Q4 2020 RPM International Inc Earnings Call
Ladies and gentlemen, today's topic is scheduled to begin shortly things because they get a standby. Thank you for your patience.
[music].
Welcome to the Art Penn Internationals conference call for the fiscal 2024th quarter and year end.
Today's call is being recorded.
This call is also being webcast they can be accessed lie or replayed on the RPM website at www Dot RPM I am seeing dotcom.
Comments made on this call may include forward looking statements based on current expectation that involve risks and uncertainty which could cause actual results to be materially different.
For more information on these risks and uncertainties. Please review RPM reports filed with the FCC.
During this conference call.
To me.
To non-GAAP financial measure.
If you understand the these non-GAAP times RPM has posted reconciliations to the most directly comparable GAAP financial measures on the RPM website.
Following today's presentation, there will be a question and answer session.
Which time every with the asked the question you only need a press Star then one way the telephone.
Please note that only financial analyst with what we've committed to ask questions.
This time I would now like to turn the call over the RPM, Chairman and CEO Mr., Frank Sullivan for opening remarks. Please.
Please go ahead.
Thank you Sarah.
Good morning, and welcome to the RPM International Inc. Investor call for fiscal 2024th quarter and year ended May 31 2020.
On the call with me today are Rusty Gordon RPM, as Vice President and Chief Financial Officer, and Matt Ratajczak or Vice President of global tax and Treasury Who's also taken on the responsibilities for our Investor relations activities.
On a call today I'll provide an overview of our performance for the quarter in an update on our map to growth operating improvement program.
Matt will follow me with a review of our fourth quarter financial results and then Rusty will wrap up our formal remarks with our outlook for fiscal 21.
After that we'll be pleased to take your questions.
Leading up to the krona virus pandemic, our business was trending towards a quarter and year.
Record sales and record adjusted earnings.
However, as expected our fourth quarter consolidated results were impacted by the economic fallout created by the pandemic, which to various degrees interrupted our manufacturing and distribution operations as well as the maintenance repair and construction activities of many of our customers around the world.
At various times during the quarter, we had more than 10 manufacturing facilities closed along with multiple other sales offices and distribution centers due to government mandated closures, mostly outside of the United States and for disinfecting in cleaning facilities related to health and safety protocols dirt.
In the pandemic, we have taken decisive action to restrict travel limit access to our facilities and established safety protocols.
And allow those who could effectively perform their jobs remotely to do so.
Through at all we remain focused on protecting the health and wellbeing of our associates and their families and are playing a role in inhibiting the spread of the krona virus and the communities in which we operate.
Thanks to our associates averaged to follow our comprehensive health and safety protocols nearly all of our manufacturing facilities and distribution centers have been opened in operational since our fiscal year end.
Cobot Nike generate generated challenges during the quarter resulted in an 8.9% decline in our consolidated sales, which was better than the decline of 10% to 15%, we anticipated and discussed on or April call.
On a geographic basis, our sales were essentially flat in the U.S., where construction and hardware channels were generally deemed essential but were down 25% in international markets, where many of our businesses were ordered close by government mandates.
The primary driver of our better than expected topline results was the growing demand throughout the quarter in the U.S. for our consumer groups small project paints Cox sealants repair products wood stains and specialty cleaners.
Consumer had additional consumers had additional time for home improvement maintenance and repair projects because of the stay at home orders across our country.
They were able to purchase the products they needed through E commerce portals, which grew dramatically during the quarter.
As well as a retail partners in our broad distribution base of DIY stores, which were among the businesses that were considered essential to the economy and were able to remain open and operational.
The performance of our consumer segment relative to our other segment highlights the long highlighted value of rpms diverse operating company portfolio, where weakness in one segment is often offset by strength in another.
Our fourth quarter adjusted diluted earnings per diluted earnings per share of $1.13 well below last year's all time high results still represent our second best fourth quarter on record.
The decline in adjusted diluted EPS was equivalent to the drop in sales illustrating our quick response to reduce costs during the economic downturn as well as the ongoing success of our map the growth operating improvement program.
Corona virus safety protocols, such as limits on travel and facility access slowed some of the planned activities that were part of our phase three of the map to growth program, particularly manufacturing improvement initiatives, which were nearing their and yeah, particularly in including plant closures and ERP can.
Validations.
However in response to the economic downturn created by the pandemic. We quickly took proactive measures to accelerate the map to gross cost reduction initiatives with a focus on de layering management and other areas of administration.
As a result, we may remain on track to achieving or exceeding our original annual cost savings of $290 million.
During the fourth quarter, we announced the closure of three plants, which brings our total to 22 out of the 31 plant. So we're originally targeted for closure and consolidation at the beginning of the map to growth program.
As we mentioned last quarter due to the pandemic induced delays in executing some of our restructuring initiatives, we will be extending the timeline to achieving our original map to growth objectives. This includes our goal of repurchasing a billion dollars of our stock which was more than halfway completed but suspended in mid March as it.
Spots to the pandemic and its economic impact.
There is still too much uncertainty at this point to set a new target date for completion as the global economy stabilizes and we gave more visibility into business conditions, we will communicate our new map initiatives and growth timeline in the coming quarters.
Expenses were dramatically down in or non operating segment due to the Corona virus pandemic medical costs were lower due to lower volumes management incentives on long term programs were reversed travel was banned and use of outside consultants was curtailed we will continue to be aggressive in managing all costs.
<unk> expenses in areas of the business within our control to drive performance and continue to navigate through this unprecedented environment.
As a result of the economic uncertainty created by the pandemic, we have focused on generating strong cash flow and maintaining liquidity.
At year end, we reported record operating cash flow of $550 million as a result, a good working capital management and margin improvement initiatives from our math to growth program.
Our procurement team formed as part of the map program has recently gone and incredible job of improving payables by negotiating better terms with our suppliers, which will continue to benefit cash flow in the coming quarters.
At May 31, 2020, our total liquidity and liquidity, including cash and committed revolving credit facilities stood at $1.280 billion.
I'll now turn the call over to Matt Ratajczak Who'll review, our financial results for fiscal 2024th quarter on an adjusted basis.
Thanks, Frank and good morning, everyone. Please note that my comments will be out on adjusted basis as Frank noted.
During the fourth quarter, we generated consolidated net sales of 1.46 billion decrease of 8.9% compared to the 1.6 billion reported during the same period for fiscal 2019.
Organic sales declined 7.9% 426.6 million.
Acquisitions contributed 0.7% to sales were 10.7 million.
Foreign exchange was a headwind that reduced sales by 1.7% for 26.5 million.
Adjusted diluted earnings per share, where dollarsthirteen decrease of 8.9% compared to the record dollar 24 and last year's fourth quarter.
Our consolidated adjusted earnings before interest and taxes, EBIT decreased 11.5% to 213.6 million compared to 241.4 million reported in the fiscal 2019 fourth quarter.
Turning now to our segments.
Sales, our construction products group were down 15.6% to 472.4 million compared to 559.6 million a year ago organic sales declined 13.9% for 77.9 million.
Acquisitions contributed 0.7% for 4.1 billion to sales.
Foreign currency translation reduced sales by 2.4% for 13.4 million.
Adjusted EBIT in the segment was down 12.1% to 77.3 million compared to adjusted EBIT of 87.9 million during last year's fourth quarter.
Segments strength was this U.S. roofing business experienced limited interruption from the pandemic as most roofing projects, which are completed outdoors and do not require entry into customers facilities.
We're able to proceed.
The season for roofing applications was broad when schools were closed early allowed us to meet demand from this customer base.
The segment performed better in the U.S., However in certain international markets for construction was not considered essential.
Segment experienced significant sales declines.
International results were further challenge by currency headwinds.
Well the segment sales declined during the quarter earnings declined at a lesser rate due largely to the success of them after growth program, which included the closure of two manufacturing plants and proactive measures taken to cut expenses.
Sales our performance coatings group were down 20.2% to 235.1 million compared to the 294.5 million we reported during last year's fourth quarter.
Organic sales declined 18.3% for 54 million.
Acquisitions added 0.2% to sales or the half million dollars.
Foreign exchange was a headwind of 2% or 5.9 million.
Segment, adjusted EBIT was down 31.9% to 23.7 million compared to 34.7 million reported during last year's fourth quarter.
The segment quickly responded to the economic downturn created by Copel 19 by de layering management and aggressively reducing fixed costs.
Particularly in areas of the business that serve the energy industry as well as other affected sectors.
Similar to our construction product segment. The performance coatings group also performed better in the U.S. that internationally.
Although segment sales decline earnings did not increase as much as would be expected out a detrimental basis due to operating improvements from our map to growth program.
And the consumer group sales were strong increasing 6.7% to 616.2 million from 577.5 million during last year's fourth quarter organic sales increased 7.7% for 44.6 million.
Foreign currency translation reduced sales by 1% four or 5.9 million.
Adjusted EBIT in the segment was down 4% to 104.5 million compared to 108.8 million in the prior year period.
While U.S. sales were up 12% international market struggled due to more stringent lockdown orders on manufacturing and retail.
Overall, the consumer group sales results for the quarter were excellent given they are compares to do a very strong fourth quarter last year, when we made large market share gains.
Our associates went the extra ordinary links to deliver products to our customers in spite of supply chain challenges.
The bottom line was impacted by higher operating expenses for safety measures and equipment as well as distribution costs due to increased ecommerce orders.
All that were required to function during the pandemic.
These costs are expected to be temporary and we're not passed along to our customers.
As part of our master growth initiatives, we closed an Australian manufacturing facility, which will benefit our bottom line in the coming quarters.
Specialty products group sales were $135.2 million during the fiscal 2024th quarter compared to sales of 169.7 million in the prior year period.
Which was a decline of 20.3%.
Organic sales decreased 23.1% for 39.3 million.
Acquisitions contributed 3.6% for 6.1 million to sales.
Foreign currency translation reduced sales by 0.8% were 1.4 million.
Adjusted EBIT in the segment was down 72% to 7.3 million in the fiscal 2024th quarter compared to 26.2 million in the fourth quarter of fiscal 2018.
Overall, the segment accounted for 9% of the quarters consolidated sales.
A number of the segments businesses or OEM markets that have struggled during the pandemic such as furniture and marine Marine distributors that were closed for an extended period of time in the U.S. because they were not classified as being essential industries.
I'll now turn the call over to Rusty who will walk through our outlook for fiscal 2021.
Thanks, Matt.
After lockdown restrictions caused our sales to decline in April and May we expect to resume our growth in our fiscal 2021 first quarter since our sales have begun to trend better as a result, our outlook for the first quarter is to resume the growth.
And earnings leverage more typical of the results seen in recent quarters with sales to be up in the low single digits, and adjusted EBIT growth of 20% or more compared to the prior year.
For the full year of fiscal 2021, we anticipate our construction products group and performance coatings group could experience sales declines for the first three quarters and then turned positive in the fourth quarter.
Our consumer group should continue at sales momentum into fiscal 2021.
The specialty products group is expected to face negative sales comparison during the first two quarters, which should turn positive in the back half of the year.
These projections assume that we do not experience a second round of lockdowns related to cope with 19.
Due to the continued economic uncertainty around the length and severity of the pandemic, we're not providing earnings guidance for the full year fiscal 2021 at this time.
While the pandemic continues we remain focused on our core well being of our employees and their families and growing the business, where we can while rpms growth was temporarily interrupted by cobot 19 walk down in the last quarter, we are keeping our foot on the gas.
Yes, and executing our math to growth program.
In a world of uncertainty and unknown, we have focused on managing the areas of the business that we can control.
Our operations and management team have bought into this program, which has proven very beneficial in driving efficiency, increasing our cash flow and making us more competitive.
We have just started to make progress on inventory reduction and the benefits from ERP consolidations.
And associated administrative savings are in our final wave of our map to growth program.
So there is still a plentiful to do lift for future operational efficiencies continuous improvement and cost savings.
With so much change going on at RPM, Let me spend a moment on things that are not changing we will maintain or entrepreneurial culture, which is one of our core strength.
Through it we remain nimble to adjust to market conditions, which is especially important in this uncertain and volatile environment.
We will continue to invest in innovation to maintain industry, leading organic growth.
We will continue to deliver maintenance and repair solutions, which are relatively recession resistant.
And have served us well during past economic downturns.
We will be focused on cash flow and selective in acquisition activity, while maintaining a preference for debt reduction in lieu of share repurchases.
We look forward to continuing our track record of increasing our cash dividend for 47th consecutive year.
This concludes our formal comments, we will now be pleased to take your questions.
Thank you.
As a reminder to our financial analysts.
Please press Star then one on your telephone.
To withdraw your question please.
Please press the pound.
Our first question comes on the line of Mike Sison with Wells Fargo. Your line is now open.
Morning, Michael.
Hey, guys a.
Nice quarter therein.
You guys outside unhealthy so that's great.
In terms of your first quarter outlook, I'm, having a little bit of hard time visualize the low single digit growth can you make can maybe walk through.
How much improvement you see in some of the segments and is it.
Really just another strong quarter for consumer products to really get there.
So it Thats a great question, particularly in light of all the volatility that everybody's seeing.
And so we'll make some comments like we did in April by providing some insight into our months.
I look forward to getting back to not doing that and just talking about quarters in years.
But because of the volatility I think it's appropriate so our June results grew double digits and that was across most of our businesses and it's a combination of continuing good consumer takeaway.
In our consumer segment in businesses I.
I think solid.
Performance.
In our industrial particularly construction.
Related businesses, some of which clearly was a pent up.
Work from April and May that was interrupted.
Our July results seem to be.
Flat year over year.
And that's a a mix between our segments.
And our geographies as Rusty indicated earlier or man indicated we we've had.
Either flat or solid results in the us and different results in different parts of the world.
I think what's obvious in our results in the fourth quarter and in our forecast for Q1 is the map to growth program is working we are still building momentum we have more work to do.
And in an environment, where we're able to put up.
Solid.
Low to mid single digit revenue growth, you will see really solid EBIT leverage to our bottom line.
So I think the biggest concern we have as volatility around like everybody around what might happen.
In coming months relative to reactions to the kroner virus help pandemic, but other than that.
We're in pretty good shape and the map to growth programs delivering.
When we have solid revenue growth.
Got it great and a quick follow up.
How much.
Map to growth did contribute isn't in the fourth quarter.
And I mean, I think if you look at the gross the first quarter is and really think about how that that strong EBIT growth is that really the primary driver there or are there other baby factors coming in lower raw materials pricing and such to get that impressive growth from the first quarter.
Sure Yeah. The map program continues to build momentum Mike This is rusty here.
In the third quarter, we said, we had map savings year over year incremental in the low $20 million range and we were probably closer in the mid $20 million range in the fourth quarter of physical 20.
Great. Thank you.
Thanks, Mike.
Thank you. Our next question comes on the line of John Mcnulty with BMO capital markets.
Your line is now open yeah. Thanks for taking my question, maybe maybe a little bit deeper on a on the map to growth side. It sounds like you've got more progress done maybe this past quarter. Then then then maybe you had originally hoped for I guess, how should we be thinking about the savings rate as we run into 2021, how how much.
Incrementally do you think you can you can pull out given theres still are some some covert related restrictions, but it does look like you can maybe put some levers and other areas.
So the.
In November of 2018, we laid out a three pronged wave and roughly each wave on a ongoing sustained basis was generating about $100 million and.
We have that as a goal for.
Our third wave, which starts on on June one which started on June one.
And.
I think when were completed with this we will exceed the original 290 million dollar forecast.
By a few tens of millions of dollars, but some of the.
Progress in the third wave.
We will be delayed because of getting into plants has been a challenge, particularly without kind of outside consultants some of the ERP stuff.
Has been delayed.
The third wave, especially the back end of it really will impact fiscal 22.
And really solid performance in fiscal 20.
Should provide us with.
Pretty strong.
Leveraged to the bottom line in fiscal 2001 is we highlighted obviously it is revenue dependent because a big slug of our savings that's working really well and better than originally anticipated is in the manufacturing and continuous improvement efforts.
As well as broadly.
Our procurement activities and they're working really well, but from an accounting perspective, we had this conversation.
With a different analyst on a prior call.
Those savings get capitalized into inventory and they flow through our PNM when we sell that inventory.
So any amount of sales will bode well for our bottom line.
Lastly, if we bump into some.
Future reduced revenues because of this pandemic than the impact of our savings, particularly in the gross margin will be delayed.
Got it that's a that's that's hugely helpful. And then I guess that the second thing would be it sounds like Europe or certainly the international markets really really took a tough time in in your fiscal fourth quarter now that it looks like some of the European economies have kind of reopened and actually it seems like maybe they're making.
For last time, I guess can you give us some color as to how those markets are playing out for you and kind of what your expectations are there.
Sure I'm the European market is slowly recovering.
It was very difficult in Q4 as you mentioned, because we had government mandated shutdowns in the UK in different parts of Europe and throughout Latin America also in the couple of plants, we have in India.
With the Reopenings in the UK, we're seeing the same type of strong DIY demand that we are in the us.
That is true to a lesser extent, but still positive in continental Europe and the consumer side.
We're seeing.
Sequential improvement in our industrial businesses, our construction products group and performance coatings group specialty products. So we're seeing some sequential improvement certainly from April and May into June in the summer not necessarily year over year strength because of the.
Strong performance, we had last year.
Our year, while we're not providing guidance will really be.
A good one or a great one based upon our performance.
In these coming quarters as the fourth quarter for us and everybody, but particularly given our may 31 year end.
We'll have some pretty extraordinary year over year growth.
Given the impact of the krona virus in global shutdowns in the fourth quarter, we just reported.
Got it that's helpful and maybe if I can ask one just quick last question I know in the last 12 to 18 months or so you've gained a lot of share you've won a bunch of new accounts I guess can you speak to kind of the progression of that and if you're still continuing to see wins or if the cobot issues. If maybe kind of put some of that on hold and and that maybe more.
More of a future a future dynamic to be thinking about.
I think we're holding our own the supply chain issues are challenging for everybody.
Our.
Fill rates into our customers are at lower levels than they've ever Ben I.
I think were equal to or similar to our pure competitors.
But there had been some.
Disruptions in packaging in can supplies that are going to continue and some rising costs there.
There have been some distribution.
Disruptions.
And so that's a challenge, but what is happening at RPM is continuing and it's very exciting and its nascent in a couple areas. So for instance.
Partnership.
From a market facing perspective between our construction products group and our consumer group.
As having some exciting wins you can find the tremco bolcom urethane sealants and Menards.
You can find tremco branded five gallon pales of unique tremco roofing coating materials in home depot in Texas and these are fledgling opportunities for us to take some of our industrial construction chemical brands and construction sealants and products in coatings and waterproofing products.
Into some of our stronger home center channels, and so the opportunity for market share gains in growth, there's pretty exciting for us we're in the early stages there.
But it's exciting.
We.
Just got into Walmart would they grab and go.
House paint program, which is a first for us through rust oleum and so that is nascent but also exciting so the opportunities for us to continue to grow in those areas.
Continue to receive our focus and we're working hard to make them successful.
Great. Thanks, very much for the color congratulations guys. Thanks John.
Thank you. Our next question comes on the line of Frank Mitsch with Permian Research. Your line is now open good morning, Frank.
Good morning, Frank as well.
Hi.
Listen.
If you talk about the fiscal first quarter, which is off to a terrific start.
That you're guiding sales up low single digits June up double digits to lie flat that implies August will be down upper single digits.
Alluded to strong performance last year.
But what else are you seeing.
At this point, you're calling for August to be down upper single digits in terms of sales.
Yes.
I'm not sure that that's exactly exactly accurate but.
It's just volatile Frank it's we've never seen volatility like this from one geography to another.
And.
I think there's some nervousness not only by us about by others about some of these rising cobot cases, and what government responses might be so it's hard to predict.
This was the most difficult planning year, we've ever experienced and so it behooves us to plan conservatively and focus on things as Rusty said that we can control.
In terms of executing our map initiatives controlling cost and focusing on cash flow and so I. That's my reference to the difference between a Goodyear and a great year is in light of the things that we can't control and we're doing well if revenues are better than than we anticipate we'll have a really.
Calendar year.
If revenues are where we.
Are concerned about.
We will still do relatively well because of the things part of its just luck I.
I think we're fortunate to be in the midst of a operating improvement program. This delivering good results.
While the whole world stealing with the consequences of the health pandemic.
If I.
If I understand your answer correctly.
You're taking a bit of a swag at August it is not a fait accompli.
At this point that it's going to be down upper single digits.
You know you're just you've got obviously got a lot of uncertainty or as you look at your order book you pretty much I can dial it in that.
That's what it's going to turn out to be because obviously you know June June was very solid.
July slowed down and so you're just projecting that trend or I mean, I'm just trying to get your level of certainty around August being as difficult as your as your guidance suggests.
We we don't have a level of certainty about future months and not to be negative I think our trends right now are good.
But like everybody I think our visibility our our trust in our ability to forecast forward, which for US is usually a two quarters. So you're looking at anywhere from four to six months is low as it's ever been and so that's the best answer I can give you. That's that's fair that's very.
Fair.
And then.
Just one last question you you, obviously mentioned how ecommerce played a much bigger role in the fiscal fourth quarter.
Given.
Given that the future may be quite a bit different than than past practices is that impacting your thinking longer term on how you distribute your materials and shipped resources around and are there any kind of guiding lessons that post pandemic will change the way RPM operates.
I don't think it changes the way we operate it will continue to allow us to partner with our big customers in ways that.
We will continue to expand ecommerce.
Many of our products aren't the most naturally.
Purchased on.
Line, because of shipping issues or flammability issues or wait to value issues.
But our.
Our volume with home depot Dot com doubled.
Our volume on Amazon doubled.
Now that the UK is picking back up we have an m. our ROE business over there called Watco that was a catalog kind of business that went to online and consumers are finding that and that that business is increasing dramatically and so I think the big takeaway for us here that were.
Excited about but time will tell.
And this is a unique to RPM.
The stayed home orders in the United States and it seems true in the UK as well has created a a greater number of confident DIY wires.
This is it just about paid but wood stains and finishes that tend to be more kraftwerk and require more.
Skill.
Those volumes are up pretty dramatically and so across a number of DIY categories. I think one of the interesting outcomes is understanding.
Is there a larger more confident DIY base than there would have been otherwise and we hope that's true and we'll find out that's a very interesting take I hadn't considered that thanks. Thanks, so much.
Thanks Frank.
Thank you. Our next question comes on the line of Rosemarie Morbelli with T. Research. Your line is now open.
Good morning to good question good morning, everyone.
Following up on the on the E Commerce thoughts.
Frank.
If I understand probably it is mostly on the retail side on the consumer side and could you show signs of that E commerce.
I wouldn't do it specifically, but collectively across RPM tens of millions of dollars and so the percent year over year growth is very impressive the percent of our consolidated sales is not.
Not a lot.
And is that particular business does it have.
Similar launch into your other businesses or does it have a higher level how you much in that.
It's hard to know in the fourth quarter. It has.
In cost were greater.
And we had some ramp up costs, there and so long term that the pricing.
Model and the gross margins aren't a lot different but the distribution costs are higher and so there is lot learned there in terms of efficiency. It also is higher because again the volume on a relative basis is relatively low.
Okay. That's helpful. Thank you. So you always focusing on the innovations would you talk about John you projects still coming out this year on may be coming out next year.
And you mentioned the Walmart.
Grabbing Joe Pain program does that mean that you're getting into watch Textron program, though is it something else.
It means that we have a nascent program.
Well paid Ed.
At Walmart.
And our certainly learning.
Okay, and what other type of innovation new projects are coming through the pipeline.
Sure this as Rusty.
One product, which.
We're excited about his rust oleum home. This is a flooring transformation product.
Two step coating process, where you could put.
Coating over old laminate floors, or wood floors and create a brand you look and we're very excited about that another one on our construction product side is our.
PM are.
Or puma range of products.
For Tremco used in both roofing and deck coatings, we have alphaguard Puma.
And bolcom Wf for protection of concrete. This is a waterproof coating that can be applied as low as negative 20 degrees Fahrenheit uses polyurethane pack relate technology, that's great adhesion characteristics elongation.
Characteristics and is very durable. So those are a couple of examples.
I'll add one thing for fiscal 2001.
We actually manufacturer some of those resins in a factory in Germany, and we export those to the us for some of the more unique.
Tremco.
Thing.
<unk>.
Coating products and in fiscal 21.
We have cut back where appropriate on our capex, but one of the major capital spends will go forward is a $20 million to $30 million spend on a new roof coatings factory relative to the growth there and also bringing our capability to produce so its unique residence to the us.
Thank you very much and you try and may sneak in one more you're expecting.
Difficult quarters for the first nine months for construction in performance coatings I can see performance coatings.
He's a seasonality for construction in Q2 in Q3, but could you give us more details on the first quarter because it's based on how you phrased. It it sounds as though Q1 will also be a difficult quarter for construction and yet we are still in the next stuff.
Sure.
I'll just repeat the comments I made art and hope to get to a point, where we're not providing monthly comments, but our.
June month was double digit in consolidated sales and not every business was up but most all of our businesses were up year over year.
Including in our construction products group.
We think some of the strong growth is literally the carryover of April and May projects that were delayed or halted.
And July revenues.
On a consolidated basis are generally flat.
And so.
There'll be some variability we think it from month to month in the coming months in quarters.
And Thats the best we have right now obviously, we will provide.
Good detail on our first quarter when report those results in October.
Alright, Thank you very much thank you.
Thank you. Our next question comes on the line of Steve Byrne with Bank of America. Your line is now open morning, Steve.
Good morning.
Frank what fraction of your revenue would you say is coming from DIY wires now and the strength that you you saw in in June do you think sets.
Rolling demand from forward or do you think it's just an expansion of this this DIY wire base.
You're referring to is.
You know more confident DIY wires do you think that those DIY wires remain customers down the road or that business flips back to the way it used to get done.
Sure and so our consumer business is.
Call, it roughly $2 billion or consumer segment.
And.
Probably 25% of that.
His Cox sealants.
Patch repair products.
Those product lines are probably.
50% to 60% consumer and 40% to 50% pro.
Our.
Especially.
Coatings, our small project paints the cleaning products those tend to be more 70, 580% consumer and let's say, 2025% pro so hopefully that gives you a breakout.
There.
I.
The.
The hardware store channel home Center store channel major retailers were not.
Interrupted.
Hi, shutdown orders, the United States all of them to various degrees continued to operate and so the strength we're seeing in the summer is a continuation of what we saw in the fourth quarter.
And it is higher demand for DIY products, and we believe a growing base of confident DIY wires.
It certainly will help us and help I think to hold the iwai segment in the future.
To what degree we'll find out.
So.
I wanted to ask you a little bit about just operating in this pandemic environment.
Were there learnings that you took away from this over the last few months to that.
Our now impact in your outlook for mapped to growth or there are there new opportunities that you're seeing to drive cost cuts.
And then what provoked the question was the comment.
No no de layered management and performance coatings that sounds like some head count reductions can and can you quantify the.
Sure I'll make a few comments number one everybody's learned a lot of lessons.
We.
Have a significant chunk of our employees working from home.
And I would bet, we're learning that maybe 25% to 30%.
Of our functions and our individuals are capable of working remotely on a more permanent basis and so that has a lot of consequences for in some cases cost in other cases travel and so.
So our TV costs were down dramatically in Q4 that wasn't unique RPM.
So theres a lot of learning there about going forward what level of travel and entertainment expense do you return to.
And on or the answer that question, but I'm pretty certain it's not a 100% of what it used to be.
So those are just some broad comments on the map the growth program, we're continuing to.
Gain momentum.
My guess is when we're done that 31 consolidated plants will be a few more.
How much of that was.
Would have happened in map to growth versus how much of that is a combination of mapped to growth than what we've learned in that process and a reaction to the cobot 19.
Impact on the economy's, it's hard to tell same thing and SGN, a RSU nay costs will continue to come down and we're learning some lessons there, but it will be as we go quarter by quarter, a combination of mapped to gross savings and just outright responses to the economic circumstances were operating in.
And the head count reduction in performance coatings.
So yeah. There is there across RPM there our levels of temporary expense reductions OTN needs in a good example.
We had various levels of salary reductions the highest which was mined at 30%.
That started in on May one those salary reductions as the year goes on and we meet or exceed our goals will be rescinded. So those expenses will come back to the piano.
We've had some furloughs and plants, we have also had a.
Larger than map to growth anticipated permanent head count reduction in a number of businesses in our performance coatings group, they're the most.
Economically sensitive out of a $1 billion roughly in revenues 250 million roughly is tied directly or indirectly to oil and gas and so they will continue to be of all of our groups. They will continue to be the most challenged on the topline for fiscal 21.
Thank you Frank.
Thanks, Thanks, Steve.
Thank you.
Our next question comes from the line of Rone Vishwanathan with RBC capital markets. Your line is now open.
Morning Rune.
Good morning, Frank Thanks for taking my question and congrats on the great results here.
Well I guess, yeah, just first on that point in consumer.
You've described.
A pretty robust environment on the DIY side, I guess, maybe could you just reiterate I guess, how long you think this will last and why and and if so.
The continued growth there or is there any investments your NAV to make.
In the supply chain I'm, just kind of recalling.
The troubles you had a couple of years ago on the DAP side.
See anything like that happening.
Is there any kind of increased capacity you'd have to.
Consider putting in any of the product lines. Thanks sure.
So it's been very challenging.
Again, not just unique to us but across the III product lines.
Demands up.
I think that's new DIY wires.
Demand up year over year, because people recall last year was somewhat of a wet start to the first quarter and we've had pretty spectacular weather across United States. So thats driving demand supply chain challenges from some of our own distribution issues of freight problems some of our customers pickup.
Great and Thats been it it's we've had challenges there.
Some of our suppliers most recently in metal cans have had their own coded related shutdowns that have impacted supply so.
When your supply chain spend a decade or more in RPM got onboard maybe later than we should have but we've been pursuing it very aggressively for two years efficiency and you get hit with big spikes in demand and.
And and then also temporary shutdowns in distribution centers and or manufacturing facilities of some of your suppliers. It poses a problem so everybody's managing through all those things.
We are 90% done with a capacity expansion.
For instance, in spray paint and the European company that is spend the principal supplier that equipment.
Is refusing to send any of their technicians, the United States. So we've got some really good big investments in some capacity increases that are on the verge of hitting the marketplace.
And we're excited about that but it's just one more example of how the coated pandemic has disrupted plans.
Okay.
And I guess.
Is there any kind of raw material outlook that we should be aware of.
Have you seen any kind of deflation that would be beneficial to your margins.
We've seen some deflation in.
Oil based solvents and different raw materials, there, we've seen particularly starting in the fourth quarter some inflation.
Little pickup anti IL two costs pickup in packaging cost we are have heightened.
Alert to some of the packaging, particularly metal can situations relative to some shutdowns in some announced capacity constraints. There. So even that continues to be volatile.
One of the reasons that we had a there were two issues in our consumer group in the fourth quarter, one with some higher raw material costs and the other was higher distribution costs related to the ecommerce growth.
As well as disruptions in the supply chain around distribution in freight all of those things should settle down over time.
Unless we end up with another round of shutdowns or or government directed actions.
Related to krona buyers.
Great and then let's lastly.
I just wanted to go back to your comments around.
As of cash.
You know again, you have made some some improvement there I guess as part of map the growth.
Reducing working capital and harvesting all that more cash.
And I understand that environments very uncertain right now and that's.
Likely led to your decision to kind of put some of the buybacks on hold but.
When you see kind of getting back to that program.
And I guess, if it's not too soon what would you be doing I guess, what with the cash that you're going to generate this year.
Sure we.
You saw we had a record.
Cash from operations generation for fiscal 20 and debt while some of that was the result of declines in revenues in Q4, a huge chunk of it which is the benefits of our map to growth program and focus on that there is more to come we're making improvements in working capital, but we're still a laggard versus our peers and there is lot of attention on that.
At preference for capital allocation will be funding our operations for instance, I mentioned the capacity expansion that were close to completing in our consumer group and the new capacity expansion that we're just starting in our construction products group.
We will continue to look at acquisitions on a selective basis, I think where we could find the right fits.
That are at a good value, we will continue to execute on those and there are opportunities there.
That could pick up towards the end of the calendar year, depending on private owner perceptions of political outlook in and what that might mean for capital gains taxes are estate planning issues. So thats something were paying attention to but again, we will we tend to be very selective there.
And then we'll have a preference for the time being over debt reduction for the share repurchase program until there is I think a little more stability.
And our outlook and a little more confidence that the disruptions of the Corona virus pandemic.
Our mostly behind us and so that I suspect, we'll look at that very closely with our board.
Throughout fiscal 21.
Great. Thanks, Good luck in the next quarter.
You.
Thank you. Our next question comes on the line of Kevin Mccarthy with vertical research. Your line is now open.
Kevin.
Good morning, Frank how are you.
Thank you.
I'm curious to hear your thoughts regarding the margin outlook in consumer and in particular.
No. We've obviously seen a lot of DIY wives strength, but you noted some elevated costs related to safety measures and supply chain expenses.
What does the magnitude of those costs and how do you see that flowing through in the fiscal first quarter and beyond.
So I think across all of RPM and this is hard to gauge the added costs of.
Of the response to krona virus would be mid to high single digit millions.
So somewhere in the $5 million to $10 million range.
But the bigger impact was.
On revenues, obviously and that won't be forever that was just such disruptions, particularly in April and May, particularly in international markets.
We are focused on improving the margins of all of our businesses in particular, our consumer business our margins haven't fully recovered from where they were back in 2016.
And there has been a lot of focus on.
Operating efficiency at the plant level, we closed a number of plants across RPM, but I believe three of those had been in our consumer segment and so our efforts to really focus on being more efficient at the operating level on introducing.
Lean manufacturing disciplines.
On on.
Different items ESI LP.
Disciplines in our plants. These these are things that were lost on me.
Five years ago, but are not lost on me organization today.
And they are having a benefit and we're continuing to focus there. We've also reduced our supplier base and it's helped US both improved terms and.
Negotiate better pricing in a lot of places.
And become better strategic plan suppliers. So we're having discussions with a number of major suppliers at the RPM level that we hadn't had in the past and so thats, helping us as well. So we're keenly focused on all of those.
Issues and we'll continue to benefit from that in fiscal 2001 is we continue to execute the rest of the map to growth program.
Appreciate the color there secondly, how would you.
How would you characterize your capital expenditure budget in fiscal 2021 relative to the 148 million.
2020.
Our current spend.
Budgets about 130 million, which is down but again that that was in a.
Forecasting process that was pretty conservative we do have.
One major capital spend that for expansion in our construction products group.
Actually the consumer capital spend I referenced most of that's behind US we just got to get it through the finish line.
That could change as we get into the second half of the year and if our performance and the underlying economic dynamics are better than we anticipated so because we cut back pretty aggressively so.
100, Thirtys, what our current budget is.
I hope, we end up spending 150, because the world ends up being better than everybody anticipates.
Great. Thank you very much.
Thank you.
Thank you. Our next question comes from the line Vincent Andrews with Morgan Stanley. Your line is now open.
Thank you and good morning, everyone. Just a couple of follow ups on the consumer group Frank I just want to clarify first you said July I heard you say consolidated sales for the total company were flat in July.
Can you clarify what consumer was in July.
Yes, we will provide the details on the quarter.
In October so I don't want to.
He said we were hesitant in April to get into monthly details, but given the volatility felt the investor community deserve that it's why we're providing some details now in our quarter, but.
It's not over and we'll report.
Our results there other than I would refer you to the comments at Rusty made and the direction. We provided in earnings release. This morning, we anticipate.
Solid kind of low to mid single digit growth in our consumer segment across here.
Okay, Alright, that's helpful. And then if I could just ask on I'm, just trying to bridge the sales and consumer down to the EBIT line and you certainly called out the chip $5 million to $10 million of cobot cost across the company sounds like a lot of those were probably consumer just because with the ecommerce issue. You also reference higher raw material costs. So I'm just trying to think about sequentially.
From Fourq you into F. One Q, whether we should see a material improvement.
Assuming there is some sales growth, whether EBIT should actually I assume EBIT should be growing in the in the fiscal first quarter and consumer rather than in the fourth quarter decline, despite 7.7% organic sales growth is that.
Anything you can do to help us there yes.
Probably not what you're looking for but just to repeat that as we sit here today it looks like.
The first quarter will drive on a consolidated basis.
Low single digit revenue growth in a EBIT growth of 20%.
Or better year over year.
And then maybe just lastly.
I appreciate your comments on sort of the the new confident DIY wires and.
I'd also just like you get your perspective on is it seems to me. This isn't just a shift of Proto DIY, obviously, that's happening to a certain extent, but it also seems like the the home improvement the size of that pie is probably increasing and co but despite the fact that overall consumer discretionary spending is going to is going to decline, so which would you agree with that idea there.
Kind of in a new home improvement renovation cycle.
Yeah, maybe I was going to have more share of that than it would have in the past for any number of reasons, but just the idea that the overall pie might be expanding absolutely I mean, I think there new gardeners that weren't gardeners before this spring I think there do you.
Users of our wood stains and finishes product that I referenced that one in particular, because it it tends to be more craft or more project, it's not a simple.
Paint this or and get our small project tanks are more project driven in more crafted more unique.
But.
All the things that we see suggest whether its gardening or the use of small project paints, we're confident in being able to do repairs themselves.
The base of home improvement anti why has expanded.
In the in the spring.
And after continuing continuing nicely throughout the summer months.
Okay excellent very nice job and.
I guess, what's actually a few months. Thanks guys. Good. Thank you.
Thank you. Our next question comes from the line of Mike Harrison with Seaport Global Securities. Your line is now open.
Mike Hi, good morning.
Just looking at the margin performance that you had in the construction.
Segment was what are you mentioned the strength that you were seeing in the roofing business was wondering if that was maybe driving some mix benefits as well just trying to get a sense of whether we can expect.
The margin strength to continue as we get into 21, even if there are still some challenges from a demand standpoint to construction.
Yeah, that's a great question and I'll tell you if you look at our.
Construction products group through nine months.
They.
Had really.
Benefited from good execution on map the growth they really benefited from be very strategic and where they are investing for growth in terms of new products. They are leading the roof restoration coating.
Market significantly that whole things growing and they've got competitors that are coming on but theres still the leader there.
And and even in the fourth quarter again, great question. When you look at a revenue base. It was down 14, or 15% and an EBIT that was down concurrently 12. It tells you that there was good mix, but it also tells you the benefits of the map to growth program under construction products group.
That group has been.
Really leading.
Lot of areas for us and I referenced earlier, we're excited about the future.
Cooperation or synergy if you will between.
Our construction products group technology, and some of the brands and our consumer group strength in some of the home centers. So there hopefully we'll be more to come there we've got some good introductory.
Products and a couple of tests and if they prove out to be successful that's a whole new area of growth for us in the home Center channel with construction products group technology.
All right I don't think we talked at all about the specialty business you mentioned that they were impacted by their exposure to some of the Oems that closed during the quarter.
Areas like wood coatings for furniture powder coatings.
Those Oems gotten back up and running at this point, maybe just a little more color on what you're seeing there.
Yes, they have and so if you're in.
Marine coatings like our pet marine business, if youre in the.
Treatment for.
Furniture as well as.
The furniture protection insurance business, with our which are gardy businesses in.
Furniture stores were closed.
For a period of time most of our outlets for our marine coatings were closed and while it wasn't true of a month.
From one week to the next we had revenues that were down 70 or 80% because their customers were close to what was pretty shocking.
And it gives you a sense of what's happening to a lot of small businesses.
Because their product lines or businesses that are part of RPM or other big companies that have survived this because they're part of the bigger group and so.
Those.
Core shows of bad weeks are behind US all of our customers are up and running.
And.
We're starting to pick.
Pick back up.
And so.
That was a particularly hard hit portion of our Pmts business, but it was a business that got particularly most impacted by shutdown orders of their customer base.
Alright, thanks very much thank you.
Thank you. Our next question comes on the line of sales the Cook with JP Morgan. Your line is now open.
Thanks.
Good morning, how are you good thank you.
I was wondering if you.
I would tell me what you have a map savings acumen.
Got it okay.
Program, and where do you can just like roughly.
Buckets that Medtronic manufacturing procurement count administrator.
Yes, I don't have that off the top of my head.
I know that.
We laid out pretty good detail of three ways first wave was 101 million I think in we exceeded that by about 10 million second wave, which we just finished was about the same and were slightly ahead of that the third wave, we think will be delayed a little bit.
You'll recall that.
Our the area that I think is doing the best is manufacturing I think we had 70 or $75 million.
Total benefits split roughly between plant consolidation and continuous improvement and when we finish fiscal 21.
We will have come close to $100 million of benefits in the manufacturing area between the benefit of plant closures, but the continuous improvement aspect is really been a home run for us and there's more to come there incrementally obviously less but that's a process. It becomes a permanent part of RPM, we call it and Thats 168 and.
So there is some elements of the map the growth program that will be permanently part of our culture and thats one of them.
Our procurement activities have done, particularly well.
We were able to.
Work with a major financial institution.
On some vendor financing, which has helped us with terms and we.
We've had some some pretty pretty good success in some areas we didn't anticipate.
Like.
Distribution of all kinds of small stuff.
So thats going pretty well.
And we're continuing to look for.
Some new alternatives or new opportunities.
To continue to expand the benefits of the map to growth program beyond the original.
Original communicated goals back in November of 18.
Okay.
In.
Slide to sort of like they out all of the nonrecurring items and I think your restructuring expenses.
Lastly, we'll at 42 million in like this you have 34 million just just restriction part of it.
That's 75 million has that been spent already or are there still cost that you, but there's still cash related items or cash outflows that you expect from those.
Sure I'll just your talk.
Sure so called you'll see that a note be of our 10-K, when we release of that the end of the day.
It'll give you the outlook.
For future costs and restructuring.
I just was wondering whether the that goes on like reserves that you take I was wondering whether you've already paid those out.
Well, yes, theres, a lot of severance and our restructuring cost as you'll see in B and we have paid out a lot, but we continue to have.
Severance cost as we continue to close facilities, but yes, I don't believe on the severance piece or the expense piece.
There is.
Anything that is a reserve that hasn't been paid out in cash.
There are.
To a much lesser extent than we had particularly in year one.
Some consulting contracts that were tied into in terms of completing different work.
But there I don't think there any big to your question there are no big slugs of cash.
That are not already spent to the extent we have.
Reactions to a economic challenged continuing with Covance 19, and we would highlight those and incur the expense at the time.
The.
Corporate costs like you know I'm used to run like something like $80 million.
And like I think the C was like 63 million it may be a spotlight nothing in the fourth quarter because of the curtailments that you took what do you target for fiscal 2001.
Sure.
Yes, so in a typical quarter, our non operating segment costs are a little over 20 million, usually and there are way down in the fourth quarter as you saw.
The year over year variance about half of it was related to medical and.
Those costs.
We basically allocate those at the beginning of the year per employee base as to our operating company and as you probably know 99% of our employees do not work at corporate but as the year unfolds and we get actual experience for the good or bad and medical that expense.
France hits, our non operating segment and then the fourth quarter as medical claims went down as people avoided doctor visits we had a favorable variance in medical.
So we would expect some of that to continue in the first quarter and we will see beyond that or our first quarter, probably should be a little better than the usual low twentys millions of expense in the non segment, yes. So.
General you're correct I would assume about 20 or 20 million 20, or 22 million of non op expense. Obviously, we didn't have that in Q4 will do better than that in Q1, and how the year unfolds.
We'll certainly let people know that Q4 experienced by the way it wasn't unique to us.
The reduction in medical expense and medical visits was pretty universal across all businesses at least in the United States.
Yeah I was just curious of luck with.
And.
Vincent the nice I was wondering if I could just touch upon me.
Thank you again, yes sort of.
Expenses incurred in the consumer.
Was that what else can you quantify the some why was it like a 10 million hat within the quarter with bigger with lower set up some feel for what happen, yes, we haven't.
Provided a lot of detail there we had some raw material inflation in consumer again, mostly around packaging debt. We expect to continue you've all seen some of the announcements of some of the in particular can and metal packaging suppliers.
We had higher expense for DIY, and I think somebody rightly assumed.
If we had $5 million to $10 million of cobot expense in terms of safety issues and other issues across the whole corporation. It was disproportionately consumer but.
I think thats all the detail that we provided on that.
Okay. Thanks very much.
Thank you.
Thank you. Our next question comes on the line of Josh that there would you be as your line is now open.
Morning, guys.
Hey, guys. Good morning, Thanks for squeezing in my question.
Just a question on the strength in U.S. roofing activities I was wondering if you could comment on any risk of pull forward and some of those projects either from later this year or maybe even from next year I don't know if you could share anything that you're hearing from any customers are contractors on that front.
Sure I think our consumer I'm sorry, our.
Roofing business in our construction products group.
They're continuing to perform very well theres no doubt that the June results that we had sales wise when you follow.
Pretty negative months in April and May in your June is up double digit revenues that some of that you'd business was the result of projects that were delayed or halted.
In April and May so, there's certainly some of that but beyond that.
I think somebody earlier to ask about mix and we expect to continue to see good mix that in our construction products group roofing business generally is less economically impacted than deconstruction sealants business.
Which has an element of DIY why put off im not DIY, an element of maintenance and repair, but also a an element of new construction. So thats more impacting the construction sealants business than the roofing and waterproofing business.
Okay. Thanks, that's helpful. I guess similarly in performance you talked about some negative impacts from contractors not being able to get into customer sites to perhaps apply the the flooring materials are you seeing any change and that behavior currently.
Yes slowly.
And so.
There is a more opportunity again in the early part of the first quarter for instance, in our stone on roofing business for our crews and or independent contractors to get into facilities and do the work.
Certainly sequentially, it's much better than April and May although it's still an issue in certain certain industries in certain facilities and we anticipate that continuing to improve unless of course were hit with another.
Risk negative response from a business perspective on the Cobot health pandemic.
Okay got it thank you.
Thank you.
Thank you I last question comes on the line gone Cham Panjabi with Baird. Your line is now open when it got some thank you good morning, everybody I Frank.
Good morning, so on consumer.
So if I Miss is but can you break out for us how the segment performed by the by various geographies during the fourth quarter and then Frank on your comment on the the spike in costs related to E. Commerce is that just because of the abruptness up the change during the quarter I'm, just trying to get a better sense as to what you're referring to just because obviously, there's going be some consumer behavioral ships going for.
Forward E Commerce is a massive winter and I would assume there it's only going to grow from here for you.
Sure.
So in response to the ecommerce question.
You know, we mostly ship truckloads to distribution whether its.
Major home centers, sending their own trucks to pick up our goods or us sending truckloads, either direct or through two step distribution and in E Commerce.
In some cases.
We are shipping to a customer.
In other cases, we're shipping directed the consumer.
And small quantities and so that brings with it a higher cost.
Does that answer your question.
It does it on the international piece and the international Peace our growth organically in the us and our consumer segment in Q4 was 12% and we were negative very everywhere else.
Got it and just one final question on the on the guidance for the first quarter of 20% plus increasing adjusted EBIT, That's just running up little bit about 40 million on an absolute basis year over year. How much of this is this increases from after growth and then how should we think what the raw material cost dynamics as well, we will give you the detail.
On that when we report the first quarter in October.
Got it but you ended the fourth quarter in the mid Twentys right in terms of mapped to growth is that correct correct. That's correct. Thanks so much.
Thank you.
Thank you.
Thank you.
Concludes today's question and answer session I would now like to turn the call back to Mr., Frank Sullivan for closing remarks.
Thanks, Sara and the coming weeks, we'll release, our first formal environmental social and governance report, while this will be our first official report SG considerations have always been.
Important part of how we operate at RPM.
In my opening letter I'll discuss the fundamental values that have driven RPM sustained growth over the decades, we've long believed that responsibly, serving the needs of our associates customers and communities result in long term generation of stockholder value.
Our society is asking more of companies than ever before ensuring safe ethical and sustainable business practices and creating environments that promote inclusion and social Justice RMBS. You report will demonstrate how these values have always been a priority at RPM.
At the same time, we recognize that there is more work to do.
We look forward to further advancing this work is continuing to play an integral role in the communities, we serve and once you've had a chance to review. This document we would welcome your feedback in your input.
I'd like to close by expressing my gratitude to our associates around the world for their hard work and resilience during these uncertain times.
They've adapted challenging conditions created by the health pandemic and are finding unique and innovative ways to safely continue operating our businesses and serving our customers, while maintaining health protocols to their benefit their families and the communities in which we operate.
Many thanks to our shareholders for your continued investment in RPM, we remain focused on completing our map the growth program and also generating long term value for your investment and everyone on the call I wish you and your families. Good health. Thank you for joining us on our call today, and we look forward to report.
You are first quarter results in early October thanks, and have a great day.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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