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.
From 2004-2007, RPM's industrial segment grew each year from 54% of the company's net sales in fiscal year 2004, to 63% of its net sales in fiscal year 2007. During the same time period, RPM's foreign manufacturing operations grew from 20% of net sales in fiscal year 2004 to 30% in fiscal year 2007.
|Income Statement, in millions USD||Revenue||Operating Income||Net Income|
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. 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. Home Depot (HD), which alone accounted for 9% of RPM's 2007 net sales, had a 6.7% decline in same-store sales for FY2007 as a result of the housing slowdown.
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 $117.40. In fiscal year 2007, rising raw materials costs decreased RPM's consolidated gross profit margin by 1.3%.
During fiscal year 2007, 30% of RPM's net revenue came from outside the U.S., exposing the company to exchange rate risk. Over the same period of time, the U.S. dollar weakened, overall, relative to foreign currencies. When foreign currencies depreciate, the USD value of RPM's international sales decreases. On the other hand, when the USD weakens (foreign currencies appreciate), the dollar value of RPM's international revenue increases.
|Company||2007 Revenue ($ in millions)||2007 Operating Income ($ in millions)||Operating Margin|
|RPM International ||3,338.76||307.54||6.24%|
|PPG Industries ||11,206.00||1,243.00||11.09%|
|Sherwin-Williams Company ||8,005.29||912.94||7.69%|
|H. B. Fuller Company ||1,400.26||142.81||7.08%|