US RPM confirms outlook despite Europe trouble, weak roofing business

04 April 2013 18:07  [Source: ICIS news]

HOUSTON (ICIS)--RPM International is maintaining its fiscal 2013 full-year sales outlook, despite ongoing weakness in European markets and underperformance of its North American roofing business, the US-based coatings and sealants firm said on Thursday.

RPM’s projected 8-10% sales growth for the fiscal year ending 31 May will mainly come from its consumer segment, while the industrial segment - which includes roofing - is falling short of expectations, CEO Frank Sullivan said during RPM's fiscal 2013 third-quarter results conference call.

The consumer segment would continue to benefit from the introduction of new products, market share gains and increased consumer spending as the US housing market continues its gradual recovery, Sullivan said.

RPM's consumer product sales are particularly driven by housing turnover, and as US existing home sales stabilise and improve the company benefits, he said.

“You get the benefit of consumers fixing up their home before they put it on the market, and then, fortunately for us, you have new home owners coming in that want to do small projects, such as redecorating,” he said.

For the three months ended 28 February, RPM's consumer segment recorded a 14.6% year-on-year increase in net sales - to $311.4m (€242.9m) from $271.7m in the fiscal 2012 third quarter.

As for Europe, RPM does not expect that region to improve in the near term, Sullivan said.

“We are not counting on any improvement in Europe, we are not seeing it, and as far as I can tell it’s not coming any time soon,” Sullivan said in response to analysts’ questions.

Meanwhile, RPM’s North American roofing business is under-performing, mainly because of cuts in federal and state government budgets, Sullivan said.

“The biggest challenges we face [in roofing] is a significant reduction related to the federal and state budget issues that you get to read about every day,” Sullivan said.

The budget cuts also affect RPM’s business in Canada, which is an important market for the company, he added.

At the same time, the US Department of Justice (DOJ) is investigating RPM government roofing contracts with the US General Services Administration (GSA). The probe involves compliance with pricing terms and conditions of the GSA contracts for sales of product and services from 2002 to 2008.

The company set up a $68.8m accrual in the third quarter to account for estimated losses from the investigation. That accrual was the main cause for RPM’s third-quarter $42.2m net loss.

RPM expects to be able to settle the matter with the DOJ within the next two months, Sullivan said, adding that he could not provide additional details at this time.

RPM’s third-quarter industrial segment sales grew by 6.1% to $532.3m. RPM's industrial products include roofing systems, sealants, corrosion control coatings, flooring coatings and specialty chemicals.

($1 = €0.78)

By: Stefan Baumgarten
+1 713 525 2653

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