Why Paint & Coating Manufacturing Company RPM's Shares Are Sliding Today

RPM International Inc RPM shares are trading lower after the company reported Q2 FY24 results and revised guidance.

Sales remained flat Y/Y at $1.79 billion, missing the consensus of $1.84 billion. The company attributed Consumer Group's sales decline to reduced DIY takeaway at retail stores as housing turnover hit multi-year lows and as consumers focused spending on travel and entertainment and certain retailers destocking inventories.

Geographically, European sales increased by around 8.9%. Also, sales grew 13.0% and 6.4% in Africa/Middle East and Asia/Pacific geographies, respectively. Adjusted EPS of $1.22 came in line with the consensus. 

"Demand in DIY and specialty OEM markets remained weak; however, we overcame these challenges by successfully executing MAP 2025 initiatives to expand gross margins by 320 basis points and generate double-digit adjusted EBIT growth," said Frank C. Sullivan, RPM chairman and CEO.

In H1 FY24, operating cash flow stood at $767.8 million vs. $190.9 million prior year, led by higher profitability and improved working capital management, including MAP 2025 initiatives.

The company returned $138.3 million to stockholders through cash dividends and share repurchases.

As of November 30, 2023, total liquidity, including cash and committed revolving credit facilities, stood at $1.51 billion and total debt of $2.25 billion.

Outlook: For Q3, the company expects sales to be flat Y/Y and adjusted EBIT to increase 25% to 35% Y/Y. 

For FY24, the company lowered the outlook for sales to increase in the low-single-digits vs. mid-single-digit percentage range prior. The adjusted EBIT growth outlook is reiterated at low-double-digit to mid-teen percentage range.

"We expect business conditions in the third quarter to generally be similar to the second quarter, with strength in our CPG and PCG segments, international markets, and market share gains offsetting continued weakness in DIY and specialty OEM demand," added Sullivan.

Price Action: RPM shares are down 4.82% at $101.98 on the last check Thursday.

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