RPM International's Adjusted EBIT Faces Headwinds as Q2 Sales Disappoint Consensus

RPM International Inc. RPM has disclosed underwhelming second-quarter fiscal 2026 results (ended Nov. 30, 2025), revealing a complex performance picture where headline growth masks underlying margin compression and profitability challenges. While the company managed to post year-over-year revenue expansion, both top-line and bottom-line figures stumbled against market expectations, signaling operational friction that management attributes to temporary consolidation inefficiencies and demand softening.

The Earnings Gap Widens

The adjusted EBIT story encapsulates RPM’s struggle during the period. Management disclosed an adjusted earnings per share (EPS) of $1.20, representing a shortfall of 14.9% against the Zacks Consensus Estimate of $1.41. The year-ago quarter had delivered $1.39 in adjusted EPS, marking a concerning year-over-year decline in per-share profitability. This earnings erosion emerged despite gross revenue expansion, underscoring the severity of margin pressure weighing on the company.

Revenue totaled $1.91 billion for the quarter, trailing the consensus projection of $1.93 billion by approximately 1%. However, the top line did expand 3.5% from the prior-year period. This paradox—missing consensus while growing year-over-year—reflects elevated market expectations amid acquisition activity and strategic growth initiatives.

Dissecting the Adjusted EBIT Contraction

The adjusted EBIT metric deteriorated to $226.6 million, a decline of 11.2% on a year-over-year basis. More troubling, the adjusted EBIT margin compressed 190 basis points to 11.9%, illustrating how cost pressures consumed much of the revenue gains. This margin squeeze stemmed from several concurrent headwinds: elevated Selling, General & Administrative expenses (which increased 10 bps as a percentage of sales to 28.8%), integration costs tied to M&A activity, and operational inefficiencies spawned by manufacturing and warehouse facility consolidations.

The government shutdown backdrop exacerbated challenges by delaying construction activity on public projects and extending lead times, while softer do-it-yourself demand undermined momentum as the quarter wore on. Together, these factors created an environment where higher costs overpowered the benefits of top-line growth across all operational segments.

Geographic Performance Reveals Mixed Signals

Performance varied substantially across geographic footprints:

North America (76% of quarterly sales) posted sales growth of 1.9%, buoyed by acquisitions and robust demand for high-performance building solutions in the United States. Canadian operations, however, faced softer customer demand that partially offset U.S. strength. Europe (16% of sales) demonstrated the quarter’s strongest regional expansion at 13.9%, propelled by M&A activity and favorable foreign exchange tailwinds.

Africa and the Middle East (2% of sales) advanced 5.2%, underpinned by infrastructure and high-performance building projects. By contrast, Latin America (4% of sales) slipped 0.2% year-over-year, while Asia Pacific (2% of sales) declined 3.5%, signaling demand weakness in these emerging markets.

On an organic basis—stripping out acquisitions and currency effects—sales contracted 0.5%. M&A contributions bolstered reported growth by 3.4%, while favorable foreign currency translation added 0.6%, highlighting the reliance on inorganic levers to offset organic headwinds.

Segment-by-Segment Performance: Where the Adjusted EBIT Pressure Originates

Construction Products Group generated net sales of $737.4 million, up 2.4% year-over-year. Organic expansion contributed 0.8%, with acquisitions adding 0.5% and foreign currency translation supplying 1.1%. Yet adjusted EBIT for the segment declined 10.9% to $98.6 million, with the adjusted EBIT margin compressing 200 bps to 13.4%—the steepest margin deterioration among the three segments.

Performance Coatings Group achieved net sales growth of 4.4% to $533.8 million, driven by 2.7% organic expansion, 1.1% from acquisitions, and 0.6% from currency translation. Adjusted EBIT edged down just 0.3% to $82.8 million, though the adjusted EBIT margin still contracted 80 bps to 15.5%, the smallest margin decline in the portfolio.

Consumer Group saw net sales rise 4.1% to $638.7 million. However, organic sales declined 4.7%—the only segment with organic contraction—while M&A contributed 8.7% and foreign currency translation added 0.1%. Adjusted EBIT fell 6.2% to $90 million, with adjusted EBIT margin compression of 150 bps to 14.1%.

Balance Sheet Strength Amid Profitability Pressure

RPM International concluded the fiscal second quarter with total liquidity of $1.1 billion, up from $969.1 million at fiscal 2025-end, demonstrating improved cash positioning. Cash and cash equivalents reached $316.6 million versus $302.1 million previously. Long-term debt (excluding current maturities) declined to $2.51 billion from $2.64 billion, suggesting debt reduction progress despite ongoing acquisition spending.

Forward-Looking Outlook: Margin Recovery on the Horizon

Management anticipates continued momentum through the third and fourth quarters of fiscal 2026, contingent on solid construction pipelines and recent growth-oriented investments. For Q3, the company expects consolidated sales to expand at a mid-single-digit rate, with adjusted EBIT projected to grow in the mid- to high-single-digit range year-over-year. SG&A optimization actions are slated for implementation, though benefits may be partially offset by healthcare inflation and M&A-related expenses.

The Consumer segment is forecast to outpace the Performance Coatings and Construction Products segments in sales growth, driven by recent acquisitions. For the fiscal fourth quarter, management anticipates delayed projects converting into activity by year-end, potentially capturing weather-related shifts from Q3 as occurred previously. Consolidated sales for Q4 are projected to advance toward the mid-single-digit range relative to record prior-year results, while adjusted EBIT is expected to rise in the low- to high-single-digit range.

Management remains committed to the MAP 3.0 initiative, which is anticipated to drive margin improvement as execution gains traction. The company plans disciplined capital deployment in high-potential areas including high-performance buildings, business intelligence, and innovation.

Market Reception and Valuation Context

Following the earnings release, RPM shares advanced 1.7% during the subsequent trading session. The stock currently carries a Zacks Rank #4 (Sell) designation, reflecting analyst skepticism about near-term profitability recovery despite long-term strategic positioning.