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WIKI ANALYSIS
RPM International (NYSE: RPM) manufactures chemical products, such as specialty paints, coatings, sealants, and adhesives, for both consumer and industrial markets.
RPM deals in housing construction and its products are petroleum-based. Despite a declining housing market and rising oil prices since 2002, RPM has managed to increase its net revenue every year from 2004-2007.
RPM competes with PPG Industries (PPG) , Valspar (VAL) and Sherwin-Williams Company (SHW). [1]
Business Overview
From 2004-2007, RPM's industrial segment grew each year from 54% of the company's net sales in fiscal year 2004,[5] to 63% of its net sales in fiscal year 2007.[2] During the same time period, RPM's foreign manufacturing operations grew from 20% of net sales in fiscal year 2004[6] to 30% in fiscal year 2007.[7]
Business Segments
- Industrial (63% of 2007 sales): In FY2007, RPM's Industrial division had net sales of $2.1 billion.[8] This segment's chemical products, which are sold directly to contractors and manufacturers, are used in new home construction and in industrial manufacturing processes.[8]
- Consumer (37% of 2007 sales): In FY2007, RPM's Consumer segment recorded net sales of $1.2 billion.[9] This division's products are marketed for non-professional use and do-it-yourself projects and include home improvement and vehicle maintenance products. Brand names in the Consumer segment include Rust-oleum and DAP.[9]
Business Financials
| Income Statement, in millions USD[11] | Revenue | Operating Income | Net Income |
|---|---|---|---|
| 2004 | $2,307.5 | $217.6 | $141.8 |
| 2005 | $2,555.7 | $163.7 | $105.0 |
| 2006 | $3,008.3 | $-122.4 | $-76.2 |
| 2007 | $3,338.7 | $307.5 | $208.2 |
Key Trends and Forces
U.S. home sales hit 10-year low in June 2008
On July 24, 2008, the National Association of Realtors announced that home sales in the U.S. fell 2.6% in June 2008, reaching the lowest level in ten years.[12] Since RPM's Industrial products are used in the construction industry, housing slumps and slowdowns in new home construction hurt that division's sales. Additionally, the Consumer segment relies on a few key home improvement retailers for a significant portion of net sales; in FY2007, RPM's ten largest customers accounted for 55% of the Consumer segment's net sales and 20% of total net sales.[13] Home Depot (HD), which alone accounted for 9% of RPM's 2007 net sales,[14] had a 6.7% decline in same-store sales for FY2007 as a result of the housing slowdown.[15]
Rising oil prices increase RPM's operating costs
As a chemical manufacturer, many of the products made by RPM use petroleum-based raw materials as inputs. In 2002, the average price of oil per barrel, adjusted for inflation, was $27.22, while the average price per barrel in May 2008 was $117.40.[16] In fiscal year 2007, rising raw materials costs decreased RPM's consolidated gross profit margin by 1.3%.[17]
A weak U.S. dollar benefits RPM's international sales
During fiscal year 2007, 30% of RPM's net revenue came from outside the U.S., exposing the company to exchange rate risk.[10] Over the same period of time, the U.S. dollar weakened, overall, relative to foreign currencies. When foreign currencies depreciate, the USD value of RPM's international sales decreases. On the other hand, when the USD weakens (foreign currencies appreciate), the dollar value of RPM's international revenue increases.
Competition
- PPG Industries: PPG is a major competitor for RPM in supplying protective and decorative coatings. [18]
- Sherwin-Williams: Sherwin-Williams is the second-largest competitor, by revenue, in protective and decorative coatings.[19]
- Valspar: Valspar also competes with RPM to supply protective and decorative coatings along with related products.[20]
- H. B. Fuller: H. B. Fuller competes with RPM in the adhesives and chemical products markets.[21]
| Company | 2007 Revenue ($ in millions) | 2007 Operating Income ($ in millions) | Operating Margin |
|---|---|---|---|
| RPM International [22] | 3,338.76 | 307.54 | 6.24% |
| PPG Industries [23] | 11,206.00 | 1,243.00 | 11.09% |
| Sherwin-Williams Company [24] | 8,005.29 | 912.94 | 7.69% |
| Valspar [25] | 3,249.29 | 309.57 | 9.53% |
| H. B. Fuller Company [26] | 1,400.26 | 142.81 | 7.08% |
- Companies on different fiscal calendars.
- PPG: Fiscal year ending December 31st.
- SHW: Fiscal year ending December 31st.
- VAL: Fiscal year ending October 27th.
- FUL: Fiscal year ending December 1st.
References
- ↑ Google Finance: RPM Related Companies.
- ↑ 2.0 2.1 10-K, 2007, Segment Information, page 3.
- ↑ 10-K, 2006, Segment Information, page 3.
- ↑ 10-K, 2005, Operating Segment Information, page 3.
- ↑ 5.0 5.1 10-K, 2004, Operating Segment Information, page 4.
- ↑ 10-K, 2004, Foreign Operations, page 6.
- ↑ 10-K, 2007, Foreign Operations, page 5.
- ↑ 8.0 8.1 10-K, 2007, Industrial Segment, page 3.
- ↑ 9.0 9.1 10-K, 2007, Consumer Segment, page 4.
- ↑ 10.0 10.1 10-K, 2007, Risk Factors, page 15.
- ↑ - Financial Statements for RPM International - Google Finance
- ↑ Home sales at 10-year low, jobless claims jump | Reuters
- ↑ RPM 2007 10-K, Risk Factors, page 12
- ↑ RPM 2007 10-K, Risk Factors, page 12
- ↑ Home Depot - Wikinvest.com
- ↑ Historical Crude Oil Prices.
- ↑ 10-K, 2007, Raw Materials, pg 8.
- ↑ Google Finance: PPG Industries.
- ↑ Google Finance: Sherwin-Williams.
- ↑ Google Finance:Valspar.
- ↑ Google Finance: H. B. Fuller.
- ↑ Google Finance: RPM International, Financials & Key Ratios.
- ↑ Google Finance: PPG Industries, Financials & Key Ratios.
- ↑ Google Finance: Sherwin-Williams, Financials & Key Ratios.
- ↑ Google Finance:Valspar, Financials & Key Ratios.
- ↑ Google Finance: H. B. Fuller, Financials & Key Ratios.
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