as of August 31, 2024, compared to $1.36 billion at the end of May 2024. This includes cash and cash equivalents along with amounts available under committed credit facilities.

Is RPM International Inc. (RPM) Overvalued or Undervalued?

Valuation Analysis

Price-to-Earnings (P/E) Ratio

The current P/E ratio is 65.0. The diluted earnings per share for the latest quarter are $1.77, compared to a trailing twelve-month (TTM) earnings per share of $2.94 as of August 31, 2024.

Price-to-Book (P/B) Ratio

The P/B ratio stands at 3.02, with total equity reported at $2.65 billion and the current stock price at approximately $115.02.

Enterprise Value-to-EBITDA (EV/EBITDA) Ratio

The EV/EBITDA ratio is calculated at 18.5, with an enterprise value of approximately $3.9 billion and EBITDA for the last twelve months reported at $211 million.

Stock Price Trends

In the last 12 months, the stock price has shown the following trends:

• 12-month high: $123.50
• 12-month low: $95.00
• Current stock price: $115.02

Dividend Yield and Payout Ratios

The dividend yield is 1.6%, with a quarterly dividend of $0.46 per share. The payout ratio stands at 26% based on the diluted earnings per share.

Analyst Consensus on Stock Valuation

The analyst consensus rating for the stock is Hold, with a target price range of $110 to $120.

Key Risks Facing RPM International Inc. (RPM)

Key Risks Facing RPM International Inc.

The financial health of the company is influenced by a variety of internal and external risk factors. Understanding these risks is crucial for investors looking to gauge the potential impact on financial performance.

Industry Competition

Intense competition within the construction and industrial products sector presents a significant risk. The company competes with numerous players, which can lead to price pressures and reduced margins. In the first quarter of fiscal 2025, the consumer segment experienced a 6.1% decline in net sales, primarily attributed to negative volume impacts and competitive pressures.

Market Conditions

Fluctuations in market demand can affect the company’s revenue streams. In the three months ended August 31, 2024, consolidated net sales were $1.97 billion, down from $2.01 billion in the prior year, reflecting a 2.1% decline. This drop was influenced by adverse market conditions and shifts in consumer preferences.

Regulatory Changes

Changes in regulations, particularly regarding environmental standards and safety compliance, pose risks to operational costs and procedures. The company continuously monitors regulatory developments to mitigate potential impacts on operations and finances.

Operational Risks

Operational inefficiencies, particularly related to supply chain disruptions, can adversely impact the company’s ability to meet customer demand. The net change in cash from operations for the first three months of fiscal 2025 decreased by $111.1 million compared to the previous year due to increased inventory purchases.

Financial Risks

Financial risks include fluctuations in interest rates and foreign exchange rates, which can affect profitability. The company reported interest expenses of $24.4 million in the first quarter of fiscal 2025. Additionally, foreign currency translation adjustments resulted in a $3.8 million loss during the same period.

Strategic Risks

Strategic misalignment, particularly in acquisitions and new market entries, can lead to financial underperformance. The company has made significant investments in acquisitions, with cash used for business acquisitions totaling $6.2 million in the first quarter of fiscal 2025. The effectiveness of these strategies is critical for sustained growth.

Mitigation Strategies

To address these risks, the company has implemented various mitigation strategies including:

• Continuous monitoring of market trends and competitor actions to adapt pricing strategies.
• Investment in supply chain resilience to reduce the impact of disruptions.
• Engagement with regulatory bodies to stay ahead of compliance requirements.
• Strategic planning and assessment of acquisition targets to ensure alignment with long-term goals.

Financial Overview Table

Future Growth Prospects for RPM International Inc. (RPM)

Future Growth Prospects for RPM International Inc.

Analysis of Key Growth Drivers

The company is focused on several growth drivers, including product innovations, market expansions, and acquisitions. For instance, the CPG segment saw organic sales growth of 1.4% during the first quarter of fiscal 2025, attributed to advancements in turnkey roofing systems and wall systems for high-performance construction.

In terms of market expansion, the company is targeting emerging markets, which have shown improved demand, particularly in the flooring business. The strategic MAP 2025 initiative aims to enhance operational efficiency and streamline processes, contributing to long-term growth.

Future Revenue Growth Projections and Earnings Estimates

Revenue projections indicate a consolidated revenue of $1.97 billion for the first quarter of fiscal 2025, reflecting a 2.1% decline compared to the previous year. However, the CPG segment's revenue growth, coupled with strategic cost management, suggests potential for recovery and growth in subsequent quarters.

Analysts estimate earnings per share (EPS) at $1.77 for the first quarter of fiscal 2025, an increase from $1.56 in the previous year. This improvement in EPS is supported by increased net income, which rose to $228.6 million, or 11.6% of net sales.

Strategic Initiatives or Partnerships That May Drive Future Growth

The company has engaged in strategic acquisitions, spending $6.2 million on business acquisitions in the first quarter of fiscal 2025. These acquisitions are part of a broader strategy to enhance market presence and product offerings, particularly in high-growth areas.

Additionally, partnerships in emerging markets are anticipated to bolster revenue streams, particularly in the flooring and specialty products segments, which are expected to benefit from increased construction activities.

Competitive Advantages That Position the Company for Growth

The company benefits from a strong brand portfolio and established market presence across various segments, including Consumer, Professional, and Specialty Products. The MAP 2025 initiative has also contributed to improved gross profit margins, which increased from 41.2% to 42.5% year-over-year.

Furthermore, the company maintains a robust liquidity position, with available liquidity of $1.44 billion as of August 31, 2024, providing the financial flexibility to invest in growth initiatives.

The strategic focus on innovation and operational efficiency, coupled with a strong liquidity position, positions the company well for navigating market challenges and capitalizing on growth opportunities in the future.