Charges associated with a federal investigation into government roofing contracts led to a third-quarter loss of more than $42 million for RPM International Inc.
The $3.8 billion Medina coatings and adhesives holding company on Thursday said it showed solid operating results for the quarter even as it lost $42.4 million, or 33 cents per share, on revenue of $843.7 million. A year ago RPM reported a profit of $6.6 million, or 5 cents per share, on revenue of $773.6 million.
The unadjusted loss was due in large part because of what RPM called “an adjustment for a $68.8 million accrual associated with an investigation of the company’s Building Solutions Group roofing contracts with the U.S. Government Services Administration.”
The GSA investigation is looking into sales and services from 2002 through 2008, RPM said.
RPM also said that while it expects to have a solid year, it will be challenging to hit previously announced financial targets.
Shares of RPM closed down 42 cents to $30.34. Shares briefly were in positive territory in the morning. RPM stock, including dividends, is up 19 percent from a year ago.
When adjusted to take into account one-time factors, RPM said it had a third-quarter profit of $8.7 million, or 7 cents per share. The adjusted results beat analyst expectations. Results fell short of RPM’s internal goals for the quarter largely because of European expenses and severance, the company said.
“Obviously, we have a couple of significant issues in the quarter that mask an otherwise strong operating performance,” Frank Sullivan, chairman and chief executive officer, said in comments with industry analysts.
The building solutions group is involved in settlement talks with the federal government, he said.
“The company has been fully cooperating with the investigation which until very recently has been in a fact-finding stage,” Sullivan said. “While the GSA and Justice Department have not made any formal claim, we are in discussions to settle this matter and are hopeful that a final settlement will be reached before our May 31 year end.”
Sullivan told analysts that the issue involves “certain contract conditions and pricing terms” for work the company did with various federal government entities.
“We believe that the [$68.8 million] accrual for a possible settlement that we took in the third quarter is the appropriate number. There is very little other detail that we can provide at this point and until we’ve reached final settlement,” Sullivan said.
Roofing is about a $350 million a year business for RPM, he said.
Besides the adjustment made because of the government investigation, RPM’s third-quarter results were also hurt by costs to discontinue a polymer flooring business in Brazil, Sullivan said.
Russell Gordon, RPM’s vice president and chief financial officer, said company executives still expect overall sales to grow 8 to 10 percent this year.
Consumer sales likely will grow more than the company previously forecast while industrial sales may be less, Gordon said.
The company’s previously announced guidance of $1.80 to $1.85 in earnings per share this year “still appears possible” but because RPM fell short in its third-quarter internal goals and because of ongoing weakness in Europe it might not hit those targets, he said.
“Although these goals appear to be more challenging, we are working diligently toward achieving them,” he said.
Jim Mackinnon can be reached at 330-996-3544 or firstname.lastname@example.org