Brighten Up Your Portfolio With This Stock

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What do you do about a company that reports a modest quarter, yet manages to generate cash, year after year? A company that reports a net loss, yet never lets you down when it comes to dividends? Should you sell it? Or should you hold on? Read on to find out more.

RPM International (NYSE: RPM) announced its third-quarter results last week. Here is a snapshot.

Paint my heart

Net sales for its last quarter totaled $843.7 million, up 9.1% from the previous year.

The company reported a net loss of $42.4 million, as compared to a net income of $6.6 million the previous year. Diluted loss was $0.33 per share. Last year, diluted earnings were $0.05 per share. The loss was mainly attributable to an adjustment for $68.8 million in relation to an investigation of roofing contracts by RPM's Building Solutions Group, as also the shutting down of a polymer flooring business division in Brazil. The division was closed down following RPM's acquisition of Viapol. The acquisition is expected to provide a broad base for RPM's products in Brazil.

RPM's largest segment, which is the industrial segment, saw sales go up $30.4 million to $532.3 million in the quarter. The consumer segment, on the other hand, witnessed a 14.6% year on year growth in sales. Net sales for the segment amounted to $311.4 million.

Better times ahead?

The company expects its consumer segment to grow 8%-10% for the full year. The industrial segment is expected to fall short of the 6%-10% range provided earlier in the year. Net sales are expected to increase 8%-10%, while net income is expected to grow 9%-12%. The expected diluted earnings per share are expected between $1.80-$1.85.

The company is known for aggressive expansion via acquisitions. Earlier this month, the company announced the acquisition of Australian HiChem Paint Technologies by RPM's Rust-Oleum Group. The maker of home and industrial products and coatings will add to RPM's presence in the Australian market.

You too?

The third quarter has been affected by the roofing investigation, along with the weakness in Europe, which led to huge foreign exchange losses. Not only RPM, but other companies too, have been affected by poor global demand conditions in the construction segment.

RPM's competitor Valspar (NYSE: VAL), also witnessed a not-so-great last quarter. The company's sales for the first quarter went down 1% to $875.2 million as compared to the previous year. Net income was down $0.8 million to $55 million. Diluted net income per share also declined $0.02 to $0.62. The major reason for the decline in earnings was a weakness in international sales. Adjusting for currency and acquisitions, Valspar's Paint segment declined approximately 5.3%, while the Coating segment went up 1.3%.

Me? I am stronger..

Sherwin-Williams (NYSE: SHW), on the other hand, seems relatively unaffected by the global slowdown in demand. The company reported record increases in sales, net operating cash, and EBITDA in its last results. In its last quarter, consolidated net sales increased 7.3% to $2.22 billion. Diluted income was up $0.98 to $1.12 per share for the quarter. In its Consumer Group segment, net sales went up 1.4% to $255.8 million. For the first quarter of 2013, the company expects diluted income to be between $1.03-$1.13 per share, as opposed to $0.95 last year.

Bring on the cash!

RPM is known for its dividend payments. The company recently announced a quarterly dividend of $0.225 per share. In October 2012, the company announced a dividend increase of 4.7%. This was RPM's 39th consecutive year of increased cash dividends. One of the only 47 companies to achieve this, RPM is one of the highest cash generating companies. RPM currently has a dividend yield of 3%.

RPM may not have done exceptionally well this quarter, but given the global scenario, who is to blame? Strong acquisition moves across the globe, a history of cash dividend payments, and a recovering global scenario make me optimistic about this stock.


Sonam Chamaria has no position in any stocks mentioned. The Motley Fool recommends Sherwin-Williams. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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