What's in Store for RPM International's (RPM) Q1 Earnings?

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RPM International Inc. RPM is scheduled to report first-quarter fiscal 2019 results on Oct 3.

Notably, the company posted a negative earnings surprise of 46.6% in the last reported quarter. In spite of beating estimates in three of the trailing four quarters, the company has an average negative surprise of 2.7%, thanks to earnings lagging estimates by a higher margin.

Meanwhile, shares of RPM International have rallied 27.9% in the past year compared with the industry 's rise of 28.2%. Also, earnings estimates for the yet-to-be-reported quarter and the current fiscal were stable in the past 30 days.

Let's delve into the factors that are expected to have an impact on the company's performance in the soon-to-be-reported quarter.

Robust construction activity, stable international environment outside Brazil, improved product line and market share gains are expected to support the top line.

Per the Zacks Consensus Estimate, revenues in the Industrial segment (contributing more than 50% of total revenues) are pegged at $768 million, indicating a rise from $730 million in the year-ago quarter but showing a decline from $813 million in the last reported quarter. The segment is expected to gain from robust construction activity and stable international environment outside Brazil. The industrial coatings business is also likely to benefit from recovery in the oil and gas market.

The consensus estimate for the Specialty segment's revenues is pegged at $191 million, reflecting growth of 1.6% year over year, while indicating 3% decline on a sequential basis. The company is going to annualize last year's patent expiration in to-be-reported quarter. Per the company, the quarter under review will be the last of negative comparisons related to the NatureSeal patent expiration.

Meanwhile, the company's Consumer segment revenues are estimated to reach $462 million, reflecting an increase from $427 million in the year-ago quarter, while showing a decline from $548 million in the preceding quarter. Improved product line, market share gains, higher advertising campaign for new product placements and the recent purchase of Miracle Sealants are expected to drive growth.

Although the company is expected to register a modest top line growth, the bottom-line is likely to witness rising input costs, higher promotional advertising and load-in spending to support recent market share gains.

The company expects first-quarter fiscal 2019 to be the most difficult in terms of bottom-line leverage, thanks to several reasons. The Consumer segment will be marred by higher promotional advertising and load-in spending to support the recent market share gains. Moreover, the gap between current price increases and raw material inflation is at its peak, which has impacted the consumer of late.

In fact, the company's bottom-line results in the last reported quarter were dented by rising raw material costs and weak sales in the Consumer segment. According to the company, all of its businesses have been pursuing price increases aggressively, especially the Consumer segment. Moreover, strategic restructuring initiatives introduced by new management at Rust-Oleum also added to its woes.

Thus, we expect challenging raw material environment to persist which is likely to affect the company's gross margin.

Zacks Consensus Estimate

The company is expected to post quarterly earnings of 86 cents in the fiscal  first quarter results, which is in line with the year-ago quarter's tally. Revenues are estimated at $1.42 billion, reflecting a rise of 5.6% from the year-ago quarter's figure.

RPM International Inc. Price and EPS Surprise

RPM International Inc. Price and EPS Surprise | RPM International Inc. Quote

What Our Model Indicates

Our proven model does not suggest that RPM International is likely to beat estimates in the quarter to be reported. That is because a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, that is not the case here, as you will see below.

Earnings ESP: The Earnings ESP for the company is 0.00% as the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at 86 cents. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank: RPM International has a Zacks Rank #3, which increases the predictive power of ESP. However, the company's 0.00% ESP makes a surprise prediction difficult.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

Stocks to Consider

Here are some companies in the construction sector, which according to our model also have the right combination of elements to post an earnings beat in their respective quarterly reports:

Acuity Brands, Inc AYI has an Earnings ESP of +1.13% and carries a Zacks Rank #3. The company is slated to report quarterly numbers on Oct 3, 2018.

PulteGroup, Inc. PHM has an Earnings ESP of +7.79% and a Zacks Rank #2. The company is scheduled to report quarterly numbers on Oct 23, 2018.

Jacobs Engineering Group Inc. JEC has an Earnings ESP of +5.25% and a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here .

The company is expected to report quarterly results on Nov 20, 2018.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Earnings , Stocks
Referenced Symbols: AYI , JEC , PHM , RPM

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