RPM — Q1 2026 Financial Report Analysis (Fiscal Q1 2027)

RPM International, the company behind Rust-Oleum paint, DAP caulk and Tremco roofing systems, grew sales 4.8% to a first-quarter record of $2.22 billion in the three months ended August 31, 2026 (the first quarter of its fiscal 2027). Reported net income rose 12.6% to $256.4 million, or $2.01 per diluted share. That headline gain is flattered by a property sale and a smaller restructuring bill, though. On RPM's own adjusted basis, earnings per share rose 5.3% to $1.98. Industrial coatings and consumer paint products did the work, while the construction business shrank on an organic basis and took a set of one-off charges.

At a glance

• Organic sales +3.1%. This is growth from businesses RPM already owned, before acquisitions and currency moves. It came from the Performance Coatings and Consumer groups, partly through price increases to cover higher input costs. Acquisitions added another 1.6 points.
• Gross margin fell 1.0 point to 41.3%. Gross margin is the share of each sales dollar left after paying for raw materials and manufacturing. RPM blames cost inflation (including tariffs) and warranty costs. Price increases and procurement savings did not fully cover them.
• Adjusted EBITDA +4.5% to $405.5 million. This is RPM's preferred profit measure, before interest, tax, depreciation and amortization and excluding items it treats as one-offs. It grew slightly more slowly than sales, so the underlying profit margin was flat at 18.3% against 18.4% a year ago. Reported net income grew 12.6%.

The numbers

*RPM does not report an operating income line. We calculated operating margin as gross profit minus SG&A (selling, general and administrative costs) and restructuring expense, divided by net sales: $349.0M against $310.9M a year earlier.

Three segments, three different quarters

RPM now reports three segments. From June 1, 2026 it moved about $143 million of annual Latin American revenue out of the Construction Products and Consumer groups and into Performance Coatings. Prior-year figures have been restated on the same basis, so the comparisons below are like for like.

Performance Coatings was the strongest segment. This group sells industrial flooring, protective coatings and food coatings. According to the filing, demand for "engineered solutions for high-performance buildings, energy and infrastructure projects including in emerging markets" drove 7.9% organic growth. Every emerging-market region grew revenue by more than 20%. Higher volume spread the group's fixed factory costs over more output, and its adjusted EBITDA margin rose 1.3 points.

Construction Products went the other way. Organic sales fell 1.7% because of "a slowdown in the healthcare and education markets" (customers delayed construction projects) and supplier raw-material shortages on certain products. Only the Kalzip acquisition kept reported sales growing. Adjusted EBITDA fell $17.8 million (9.7%) for four reasons:

• lower volume meant fixed costs were spread over fewer sales
• raw-material inflation driven by supply shortages
• a $4.4 million bad-debt charge after a customer went bankrupt
• a $6.3 million warranty charge at a small European business that RPM says is "under review for closure"

Consumer grew steadily. Sales rose 5.3%, with organic growth of 5.2% across all of its businesses. The company credits shelf-space wins at retailers, new products and price increases. The segment's adjusted margin was flat. Its reported pre-tax income jumped 21.5%, but that figure includes a $10.8 million gain from selling a closed factory (see below).

What the headline numbers hide

• About half the reported EPS growth comes from one-off items. Reported EPS rose 13.6% and adjusted EPS rose 5.3%. In the reported figure, this quarter includes a $10.8 million gain on selling a Consumer facility closed under RPM's MAP 2025 cost program (MAP is RPM's Margin Achievement Plan) and a $4.9 million gain from lowering the expected "earn-out" payments owed on two small acquisitions. The prior-year quarter carried $16.7 million of MAP restructuring costs and a $7.1 million inventory accounting charge from acquisitions. In total, net MAP costs dropped to $1.4 million from $16.7 million. The adjusted figure is the better guide to how the business is running, and on that basis profit grew roughly in line with sales.
• The SG&A improvement is partly one-offs too. SG&A fell to 25.3% of sales from 27.1%. Both gains were recorded inside SG&A and together came to $15.7 million, which is more than the whole $13.8 million year-over-year decline. Without them, SG&A dollars would have risen about $1.9 million, though they would still have fallen as a share of sales. Lower sales commissions, lower healthcare costs (helped by cheaper prescription-drug purchasing) and restructuring savings also helped. Higher bonuses, acquired companies' costs and the bad-debt charge pushed the other way.
• Cash conversion is good. Operating cash flow was $263.9 million against net income of $256.6 million, slightly more than 1:1. After $58.5 million of capital spending, free cash flow was $205.4 million, up from $175.0 million. The filing attributes the improvement to working capital, meaning cash tied up in receivables and inventory net of what the company owes suppliers.
• Inventory is growing faster than sales. Inventory was $1.14 billion, up 6.8% from a year earlier, while sales grew 4.8%. RPM added $81.6 million of inventory in the quarter, compared with $16.0 million in the same quarter last year. Two things offset that cash drain. Accounts payable (money owed to suppliers) rose 16.8% year over year, and gross receivables rose only 2.7%, slower than sales. Cash flow would have been weaker without the extra supplier credit, so this is worth watching. The inventory build may reflect buying ahead of inflation or shortages, but the filing does not say so.
• Buybacks, tax and interest added almost nothing. Diluted share count fell only 0.6%. The tax rate rose slightly to 23.9% from 23.6%. Interest expense fell $3.8 million to $25.5 million as debt came down, but investment income fell $5.9 million, so the net financing line was slightly worse. Almost all of the adjusted EPS growth came from operations.
• The full-year guidance is less ambitious than before. RPM previously guided to fiscal 2027 sales growth of 3% to 7% and adjusted EBITDA growth of 5% to 10%. It now expects "mid-single-digit" growth for both. For sales, that is roughly the middle of the old range. For profit, it removes the upper part of the old range. First-quarter adjusted EBITDA growth of 4.5% was below the old 5% floor.

Takeaway: Reported earnings rose 12.6%, but RPM's underlying profit grew about as fast as sales, roughly 4.5% to 5%, and its gross margin fell a full point to inflation and tariffs. Growth in Performance Coatings is real and now carries the company. Construction Products, still the largest segment by sales, is shrinking organically and earning less. Management has also lowered the top of its profit guidance.

Balance sheet

RPM used the quarter's cash to pay down debt. Total debt was $2.41 billion against $2.67 billion a year earlier. Liquidity (cash plus undrawn committed credit lines) rose to $1.21 billion from $933 million. The company returned $90.5 million to shareholders: $68.1 million in dividends and $22.4 million in share repurchases. About $407 million of debt is now classed as due within 12 months, against $7 million a year ago. RPM will need to repay or refinance it during the coming year. With that much liquidity, this is a scheduling issue, not a sign of financial strain. After the quarter, RPM bought Volteco, an Italian maker of below-grade waterproofing products with calendar-2025 sales of €28 million, for the Construction Products group.

Outlook

Management expects the second quarter (September to November 2026) to look much like the first. Its guidance by segment:

Management says MAP savings and price increases should offset "gross margin pressure from higher inflation and start-up costs at new facilities." It expects Construction Products to return to positive organic growth by the end of the fiscal year (May 2027). RPM will hold an investor day on November 9, 2026, which could bring updated multi-year targets. The filing mentions early "MAP 3.0" actions.

Our read: The guidance is believable for sales, because pricing and Performance Coatings momentum should keep total growth near mid-single digits. Profit is where the risk is. Gross margin is already down a point, management expects inflation to continue through the year, and the second half has tougher comparisons. Most of the EBITDA growth will have to come from cost savings, not from margin on each sale. Next quarter, three things are worth watching. First, whether the CPG organic decline narrows as healthcare and education projects that were delayed come back. Second, whether gross margin stabilizes near 41%. Third, whether inventory keeps building faster than sales. A second quarter of falling CPG profit would make the guided year-end recovery in that segment harder to believe.

Source: RPM's earnings release dated October 6, 2026 (Exhibit 99.1 to Form 8-K) and its Form 10-Q for the quarter ended August 31, 2026, filed with the SEC.