RPM International is making a name for itself among investors as a dividend champion, with 50 consecutive years of higher payouts. But it should also be known for something else: a decadeslong record of growth, fueled by acquisitions and a steady march to higher profits.
Consider the long-term record for the maker of coatings and building materials: The Medina, Ohio, company says that $1,000 invested in its stock 50 years ago, with dividends reinvested, would be worth more than $1.15 million today, compared with $178,000 for the S&P 500 index over the same period. With a fresh tailwind from new infrastructure projects, there's more to come.
Selling its products in more than 160 countries, RPM is taking advantage of global economic trends. "You can see that in highway construction, you could see that in the onshoring of manufacturing, you can see that in some expansion in airports," Chairman and CEO Frank C. Sullivan recently told analysts. "We see that having a pretty good runway" for the next 1½ to two years, he added.
RPM's building products were chosen for global infrastructure projects like the Gare du Nord train station in Paris ahead of the 2024 Olympics; a water treatment plant in Antioquia, Colombia; a hydroelectric plant in Manitoba, Canada; the Maharashtra Tunnel in India; and the Sydney Harbour Bridge tower in Australia. Domestically, its products have helped build Atlanta's Hartsfield-Jackson International Airport and the Tacoma Narrows Bridge in Washington state, as well as manufacturing facilities for companies including Tesla and Intel.
While RPM itself is hardly a household name, do-it-yourselfers might recognize consumer products like Rust-Oleum paints, Varathane stains, Plastic Wood filler, and DAP caulk. Products for construction markets are less known: Tremco roofing products, Flowcrete flooring systems, and Dryvit insulation, to name a few.
The company, founded by Sullivan's grandfather in 1947 as Republic Powdered Metals, posted sales of $7.26 billion in the year ending on May 31. Analysts expect that to grow 4.3%, to $7.57 billion, in the current fiscal year.
Acquisitions have always been part of the company's strategy—with some 175 coming in the past 30 years. Company founder Frank C. Sullivan once told his son Tom that the three greatest companies in the coatings and construction chemical business were Carboline, Rust-Oleum, and Tremco. RPM eventually bought them all.
RPM typically keeps management of acquired companies in place as they operate under the RPM umbrella. Innovation is key. New product extensions include a patented five-in-one tip for Rust-Oleum spray paint that the company plans to expand to other products.
Other recent innovations: Nudura Insulated Concrete Forms , a durable, energy-efficient, soundproofing building material, and TremPro Chem-X Pro , a multipurpose adhesive and sealant that keeps air and water out of roofing, panel seams, subfloors, wall systems, and windows.
An operational improvement plan called MAP 2025 aims to accelerate growth, boost efficiencies, cut costs, and work toward $8.5 billion in annual revenue, 42% gross margin, and 16% adjusted earnings before interest and taxes, or Ebit, margin by May 2025.
For the current fiscal year ending on May 31, analysts expect earnings of $4.98 a share, up from $4.30 in the prior year, according to FactSet. At a recent price around $101, that gives the shares a price/earnings ratio of 20. That falls to a more reasonable 18 based on projected earnings of $5.62 for the following year.
Michael J. Harrison, senior analyst at Seaport Research Partners, rates the stock a Buy and has a $120 price target on the shares. Despite a recent slowdown amid reduced do-it-yourself demand and higher interest rates, he says RPM's construction business should benefit from nonresidential improvement, infrastructure, and "continued strength in roofing, as well as some green shoots in residential."
David Huang of Deutsche Bank, who also rates the stock a Buy, wrote in a recent research note that RPM is positioned for "strong and elevated earnings improvement" if the company's sales improve in its fiscal second half. He tells Barron's that the company's MAP program "is already delivering benefits from both cost savings and commercial improvement," and will continue doing so as volumes and margins grow.
The recent slowdown isn't getting in the way of the longtime strategy of looking for niche acquisitions. RPM announced yet another purchase in October—a $20 million-in-sales Texas business that makes wall systems for buildings—a "rapidly growing segment within the construction industry," the company says.
RPM is also in the market for its own stock. CEO Sullivan said in July that RPM could see $50 million in share repurchases this fiscal year, and hinted at potential acquisitions "when they show up at the right price." That, and the prospect for continued dividend increases, should keep investors in for a long, profitable haul.