RPM CEO Sounds Housing Alarm: Turnover at 40-Year Low, ‘Not Going to Get Better’ Yet

RPM International Inc. (NYSE:RPM) stock is trading higher Tuesday after the company reported first-quarter fiscal 2027 results, with earnings topping expectations and revenue coming in roughly in line with estimates.

Revenue rose to $2.216 billion, just shy of the $2.223 billion estimate. Adjusted earnings came in at $1.98 per share, beating the $1.95 estimate.

Sales increased 4.8% year over year despite raw material inflation and softer performance in the Construction Products Group.

Emerging Markets Drive Sales Growth

Organic sales increased 3.1%, while acquisitions, net of divestitures, contributed 1.6% growth.

All emerging-market regions posted revenue growth above 20%. RPM cited strong demand for engineered building and infrastructure solutions and continued expansion of its Platform model.

North American results benefited from improved Performance Coatings Group and Consumer Group performance. Acquisitions helped drive growth in Europe.

Adjusted EBITDA increased 4.5% year over year, supported by higher sales, MAP operational improvements and selling, general and administrative expense optimization.

Construction Products Business Weighs on Results

Construction Products Group sales rose 0.8% year over year. Organic sales declined 1.7%, while acquisitions, net of divestitures, contributed 2.5% growth.

RPM said slower healthcare and education markets delayed sales. Raw material availability issues also disrupted certain product lines.

Adjusted EBITDA fell 9.7% due to weaker volumes, raw material inflation and lower fixed-cost absorption.

Results also included a $4.4 million increase in bad-debt expense tied to a customer bankruptcy and a $6.3 million warranty charge at a small European business under review for closure.

Performance Coatings Posts Record Sales

Performance Coatings Group sales jumped 10.2% year over year to a record.

Organic sales increased 7.9%, while acquisitions contributed 1.8% and foreign currency translation added 0.5%.

Growth was broad-based across engineered solutions for high-performance buildings, energy and infrastructure, emerging markets, and food coatings and ingredients.

Adjusted EBITDA climbed 18.2%, helped by higher sales and volumes, improved fixed-cost leverage and SG&A optimization.

Consumer Sales Rise 5%

Consumer Group sales increased 5.3% year over year, supported by broad-based growth, shelf-space gains, new product launches and pricing actions.

Organic sales rose 5.2%, while acquisitions added 0.3%.

Adjusted EBITDA increased 5.5%, helped by higher sales and volumes, improved fixed-cost utilization and MAP operational improvements.

Cash Flow Strengthens, Debt Falls

Operating cash flow increased to $263.9 million from $237.5 million a year earlier, driven by improved working capital efficiency.

RPM returned $90.5 million to shareholders through dividends and share repurchases.

Total debt stood at $2.41 billion as of Aug. 31, down from $2.67 billion a year earlier as the company used operating cash flow to reduce debt.

RPM Maintains Growth Outlook

RPM now expects fiscal 2027 adjusted EBITDA to grow in the mid-single digits, down from its previous forecast of 5% to 10% growth.

The company also narrowed its full-year sales outlook to mid-single-digit growth from the prior 3% to 7% range.

RPM expects second-quarter sales and adjusted EBITDA to grow in the low- to mid-single-digit range.

Earnings Call Highlights

During Tuesday’s earnings call, RPM management said inflation has intensified since July, with second-quarter raw material inflation now expected at 9% to 11%, up from the prior 6% to 8% forecast.

The company has rolled out additional price increases and freight surcharges and expects pricing to rise 2.5% to 3.5% in the second quarter. CEO Frank Sullivan said RPM expects to recover 100% of any lost margin, and potentially more, as pricing catches up with costs.

Sullivan also flagged continued pressure on housing-sensitive demand, noting that housing turnover is at a 40-year low. He said rising interest and mortgage rates mean the backdrop is “not going to get better” until conditions improve, while consumer takeaway and retail foot traffic remain sluggish.

Management also highlighted strong momentum in emerging markets, where sales and earnings have grown at a high-double-digit pace for nearly two years, while data center activity, manufacturing onshoring and industrial capital spending continue to support the Performance Coatings Group.

RPM also expects share repurchases to continue at current levels or potentially higher, given its stock price and balance-sheet capacity.

RPM Price Action: RPM International shares were up 1.69% at $96.91 at the time of publication Tuesday, according to Benzinga Pro data.

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