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What to Expect From RPM International's (RPM) Q4 Earnings

Zacks Equity Research

RPM International Inc. RPM is scheduled to report fourth-quarter fiscal 2019 results on Jul 22, before the opening bell.

In the fiscal third quarter, the company’s earnings and revenues topped the Zacks Consensus Estimate by 27.3% and 0.2%, respectively. However, RPM International missed the consensus mark in three of the trailing four quarters, with average negative earnings surprise of 20%.

Its bottom line declined 33.3% year over year in the last reported quarter. However, net sales increased 3.4% from a year ago, mainly attributed to strong organic growth of 4.3% and 2.1% contribution of acquisitions to sales growth. Yet, strong sales growth continues to be offset by rising raw material costs. In addition, freight, labor and energy costs, along with the adverse effect of transactional foreign exchange added to the woes.

How are Estimates Faring?

Let’s take a look at the estimate revision trend in order to get a clear picture of what analysts are thinking about the company prior to the earnings release.

The Zacks Consensus Estimate for the quarter to be reported is currently pegged at $1.14 per share, remaining unchanged over the past 60 days. This indicates an increase of 81% from the year-ago reported figure of 63 cents per share. Revenues are expected to be $1.6 billion, up 3% year over year.

Let’s see how things are shaping up for this announcement.

Key Factors

The fiscal fourth quarter is seasonally the strongest for RPM International. The company expects to generate low single-digit consolidated sales growth, with higher sales from Consumer and Specialty segments likely to be offset by weak Industrial sales.

Segment-wise, the Zacks Consensus Estimate for Industrial segment sales (accounting for more than 50% of its total sales) is pegged at $805 million, indicating an uptick from $581 million recorded in the fiscal third quarter but a decline from $813 million in the year-ago period. Meanwhile, the company expects Industrial segment sales in the quarter to be flat-to-slightly down, as this segment will be impacted by tough comparisons to last fiscal year, and exposure to weakening international markets and unfavorable foreign exchange.

The consensus estimate for Specialty segment’s sales is pegged at $201 million, pointing to a 2% year-over-year improvement and 14.9% sequential growth. The segment, which comprises about 15% of total sales, is expected to register modest growth.

Consumer segment sales are estimated to be $595 million, suggesting an increase from $548 million in the year-ago period and $385 million in the last reported quarter. The company expects high single-digit sales growth in the fiscal fourth quarter due to easier comparisons to last fiscal year and margin recovery beginning to take hold.

On the flip side, a challenging raw material environment has been pressurizing its margins and eventually the bottom line over the last few quarters. This is a concern for the to-be-reported quarter as well. Particularly, the cost of silicones, asphalt, epoxy and acrylic resins is increasing significantly. In addition, freight, labor and energy costs, along with adverse effects of foreign currency translation are expected to create pressure on its fiscal fourth-quarter margins.

That said, the company has been aggressively pursuing price increases to offset the increasing material prices and protect gross profit margins. Resultantly, it expects to witness double-digit operating income growth, resulting from price increases and moderating raw material cost in the final quarter of fiscal 2019.

RPM International’s cost-saving initiatives bode well for bottom-line performance. Notably, the company’s multi-year restructuring plan, the 2020 Margin Acceleration Plan (“2020 MAP to Growth”), will help it maintain a balance between its segments’ performance and drive growth.

Overall, for the fiscal fourth quarter, RPM International expects earnings in the range of $1.12-$1.16 per share, higher than the year-ago level of 63 cents.

RPM International Inc. Price and EPS Surprise

RPM International Inc. Price and EPS Surprise

RPM International Inc. price-eps-surprise | RPM International Inc. Quote

What Our Model Indicates

Our proven model does not suggest that RPM International is likely to beat estimates in the quarter to be reported. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, that is not the case here, as you will see below.

Earnings ESP: The Earnings ESP for the company is 0.00% as the Most Accurate Estimate and the Zacks Consensus Estimate are both pegged at $1.14. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: RPM International currently has a Zacks Rank #3, which increases the predictive power of ESP. However, the company’s 0.00% ESP makes surprise prediction difficult.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks Worth a Look

Here are some companies in the Zacks Construction sector, which according to our model have the right combination of elements to post an earnings beat in their respective quarters to be reported.

Arcosa, Inc. ACA has an Earnings ESP of +15.22% and holds a Zacks Rank #2.

Rayonier Inc. RYN has an Earnings ESP of +19.15% and carries a Zacks Rank #3.

M.D.C. Holdings, Inc. MDC has an Earnings ESP of +3.96% and a Zacks Rank #1.

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