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Unformatted text preview: DISCLOSURE APPENDIX CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, INFORMATION ON TRADE ALERTS, ANALYST MODEL PORTFOLIOS AND THE STATUS OF NON-U.S ANALYSTS. U.S. Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. 26 July 2011 Americas/United States Equity Research Specialty Chemicals RPM International (RPM) EARNINGS Maintaining Outlook Post Call & Luncheon Following RPMs F4Q11 results, we are maintaining our F2012 estimate at $1.62 to reflect higher sales in Industrial led by greater maintenance/capital spending at their customers, a slightly more cautious outlook in Consumer tied to continued softness in housing, and a higher interest expense line (greater debt level and lower investment income with normalized warranty expenses). We remain on the sidelines with the stock owing to the difficult end market conditions affecting Consumer as well as persisting raw material headwinds, and believe the valuation at 8x our revised F2012 EBITDA estimate is fair. Raw materials Raw material costs were a headwind in F4Q11 (availability and cost both continued to be an issue), and looking ahead to F2012 mgmt noted that raws will settle down but not abate. RPM was able to offset roughly 2/3 rd of their cost inflation with price increases, and they expect to catch up to raw materials in F2012 driven by recent pricing actions as well as further increases to be implemented. In terms of availability, TiO2 is presenting the biggest challenge for them, although some other specialty raws are proving difficult to come by as well. End-Markets/Demand The commercial construction market continued to show signs of improvement in both North America and Europe, albeit at a gradual pace. Looking ahead, mgmt believes that this market will trend slightly positive. Additionally, industrial and commercial maintenance spending as well as industrial capital spending appear to be increasing, and we expect this to be the main growth driver in the Industrial segment. In Consumer, more muted growth will be led by market share gains and new product introductions as the housing market remains sluggish. Balance Sheet/M&A With a healthy balance sheet (27% net debt/cap despite the increased debt level), mgmt continues to focus on bolt-on M&A opportunities primarily in the $10-200 mil range. They see a strong pipeline of potential deals, and hope to make several announcements with a bias toward augmenting the Industrial segment in the emerging markets....
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This note was uploaded on 02/05/2012 for the course FINANCE 101 taught by Professor George during the Spring '11 term at University of Phoenix.
- Spring '11