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RPM Earnings Speed Ahead

Posted: Jan 08, 2010 10:24 AM by Greg Sushinsky

Tickers in this Article: MAS, PPG, RPM, SHW, VAL

RPM (NYSE:RPM), a paint, coating and sealants manufacturer, has been edging forward in the recession despite the terrible climate for such industrial companies. Its last quarter reported in October showed an increase in its consumer segment sales as well as a net income increase. When you consider the housing industry's woes, along with cutbacks by industrial and commercial businesses, this was a nice glimmer of hope for RPM. It has followed up on this glimmer with this quarter's surprising earnings.

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RPM Revs Past Estimates
RPM's second quarter featured a stronger continuation of a trend established in its first quarter, with net income up while revenue in the industrial segment was still down but the consumer segment strengthened. Total sales were at $858.7 million compared to $890.0 million in last year's Q2, while net income rose to $55.9 from $41.7 million, or 43 cents per share compared with 33 cents last year. This beat the consensus estimates of 36 cents handily.

RPM continues to manage its business deftly throughout this recession, particularly given the industry it's in. (For more on analyst expectations, be sure to read Analyst Forecasts Spell Disaster For Some Stocks.)

The Paint-By-Numbers Picture
Others in the paint and specialty chemical space have had to fight through the difficult environment as well. Sherwin-Williams (NYSE:SHW), which manufactures paints but also sells paints to consumers through its retail stores, has performed relatively well despite some bumps and is expected to continue to do so. Their strong brand and tight management has put them in a position to grow earnings again, an impressive feat in the current climate. Sherwin-Williams is also a stellar dividend payer.

Valspar Corp. (NYSE:VAL), a focused paint and coating company, saw revenues down 16% yet earnings up 40% in last year's fourth quarter, which mimics what RPM did, something that in these tough times qualifies as a highly successful quarter.

Others Not So Pretty
Other paint makers such as Masco (NYSE:MAS) have struggled. With its high end Behr paint brand lagging due to the fall off in the housing and do-it-yourself in business, Masco has been hit hard in the recession. There is some concern about its debt and negative earnings, though it should be able to rebound when the building industry gets up off the floor.

PPG Industries (NYSE:PPG), a chemical company that also provides components for paints, should be in a better position to improve both its revenues and earnings, as it isn't as concentrated as these other companies on the paint industry. Still, the chemical and industrial climate overall provides enough trouble for PPG.

Painting A Better Picture
Like its competitors, RPM has had to swim upstream in a difficult business climate which has seen fallout from one of the worst-hit industries, housing and construction. RPM and Sherwin-Williams have done particularly well; RPM due to its somewhat diverse product mix and business model, Sherwin-Williams due to its leading position in the industry.

Valspar has battled nicely through the recession, too. PPG's main thrust will be for the industrial-chemical industry to rebound, while Masco should be able to avoid a dire fate when it gets a chance to straighten its paint segment out as the building industry turns positive.

The Bottom Line
RPM remains a steady, unspectacular performer with a surprisingly resilient array of business lines, good cash flow, an attractive dividend and astute management that should emerge from the recession ready to switch gears into continued growth again.

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By Greg Sushinsky

Greg Sushinsky is a passionate independent investor, who has done his own research, analysis and investing for 20 years. One of his earliest investing memories was when he first saved and bought U.S. Savings Bonds with his own money as a small child. From there, he studied investing on his own and made small stock purchases as he grew as an investor.

Sushinsky still follows the markets, studies and reads widely in financial literature, and has written over 75 articles on investing. He is also a professional editor, whose work is published extensively in large-circulation magazines, digests and across the internet. In other pursuits, Sushinsky writes fiction and has a university degree in philosophy. To see more of Sushinsky's literary work, see http://writing.gregsushinsky.com/.

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