RPM Reports Record Fiscal 2018 Second-Quarter Results

• Record second-quarter sales improve 10.5%
• Record net income of $95.5 million compares to loss for the fiscal
  2017 quarter of $70.9 million due to impairment and business exit
  charges
• Record earnings per diluted share of $0.70 compare to year-ago loss
  per share of $0.54 and “adjusted” year-ago earnings per share of $0.52
• Fiscal 2018 guidance increased

MEDINA, Ohio–(BUSINESS WIRE)–RPM
International Inc. (NYSE:RPM) today reported record sales, net
income and diluted earnings per share for its fiscal 2018 second quarter
ended November 30, 2017. Sales increased 10.5% and net income of $95.5
million, or $0.70 per diluted share, compared to a year-ago net loss of
$70.9 million, or loss of $0.54 per diluted share. The fiscal 2017
second-quarter results included a $188.3 million pre-tax ($129.2 million
or $0.97 per diluted share, after-tax) impairment charge. The fiscal
2017 second-quarter results also included a charge of $12.3 million, or
$0.09 per share, which had no tax impact, related to the decision to
exit an industrial segment business in the Middle East.

Second-Quarter Results

Net sales of $1.32 billion were up 10.5% over the $1.19 billion reported
a year ago. Organic sales improved 4.2% and acquisition growth added
4.7%. Foreign currency translation increased sales by 1.6%. Net income
of $95.5 million compares to last year’s adjusted net income of $70.5
million. Earnings per diluted share of $0.70 in the current quarter,
which included a $0.09 per diluted share tax benefit relative to last
year’s tax rate, compare to an adjusted $0.52 per diluted share last
year. Earnings per diluted share increased 34.6% from last year’s
adjusted earnings per diluted share of $0.52, and increased 17.3%
excluding the $0.09 per diluted share tax benefit. Income before income
taxes (IBT) of $109.2 million compares to a loss before income taxes of
$106.9 million reported in the fiscal 2017 second quarter. RPM's
consolidated earnings before interest and taxes (EBIT) of $131.8 million
compare to a consolidated loss before interest and taxes of $86.4
million reported in the fiscal 2017 second quarter. Excluding the
year-ago charges, RPM’s consolidated EBIT for the fiscal 2018 second
quarter improved 15.4% over $114.2 million in the fiscal 2017 second
quarter. The EBIT improvement of 15.4% included the cost savings benefit
in “Corporate/Other” expenses of $11.1 million from lower pension,
healthcare, acquisition-related expenses and professional fees.

“We were very pleased with RPM’s results during the fiscal second
quarter. Our strategically balanced business model performed as intended
with strength in our industrial and specialty businesses offsetting
weakness in our consumer segment. Sales growth was strong across all
three of our business segments, with a balance of organic and
acquisition growth. We are also seeing the benefits of last year’s
product line acquisitions and cost reduction efforts on improved
leverage, which more than offset higher raw material costs that have
negatively impacted gross profit margins,” stated Frank C. Sullivan,
chairman and chief executive officer.

Second-Quarter Segment Sales and Earnings

During the fiscal 2018 second quarter, industrial segment sales
increased 11.0%, to $702.9 million from $633.4 million in the fiscal
2017 second quarter. Organic sales improved 5.4%, while acquisition
growth added 3.3%. Foreign currency translation increased sales by 2.3%.
IBT for the industrial segment increased 34.6%, to $67.7 million from
$50.3 million in the fiscal 2017 second quarter. Industrial segment EBIT
increased 34.5%, to $70.2 million from $52.2 million in the fiscal 2017
second quarter. Industrial segment EBIT was up 8.9% over an adjusted
$64.5 million in the fiscal 2017 second quarter, excluding last year’s
charge to exit a Middle Eastern flooring business.

“Our strong organic sales growth of 5.4% in the industrial segment was
driven by North American roofing and those businesses providing polymer
flooring to commercial and industrial markets. We also saw a slight
rebound in our companies serving the oil and gas industry, which
reported positive organic year-over-year sales growth for the first time
in three years. We continue to see mixed results from our industrial
businesses in Europe, while Latin American industrial operations,
particularly in Brazil, continue to struggle. EBIT margins were
negatively impacted by higher raw material costs and unfavorable
transactional foreign currency exchange,” Sullivan stated.

RPM’s fiscal 2018 second-quarter consumer segment sales increased 11.1%,
to $415.4 million from $373.8 million a year ago. Organic sales
increased 3.0%, while acquisition growth added 7.3%. Foreign currency
translation increased sales by 0.8%. The consumer segment had IBT of
$45.1 million, compared to a loss before income taxes of $140.6 million
in the fiscal 2017 second quarter. The segment reported EBIT of $45.2
million, compared to a loss before interest and taxes of $140.6 million
reported last year. EBIT was off 5.3% from an adjusted $47.7 million in
the fiscal 2017 second quarter, which excludes the impairment charge
related to RPM’s consumer nail enamel business.

“During the quarter, we saw a sharp uptick in business from caulks and
sealants products, as well as some international markets. The segment
also benefited from last year’s acquisitions of Touch ‘N Foam in the
U.S. and SPS in Europe. The decline in EBIT resulted from higher raw
material costs and unfavorable manufacturing absorption and product
mix,” stated Sullivan.

Second-quarter sales for the specialty segment increased 7.4%, to $197.1
million from $183.6 million in the fiscal 2017 second quarter. Organic
growth was 2.8%, while acquisitions added 3.8%. Foreign currency
translation increased sales by 0.8%. IBT for the specialty segment
increased 10.5%, to $34.4 million from $31.2 million in the fiscal 2017
second quarter. Specialty segment EBIT improved 10.8%, to $34.4 million
from $31.0 million a year ago.

“We experienced strong growth in many of our specialty segment product
lines, particularly U.S.-based restoration service businesses, with
higher than normal sales volumes into the hurricane impacted regions
prior to and after the storms, as well as powder coatings and wood
finishes, after overcoming lost sales from last year’s closure of an
unprofitable European business and recent patent expiration. We were
able to mitigate the negative impact of the patent expiration by
retaining most of our larger customers,” Sullivan stated.

Cash Flow and Financial Position

For the first half of fiscal 2018, cash from operations was $115.2
million, compared to $158.7 million a year ago. Capital expenditures of
$45.3 million compared to $48.0 million during the first half of last
year. Total debt at November 30, 2017 was $2.14 billion, compared to
$1.64 billion at November 30, 2016 and $2.1 billion at May 31, 2017.
RPM’s net (of cash) debt-to-total capitalization ratio was 53.8%,
compared to 52.8% at November 30, 2016. At November 30, 2017, liquidity
stood at $971.7 million, including cash of $267.9 million and $703.8
million in long-term committed available credit.

First-Half Sales and Earnings

Fiscal 2018 first-half net sales improved 8.9%, to $2.66 billion from
$2.44 billion during the first six months of fiscal 2017. Organic growth
was 2.5%, acquisitions added 5.5% and positive foreign currency
translation added 0.9%. Net income improved 406.4%, to $211.9 million
from $41.8 million in the fiscal 2017 first half. Diluted earnings per
share were $1.56, up 387.5% from $0.32 a year ago. IBT of $264.5 million
was up 535.5% over the $41.6 million reported in the fiscal 2017 first
half. EBIT of $309.4 million was 281.8% above the $81.0 million reported
last year. Excluding the impairment and Middle East business exit charge
in fiscal 2017, fiscal 2018 first half EBIT was up 9.9% over an adjusted
$281.6 million last year.

First-Half Segment Sales and Earnings

RPM’s industrial segment fiscal 2018 first-half sales were up 9.4%, to
$1.43 billion from $1.31 billion in the fiscal 2017 first half. Organic
sales increased 3.8%, while acquisition growth added 4.2%. Foreign
currency translation increased sales by 1.4%. IBT for the industrial
segment increased 12.2%, to $156.6 million from $139.6 million in fiscal
2017. EBIT of $161.7 million was up 12.8% from $143.3 million in the
first half last year. Excluding the Middle East business exit charge
last year, industrial segment EBIT increased 3.9%, from $155.6 million a
year ago.

First-half sales for the consumer segment improved 8.9%, to $842.6
million from $773.7 million a year ago. Organic sales were flat, but
acquisition growth added 8.5% and foreign currency translation increased
sales by 0.4%. The consumer segment reported IBT of $117.5 million,
compared to a loss before interest and taxes of $70.5 million in the
year-ago first half. EBIT of $117.8 million compares to a loss before
interest and taxes in the fiscal 2017 second quarter of $70.5 million.
Consumer segment EBIT was essentially flat to an adjusted EBIT of $117.8
million last year, excluding the impairment charge.

Specialty segment sales grew 7.1%, to $385.6 million from $359.9 million
in the 2017 first half. Organic growth was 2.9%, while acquisitions
added 3.9%. Foreign currency translation increased sales by 0.3%. IBT
for the specialty segment increased 9.6%, to $67.6 million from $61.7
million in fiscal 2017. For the first half of fiscal 2018, specialty
segment EBIT increased 9.8%, to $67.4 million from $61.4 million a year
ago.

Business Outlook

“In our industrial segment, we expect steady results during the second
half of the fiscal year from our North American commercial
construction-related businesses, aided by higher sales in regions
impacted by hurricanes, as well as continued positive results from our
businesses serving the oil and gas markets. Our business in Brazil seems
to have bottomed out and should be neutral in the back half. Overall,
the global economy is improving and currency translation is favorable.
Additionally, we are driving improved operating leverage throughout the
entire industrial segment by continually pursuing additional cost
savings and efficiencies. With this global backdrop, industrial segment
sales growth for the balance of the fiscal year should be in the
upper-single-digit range,” stated Sullivan.

“In the consumer segment, we expect sales growth in the
low-to-mid-single-digit range during the back half of the fiscal year.
Most of the growth will be organic, as last year’s acquisitions
annualize their purchase date during the third quarter. We plan to
invest in our great brands by stepping up advertising and promotional
activity in the spring sell-in season and, therefore, expect back-half
earnings results to be fairly flat to last year in this segment,” he
stated.

“In the specialty segment, we expect sales growth in the
low-single-digit range during the back half of the fiscal year. This,
too, will be mostly organic as last year’s acquisitions also annualize
their purchase date during the third quarter. We will continue to face
headwinds from the patent expiration through the first quarter of fiscal
2019,” he stated.

“In aggregate, our operations have performed in line with our
expectations when we issued our fiscal 2018 guidance back in July, and
we would expect this trend to generally continue in the back half of
this fiscal year. In regard to our taxes, our 19.6% effective tax rate
for the first six months has been better than expected. We approved and
completed certain foreign legal entity restructurings that resulted in
the recognition of favorable discrete tax benefits that reduces our
annual effective tax rate from the rate utilized for our current EPS
guidance,” Sullivan stated.

“With the enactment of new federal tax legislation two weeks ago, there
is a corporate rate reduction from 35% to 21%. The corporate rate
reduction is effective for us as of January 1, 2018 and accordingly will
reduce our current fiscal year federal statutory rate to a blended rate
of approximately 29.2%. This is expected to further reduce RPM’s
effective tax rate this year by two to three percentage points, adding
approximately $0.10 per diluted share to our fiscal 2018 outlook.
Additionally, in the third quarter we expect to record a discrete tax
adjustment for the impact of the rate change on our deferred tax assets
and liabilities, as well as the impact of the transition tax on deferred
foreign earnings,” stated Sullivan. “Excluding this one-time discrete
tax adjustment resulting from the new federal tax legislation, we are
increasing our full-year fiscal 2018 EPS guidance to a range of $3.00 to
$3.10 per share.”

Webcast and Conference Call Information

Management will host a conference call to discuss these results
beginning at 10:00 a.m. EST today. The call can be accessed by dialing
888-771-4371 or 847-585-4405 for international callers. Participants are
asked to call the assigned number approximately 10 minutes before the
conference call begins. The call, which will last approximately one
hour, will be open to the public, but only financial analysts will be
permitted to ask questions. The media and all other participants will be
in a listen-only mode.

For those unable to listen to the live call, a replay will be available
from approximately 12:30 p.m. EST on January 4, 2018 until 11:59 p.m.
EST on January 11, 2018. The replay can be accessed by dialing
888-843-7419 or 630-652-3042 for international callers. The access code
is 46126264. The call also will be available both live and for replay,
and as a written transcript, via the RPM web site at www.RPMinc.com.

About RPM

RPM International Inc. owns subsidiaries that are world leaders in
specialty coatings, sealants, building materials and related services
across three segments. RPM’s industrial products include roofing
systems, sealants, corrosion control coatings, flooring coatings and
other construction chemicals. Industrial companies include Stonhard,
Tremco,
illbruck,
Carboline,
Flowcrete,
Euclid
Chemical and RPM
Belgium Vandex. RPM's consumer products are used by professionals
and do-it-yourselfers for home maintenance and improvement and by
hobbyists. Consumer brands include Rust-Oleum,
DAP,
Zinsser,
Varathane
and Testors.
RPM’s specialty products include industrial cleaners, colorants,
exterior finishes, specialty OEM coatings, edible coatings, restoration
services equipment and specialty glazes for the pharmaceutical and food
industries. Specialty segment companies include Day-Glo,
Dryvit,
RPM
Wood Finishes, Mantrose-Haeuser,
Legend
Brands, Kop-Coat
and TCI.
Additional details can be found at www.rpminc.com
and by following RPM on Twitter at www.twitter.com/RPMintl.

For more information, contact Barry M. Slifstein, vice president –
investor relations, at 330-273-5090 or [email protected].

Use of Non-GAAP Financial Information

To supplement the financial information presented in accordance with
Generally Accepted Accounting Principles in the United States (“GAAP”)
in this earnings release, we use EBIT, a non-GAAP financial measure.
EBIT is defined as earnings (loss) before interest and taxes. We
evaluate the profit performance of our segments based on income before
income taxes, but also look to EBIT as a performance evaluation measure
because interest expense is essentially related to acquisitions, as
opposed to segment operations. For that reason, we believe EBIT is also
useful to investors as a metric in their investment decisions. EBIT
should not be considered an alternative to, or more meaningful than,
income before income taxes as determined in accordance with GAAP, since
EBIT omits the impact of interest in determining operating performance,
which represent items necessary to our continued operations, given our
level of indebtedness. Nonetheless, EBIT is a key measure expected by
and useful to our fixed income investors, rating agencies and the
banking community all of whom believe, and we concur, that this measure
is critical to the capital markets' analysis of our segments' core
operating performance. We also evaluate EBIT because it is clear that
movements in EBIT impact our ability to attract financing. Our
underwriters and bankers consistently require inclusion of this measure
in offering memoranda in conjunction with any debt underwriting or bank
financing. EBIT may not be indicative of our historical operating
results, nor is it meant to be predictive of potential future results.
See the financial statement section of this earnings release for a
reconciliation of EBIT to income before income taxes.

Forward-Looking Statements

This press release contains “forward-looking statements” relating to our
business. These forward-looking statements, or other statements made by
us, are made based on our expectations and beliefs concerning future
events impacting us, and are subject to uncertainties and factors
(including those specified below) which are difficult to predict and, in
many instances, are beyond our control. As a result, our actual results
could differ materially from those expressed in or implied by any such
forward-looking statements. These uncertainties and factors include (a)
global markets and general economic conditions, including uncertainties
surrounding the volatility in financial markets, the availability of
capital and the effect of changes in interest rates, and the viability
of banks and other financial institutions; (b) the prices, supply and
capacity of raw materials, including assorted pigments, resins, solvents
and other natural gas- and oil-based materials; packaging, including
plastic containers; and transportation services, including fuel
surcharges; (c) continued growth in demand for our products; (d) legal,
environmental and litigation risks inherent in our construction and
chemicals businesses and risks related to the adequacy of our insurance
coverage for such matters; (e) the effect of changes in interest rates;
(f) the effect of fluctuations in currency exchange rates upon our
foreign operations; (g) the effect of non-currency risks of investing in
and conducting operations in foreign countries, including those relating
to domestic and international political, social, economic and regulatory
factors; (h) risks and uncertainties associated with our ongoing
acquisition and divestiture activities; (i) risks related to the
adequacy of our contingent liability reserves; and (j) other risks
detailed in our filings with the Securities and Exchange Commission,
including the risk factors set forth in our Annual Report on Form 10-K
for the year ended May 31, 2017, as the same may be updated from time to
time. We do not undertake any obligation to publicly update or revise
any forward-looking statements to reflect future events, information or
circumstances that arise after the date of this release.

Contacts

RPM International Inc.
Barry M. Slifstein, 330-273-5090
vice
president – investor relations
[email protected]

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