RPM International ( NYSE: RPM ) was upgraded to Overweight from Neutral by analysts at JPMorgan because of the paint and coating company's improved profitability.
RPM, whose consumer brands include Rust-Oleum, Dap and Varathane, on Wednesday reported higher profit growth than unit volume growth. That difference indicates that RPM was able to charge higher prices for its products, JPMorgan said in a report.
"Adjusted gross profits increased $130.6 million and operating profits increased $68.5 million in a quarter in which the company reported 5% volume growth," the bank said. "A 5% volume increase, in our opinion, implies sales growth of about $83 million and a gross margin benefit of about $30 million assuming a gross margin just under 40%."
The yearly gain of $100 million in gross profit likely came from the difference between RPM's price improvement of 15%, or about $250 million, while cost of goods sold rose about 14.5%, or about $150 million, according to JPMorgan.
RPM has risen as much as 16% in the past four days of trading. Its stock is down 3% this year, compared with a 22% decline for the S&P 500 Stock Index ( SP500 ).
The company beat fiscal Q1 adjusted earnings estimates , as adjusted EBIT jumped by a third to a record $275 million and revenues rose 17% from the prior year to a record $1.93 billion. RPM provided Q2 guidance for sales growth of 9%-12% and adjusted EBIT growth of 30%-40%.
RPM International's ( RPM ) "future is looking brighter, but there is some uncertainty about what the picture looks like beyond one quarter out," columnist Daniel Jones writes in an analysis published on Seeking Alpha .
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RPM International upgraded to Overweight at JPMorgan on profit growth