RPM International closed its fiscal year with record sales, a record fourth-quarter margin and its first outright full-year outlook in several quarters. The market has not rewarded that turnaround. The stock has fallen about 6% since the last report while the S&P 500 gained more than 3%. The fiscal first quarter, due before the open on October 6, is the first real test of whether management's more confident tone can withstand a jump in raw-material costs that it flagged itself.
Wall Street expects earnings of $1.95 a share on revenue of about $2.22 billion. That would be growth of roughly 3.7% in earnings and 5% in sales from a year ago. The top-line estimate matches management's own call for first-quarter revenue of about $2.22 billion. The Street's $8.25 billion full-year revenue figure sits almost exactly at the midpoint of the company's $8.10 billion to $8.41 billion range. The Earnings Whisper of $1.98 is only slightly above consensus. That points to a modest bar rather than a crowd bracing for a blowout.
The spread between those two growth rates matters. Sales are expected to rise faster than earnings even though management said the SG&A optimization program should add about $25 million of savings this quarter alone. That gap reflects the main new problem from the last call. Raw-material inflation is expected to run 5% to 6% in the first quarter and 6% to 8% in the second, compared with just 1% to 2% in the fourth quarter. Management warned that price versus cost would be somewhat negative through the first half.
The key figure this quarter is therefore gross margin, along with how much of the pressure the cost savings absorb. A report showing the $25 million arriving on schedule and gross margin holding up better than feared would support the idea that the SG&A work has permanently lifted RPM's earnings power. A steeper margin squeeze, or any upward revision to the second-quarter inflation outlook, would suggest the savings are only treading water.
Segment detail should show whether the growth engines are still running. The construction and performance coatings businesses have been posting record sales on data centers, infrastructure, fireproofing and concrete admixtures, where RPM says it is taking share from peers. Continued strength there, plus early contributions from the CalZip metal roofing acquisition, would confirm that demand in these markets is holding. Two problems are expected to weigh on the numbers:
• A supplier plant fire and tight MDI supply were expected to hurt Tremco roofing sales and costs this quarter, so the size of that hit matters.
• Consumer volumes were still down 2% to 3% last quarter, with DIY demand only stabilizing at low levels. Any sign of a volume turn would be welcome. Further declines, made worse by tariff-driven steel and packaging costs, would reinforce that consumer remains the weak spot.
Emerging markets offer upside, after mid-teens growth in the Middle East last quarter under the platform approach championed by new CEO David Denstedt.
Sentiment has edged from slightly bullish before the last report to slightly bearish now. Both readings are close to neutral, so this signals a cooling mood rather than outright pessimism. The chart tells a similar story. At about $100, the stock trades below its 200-day moving average near $106 and only about 3% above its post-earnings low of $97.46. It remains far from the $117.93 high. Much of the caution around inflation appears to be priced in. A clean quarter could meet a skeptical market that has room to re-rate, while a miss would put that low at risk.
With the company now leading with adjusted EBITDA and an Investor Day in November to lay out its MAP 3.0 plan, the stakes go beyond one quarter. The question is whether RPM can grow profits even during the worst stretch of cost inflation. If it holds its 5% to 10% full-year EBITDA growth target despite a margin squeeze this quarter, the improving narrative from last quarter remains credible.