US RPM invests as pandemic raises DIY demand to new, higher base

HOUSTON (ICIS)–The coronavirus pandemic has raised demand from the DIY and home improvement sector to a new and permanently larger business base, Frank Sullivan, CEO of US-based specialty coatings, sealants and building materials company RPM International, said in an update on Wednesday.

RPM, for its part, is investing in more capacity as it seeks to respond to that demand trend, especially in the paints and cleaning categories – raising its fiscal 2020/21 capital expenditure to above the $130m it indicated earlier.

Consumers spent more time in their homes during the pandemic, working on home improvement projects.

This drove volumes in RPM’s Consumer Group, which includes home improvement, in the fiscal first quarter ended 31 August, and that strength is expected to continue through the balance of the year and beyond, Sullivan said during RPM’s Q1 earnings call.

The Consumer Group segment saw Q1 sales jump 33.8% year on year to $641.2m while earnings before interest and tax (EBIT) more than doubled to $132.8m.

As a result of one of the “very few positive consequences of the pandemic”, Consumer Group segment demand has been raised to a permanently larger base, Sullivan said.

“This crazy [coronavirus] dynamic has created a larger base” across many DIY categories, he added.

PLANT CLOSURES
Also supporting RPM’s profitability going forward will be its “Margin Acceleration Plan (MAP) to Growth” savings programme, under which the company aims to consolidate production, closing 31 plants.

So far 24 plants have been closed, although the health crisis has slowed the pace of the company’s MAP activities, Sullivan said.

Nevertheless, RPM is on track to achieve the programme’s targeted run rate of $290m in annualised savings by the end of the fiscal year ending 31 May 2021, Sullivan said.

NO EARNINGS GUIDANCE
For the current fiscal Q2 ending 30 November, RPM expects low- to mid-single digit sales growth and more than 20% adjusted EBIT growth.

RPM has noticed price inflation for some raw materials, in particular acetone, CFO Russell Gordon said. Meanwhile, freight and some packaging costs are expected to rise as well, he said.

The company is not providing full-year earnings guidance – because of continued economic uncertainties related to the health crisis and the upcoming US presidential election in November, Gordon said.

If the economic recovery continues, RPM will outperform this year, added Sullivan.

On the other hand, “if some combination” of coronavirus disruptions and the elections result in an new economic downturn, this would be reflected in RPM’s full-year results, the CEO said.

RPM, fiscal Q1 ended 31 August 2020:

(in thousand $)	Q1 2020/21	Q1 2019/20	% change
Sales	1,606,670	1,472,764	9.1
Cost of sales	953,015	898,010	6.1
Gross profit	653,655	574,754	13.7
SG&A	395,953	400,566	-1.1
Net income	180,785	106,496	69.8
adjusted EBIT	269,200	192,600	39.8

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Thumbnail photo: Home improvement and renovation concept. Photo credit: Chameleons Eye/REX/Shutterstock