RPM International Inc. (RPM) had a rough Thursday after delivering second-quarter fiscal 2026 results that looked good on paper but disappointed where it counted. The stock dropped 3.53% to $101.12 as investors digested numbers that told a complicated story about construction markets and government dysfunction.

The Numbers Tell a Mixed Story

RPM posted record quarterly sales of $1.91 billion, up 3.5% year over year, which sounds impressive until you realize Wall Street wanted $1.928 billion. The company actually saw organic sales decline 0.5%, masked by acquisitions that added 3.4% growth and foreign currency translation that contributed another 0.6%.

The real pain showed up in profitability. Adjusted EBIT fell 11.2% to $226.6 million, weighed down by growth investments, lower fixed-cost absorption from reduced volumes, and temporary inefficiencies from consolidating plants and warehouses. Adjusted diluted earnings came in at $1.20 per share, down 13.7% from last year and well below the $1.42 consensus estimate.

Operating cash flow reached $583.2 million through the first half of fiscal 2026, with capital expenditures of $111.8 million. The company's balance sheet showed total debt of $2.52 billion as of November 30, 2025, with liquidity at $1.10 billion. RPM returned $168.7 million to shareholders through dividends and buybacks during the six-month period.

Government Shutdown Creates Construction Headaches

Here's where things get interesting. RPM's quarter started reasonably well, fueled by acquisitions and demand for engineered solutions in high-performance buildings. But momentum slowed as the quarter progressed, particularly in construction segments where the prolonged government shutdown created ripple effects across project timelines.

Chairman and CEO Frank C. Sullivan explained the challenge: "The prolonged government shutdown contributed to the trend of longer lead times on construction projects and further pressured already negative consumer sentiment. As a result, sales growth turned negative as the quarter progressed, and earnings declined as we were unable to fully leverage growth investments and overcome temporary margin headwinds from plant and warehouse facility consolidations."

The weakness wasn't limited to commercial construction. Softer DIY demand also moderated growth, suggesting consumers are keeping their wallets closed amid broader economic uncertainty.

Geography and Segment Performance

Europe delivered the strongest regional performance with 13.9% sales growth, driven by acquisitions and favorable foreign exchange rates. North America managed 1.9% growth, helped by acquisitions and high-performance building solutions in the U.S., though Canadian softness offset some gains. Emerging markets showed strength in Africa and the Middle East, powered by infrastructure and high-performance building projects.

Looking at business segments, the Construction Products Group saw sales rise 2.4% to $737.4 million, but adjusted EBIT dropped 10.9% to $98.6 million. Performance Coatings Group revenue grew 4.4% to $533.8 million with adjusted EBIT essentially flat, declining just 0.3% to $82.8 million. The Consumer Group posted 4.1% sales growth to $638.7 million, while adjusted EBIT fell 6.2% to $90.0 million.

Cost Cutting to the Rescue

Facing sluggish market conditions, RPM is taking action with measures expected to deliver roughly $100 million in annual benefits once fully implemented. The savings will materialize gradually: about $5 million in the third quarter, an additional $20 million in the fourth quarter of fiscal 2026, and $75 million in fiscal 2027.

Sullivan emphasized the balancing act: "Given the slower demand environment, we have moved quickly to put in place SG&A-focused optimization actions that will save approximately $100 million annually once fully implemented, while continuing focused growth investments in our highest potential opportunities."

What's Next

Management expects mid-single-digit sales growth for both the third and fourth quarters. Adjusted EBIT should rise mid- to high-single digits in Q3, then moderate to low- to high-single digit growth in Q4.

Sullivan struck a cautiously optimistic tone about the path forward: "Driven by our targeted growth investments, we expect to outgrow underlying markets in the third quarter. However, market demand is expected to remain sluggish as consumer confidence is low and uncertainty in construction markets, including weather-related factors, persists."

He added, "While visibility for the fourth quarter remains limited, we are controlling what we can and expect to benefit from activity related to previously deferred construction projects and are encouraged that our construction pipeline remains solid."

In other words, RPM is hoping those delayed government-related projects eventually break loose while they tighten the belt on operating expenses. Whether that's enough to satisfy investors remains to be seen, but Thursday's market reaction suggests skepticism is winning for now.