Q1 2021 RPM International Inc Earnings Call
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I'd now like to hand, the conference over to your host today Mr., Frank Sullivan, Chairman and CEO. Please go ahead Sir.
Thank you Liz good.
Good morning, and welcome to the RPM International Inc. Investor call for our fiscal 2021 first quarter.
Joining me on today's call are Rusty Gordon Rpms, Vice President and Chief Financial Officer, Matt write a check our vice president of global tax and Treasury, we're supporting our investor relation activities.
I'll share insights behind our strong financial performance for the quarter as well as an update on our map the growth operating improvement program then Matt will walk you through a review of our first quarter adjusted financial results.
Rusty will conclude our formal remarks with our outlook for the remainder of fiscal 21, after which we'll take your questions.
Our strategically balanced business model the resiliency of our operating companies and are mapped to grow operating improvement program have been able to RPM to pull through the depths of the economic slowdown created by the cobot 19 pandemic.
With a dual benefit of improved margins and better working capital management, our businesses are generating excellent cash flow, which allowed us to pay down nearly $200 million of debt during the first quarter today.
Today, our liquidity is up to $1.5 billion.
We have pivoted back to investing for accelerating growth as demonstrated by the acquisition of Alley industries as well as our strong organic growth in a number of our segments in the first quarter.
During our fiscal 21 first quarter selected segments of the global economy began to gain momentum as stayed home orders were relaxed. This freed pent up demand from last year's fourth quarter and helped drive a record top line results, which grew 9.1% over the prior year period.
This was in sharp contrast to the Kovar 19 related sales decline, we reported for the fiscal 2024th quarter.
Our two largest segments posted positive growth in the first quarter.
Two of our segments decline.
Overall, our Panther results benefited from the positive impact of our map to growth operating improvement program and our balanced business model, where strength in one segment offset weakness in another.
In addition, much credit for our strong performance is due to our management philosophy, which keeps customer centric decision, making at the operating level and enables our companies to be very nimble and adapting to change.
Some examples around RPM of leaning into the Pandemics disruption include rust Oleum, Tinting wallpaper and shipping to residents who are new ecommerce program hosted by Big box Home Center.
Co developing innovative indoor air quality services with a global MRO distributor for use on its customers facilities.
Her legend brands business pivoting from disaster remediation disinfecting and air purification in response to evolution of its contractors business needs.
The most significant driver of RPM is first quarter growth was our consumer segment, which had already been experiencing unprecedented demand for small project paints caulks and sealants stains cleaners patch repair products as consumers completed more DIY home improvement projects on it.
On a consolidated basis international markets rebounded with 2% growth after a 26% drop during the difficult fourth quarter, when construction or hardware channels were not deemed essential and were thus locked down in most of the international markets we serve.
We continue to benefit from successfully implementing our map the growth program, which enabled us to leverage the first quarter sales growth into even stronger bottom line results with adjusted EBIT increased nearly 40%.
During the first quarter, we announced the closure of one additional plant, which brings our total to 23 out of the previously announced 31 plants. The originally targeted in our map to growth operating improvement program.
The momentum behind our map the growth program continues to accelerate it as it drives efficiency and operational excellence throughout our businesses. We are on track to reach the targeted run rate of $290 million in annualized savings by the conclusion of our current fiscal year, which ended May 31 21.
The project the projected benefits from our center led procurement initiatives are ahead of plan and our administrative improvements in ERP consolidations will continue into fiscal 22.
In regard to our <unk> and in regard to our IP investments. We're currently enhancing our capabilities in analytics by centralizing systems and databases. This is allowing RPM to harness more complete information across its multiple business units and build decision support tools to improve the effectiveness of our procurement.
Distribution and sales teams we are.
We are leveraging our information resources to make RPM stronger and our success is a direct result of the cooperation of buying of our associates across RPM.
Well the map to growth operating improvement program will be reaching its annualized cost savings target by the end of the fiscal year, we will run through that target as a result of continuing opportunities in the map to growth pipeline, including consolidation of more accounting locations. After the set up of new ERP systems are completed in addition.
We are establishing a culture of continuous improvement and operational excellence that will benefit our pcms bottom line for years to come.
Most importantly, I'm proud of the efforts of our plant managers, who have made our workers' health and safety a top priority during the pandemic.
Supported by Mike Sullivan, and Ken Ken Armstrong here at the corporate office, our operations personnel have successfully minimized workplace transmission of cobot 19 at a very low level.
I'll now turn the call over to Matt Ratajczak will review, our fiscal 2021 first quarter results on an adjusted basis.
Thanks, Frank and good morning, everyone. Please note that my comments will be on an as adjusted basis.
During the first quarter, we generated consolidated net sales of 1.61 billion, an increase of 9.1% compared to the 1.47 billion reported during the same quarter of fiscal 2020.
Organic sales increased 9.3% or 136.6 million.
Acquisitions contributed 0.5% to sales or 7.4 million.
Exchange was a headwind that reduced sales by 0.7% for 10.1 million.
Adjusted diluted earnings per share were $1.44, an increase of 51.6% compared to 95 cents in the year ago quarter.
Our consolidated adjusted earnings before interest and taxes EBIT.
<unk> increased to 39.8% to 269.2 million.
Compared to 192.6 million reported in the fiscal 2021st quarter.
Now I'll discuss our segment results.
Sales, our construction products group increased 2.2% to 547.7 million compared to 536.1 million a year ago or.
Organic sales increased 3.6% or 18.9 million there.
There was no impact from acquisitions and foreign currency translation reduced sales by 1.4% or 7.3 million.
Adjusted EBIT in the construction products group increased 17.7% 202.3 million compared to adjusted EBIT of $86.9 million during last years first quarter.
The segment's commercial sealants and roofing businesses in North America performed well driven by continued success in its restoration and building blocks systems initiatives.
Sales were boosted by orders that were deferred during the fiscal 2024th quarter.
The segment also benefited from easier comparisons to last year's first quarter when extremely wet weather in North America slowed construction activity.
NAV to growth initiatives price increases and strong cost management and able to segments bottomline to vastly outpace its relatively modest sales growth.
Sales in our performance coatings group were down 12.6% to 259.8 million compared to the 297.2 million we reported during last years first quarter.
Organic sales declined 12.2% or 36.4 million.
Acquisitions contributed zero point, eightmillion or 0.3% to sales.
Foreign exchange was a headwind of 0.7% or 1.9 million.
The segment's adjusted EBIT was down 16.4% to 30.9 million compared to $36.9 million during last years first quarter.
Similar to the fourth quarter. The segment's top line continued to be impacted by poor energy market conditions that resulted in deferred industrial maintenance spending as well as by Cobot 19 restrictions that limited outside contractors access to facilities and construction sites.
In response to the segment has managed its decremental margins well be aggressively cutting fixed costs and reducing its breakeven point.
Cost savings that resulted from map to growth operational improvements benefited the segment's earnings.
Adjusted EBIT margins would have actually improved during the quarter had not been for the impact of transactional foreign exchange expense.
Finally, we announced one more facility closing in this segment during the quarter.
As Frank mentioned, there was unprecedented demand for our consumer products, which drove incredibly strong consumer group sales.
They increased 33.8% to 641.2 million from $479.3 million during last year's first quarter organic sales.
Organic sales increased 34% or 163.2 million there was no impact from acquisitions and foreign currency translation reduced sales by 0.2% or 1.3 million.
Adjusted EBIT in the consumer group increased 121.6% to 136.7 million compared to $61.7 million in the prior year period.
Results were up significantly in this segment due to robust DIY demand as consumers spent more time in their homes completing improvement projects during the pandemic.
Our consumer group was a large beneficiary of this trend due to our market leadership position and many years of building our retail distribution network.
We are working around the clock to meet this unprecedented demand and are also making significant investments in plants.
Mitt and operational disciplines to expand our capacity.
The second also benefited from an easier compare in comparison to the prior year's first quarter when its products sales were tempered by extremely wet weather.
The second bottom line increase as a result of volume leveraging map.
Map to gross savings.
Temporary reductions in discretionary spending.
Favorable product mix and moderation in some raw material categories. However.
However, future cost pressure is anticipated due to recent inflation in certain raw materials and packaging as well as additional overhead expenses, resulting from ongoing investments in capacity.
We anticipate that we will see elevated demand over the next few quarters as housing turnover improved and more DIY wires gained successful experience with new projects.
Specialty products group sales were $158 million through the fiscal 2021 first quarter, a decline of 1.3% compared to sales of $160.1 million in the prior year period.
Organic sales decreased 5.7% or $9.1 million, which was partially offset by acquisitions, which contributed 4.1% or $6.6 million to sales.
Foreign currency translation increased sales by 0.3% or 0.4 million.
Adjusted EBIT and the segment was down 15.9% to $24.1 million in the fiscal 2021 first quarter compared to $28.6 million in fiscal 2020.
The segment's first quarter sales rebounded and were nearly flat as compared to last year's first quarter. This was due.
This was due to more favorable market conditions that drove demand for some of its products.
Marine coatings were boosted by increased outdoor activity what for.
What protections were boosted by stronger lumber sales and nail mammals increase because of greater demand for home beauty care.
The unfavorable impact to the bottom line from product mix.
Operating disruptions associated with Tobin 19, and de leveraging on lower volumes was partially offset by savings from the massive growth operating improvement program.
Now Rusty will walk you through our outlook for the remainder of fiscal 2021.
Thanks, Matt.
For the second quarter of fiscal 2021, we expect to generate consolidated sales growth in the low to mid single digits with stay.
With strong leverage to the bottom line for more than 20% adjusted EBIT growth, which are growth rates that are more in line with recent quarters prior to the outbreak of Cove at 19.
Our map the growth momentum continues to be excellent and the alley acquisition, excluding acquisition related costs will contribute towards good results in our second quarter.
Our first quarter consolidated growth of 9.1% with a bit of an anomaly due to double digit growth in the month of June as lockdown restrictions were ease in several markets.
Looking ahead to the full year of fiscal 2021, our guidance is relatively unchanged from the direction, we provided in our fiscal 2024th quarter earnings release.
We anticipate that our construction products group and performance coatings group could experience sales declines for the next two quarters and then turned positive in the fourth quarter.
Our consumer group should continue at strong sales momentum throughout the fiscal year.
The specialty products group is likely to face flat sales comparisons during the second quarter, which should turn positive in the second half of the year.
These estimates assume that we do not experience a surge in cobot 19 that results in a second round of stay at home orders.
Due to continued economic uncertainty related to the impacts of cobot 19, and the upcoming U.S. selection, we are not providing fiscal 2021 full year earnings guidance.
This wraps up our formal comments, we will now be pleased to take your questions.
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Our first question comes from John Mcnulty with BMO capital markets. Your line is now open.
Yeah. Good morning, Thanks for thanks for taking my question and congratulations on a on a really solid set of results I guess one of the one of the questions I had it like you did have some some really strong numbers and I think some of it was expected I think there was a lot of hope on the DIY side picking up and that type of thing, but you also had a lot of big new initiatives that you were launching some with.
With home depot, and Walmart and I think even Granger may have been on the on the list as well. So I guess can you help us unpack how much of it came from kind of just core traditional growth first how much of it came from kind of new product introductions and some of the initiatives that you're pushing there how should we think about that.
I think most of it John came from our core traditional growth and just the surge in North American DIY activity. We're also starting to see that pick up in the UK in parts of Europe.
And the new and.
The new initiatives are some tests in the wall pad area that we talked about in a few other categories that I think we'll have.
Hopefully a greater impact in the coming quarters and into next year.
Got it that's helpful and then what it sounds like on the on the map to growth side. You know your 290 million run rate by the end of fiscal 21 sounds like it's actually a little earlier than what we what we were expecting and it also you certainly implied there is theres more to come in 22 is you get kind of the ERP system up can.
You speak to kind of what line of sight you have in terms of potential incremental savings above the 290 that up that you were originally targeting.
I think we will certainly run through 300 million.
And then some as we get into 22, there's a.
Outperformance and the benefits of consolidating procurement areas there.
Continuing benefits and outperforming in the menu.
Manufacturing sector. Its a combination we're getting what we expected from the plant consolidations, but the benefits of the lean manufacturing disciplines and continuous improvement activities.
Will actually result in.
Probably a 100 million of savings in the manufacturing sector versus the 75 million we originally projected.
Got it that's a that's helpful. And then maybe just one last one if I can sneak it in on the cash flow side. Your cash flow from operations was was huge I mean, its probably double what you what you normally Ron I guess can you speak to how much of it is is kind of one time ish in terms of some of the cleaning up and tightening up of working capital that you've been.
Working on first how much we should be thinking about it being sustainable and then I guess just uses for that cash.
Are you starting to see the bid ask spread starting to narrow in terms of M&A or do you see buyback opportunities picking up.
How should we be thinking about that.
Sure. It was a I think we miss the opportunity in our prepared remarks.
Two.
Emphasize the cash flow and the balance sheet improvements, we had in the quarter pretty extraordinary I think for the most part it's sustainable.
Some of the working capital improvements in our consumer segment are probably a little over Don in the quarter, just because our inventory levels are lower than we would like.
Relative to a 34% organic growth and our need to continue to expand capacity.
We also had probably $15 million or so of covert related onetime benefits in the quarter, but in general the strong cash flow I think is indicative of the.
The operating efficiencies, we've been pursuing improvements in our working capital most of which will be.
Permanent and the high.
And the higher margin profile that that we're able to leverage on the sales growth we have.
We paid off $200 million of debt in the quarter and.
There will be more to come and.
I think thats one of the real highlights of the quarter.
Thanks, very much for the color.
Thank you John.
Our next question comes from Frank Mitsch with Freemium Research. Your line is now open.
Thanks, So much good morning, and let me echo the congrats on the strong start to the year.
Rusty you mentioned that June had double digit sales growth I was wondering if you could kind of parse out where the rest of the quarter fell and where what you've seen so far in September.
Sure, Yes for the rest of the month other than June where we had the extraordinary double digit growth has lockdown restrictions the weird.
We were in the low to mid single digit range. So thats why weve projected Q2, a similar way.
All right terrific and.
Frank you mentioned that Youve closed 23 of the 31 plants.
What is the timing on on on completing all of the plant rationalizations and how do we think about the financial impacts.
The other shutdowns impacting your your bottom line.
Sure in terms in terms of timing and pace sure.
Sure as we'd indicated in the past quarterly investor calls.
The pace of some of our activities has been slowed by the impact of the Cobi 19 pandemic and.
And so like most companies we have kept it.
Independent contractors out of our plant facilities and offices. So it slowed the pace of the completion of some of our ERP implementations.
It's also slowed the pace of some of the plant closure activity and.
Related.
Areas slowed our ability to get into now kind of mid to smaller size manufacturing facilities with what we call fit events, which are really the kick offs of the lean manufacturing disciplines and continuous improvement activities that are paying big dividends for us and so.
Were probably six to 12 months beyond the original December 31, 2020 TARP.
Target date that we communicated a couple of years ago.
Only as a result of the slowdown from the pandemic and our ability to get people into plants and or offices to complete these activities.
And is that chunky in any way shape or form in terms of you know in the back half of this year, you'll see a nice increase in.
Financials or is it kind of evenly spread how do we think about that.
No I think the.
There were some concerns by folks in the investment community. Some expressed on this call in the past that we had.
Good benefit from our map the growth program after the first year, but some.
Programs would lose steam.
We accelerated in the second year of the map to growth program and we don't see that acceleration stopping at this point there is still gas in that tank.
Gotcha and hopefully your brownies will continue to not lose steam congrats thanks.
Thank you Frank.
Our next question comes from Rosemarie Morbelli with GE Research. Your line is now open. Thank you good morning, everyone and congratulations one more time.
Following up on the map to benefit you, you'll see things were about 20 million in the first in the third quarter of last year, followed by 25 million in Q4.
What.
Did you out what was the benefit in the first quarter of this year.
Just a little more than 30 million.
Oh, Okay and.
Do you expect to generate.
The 290 million run rate by the end of the year or what could be the actual dollar amount that you expect to achieve that in 2021.
Okay.
You know I think roughly a $100 million could be.
Could be a little bit more.
Keep in mind that a lot of the benefits here had been in cost of goods sold and manufacturing area. So it flows through our PNM filed with the seasonality of our revenues. So you can't just take a 30 or $32 million benefit in our seasonally high first quarter and flow would even or evenly across.
Last months or quarters, but well get a 100 million this year in and.
We're probably $50 million ahead of our original targets through wave two.
Some of that is pulling forward.
Things that we planned for wave three so not necessarily additional.
Additional savings to our original goal and then others of it.
Our additional savings I think that's why we're confident by the time, we get through.
May 31, 21, we'll have achieved a $290 million and then we believe there is another collection of tens of millions that will show up in fiscal 2002 as.
As well and will benefit subsequent quarters.
Well. Thank you and then looking at the unrealistic Roche on the D. I Y. shy Oh do you think the <unk> steel as to whether your customers have been building inventory on replenishing inventories that they had.
And then you made to Adobe juice to earlier on and it's.
That is the case you are adding capacity.
But the demand is going to slow down to a more normal level. So do you think that you all may be a little overly optimistic in building this capacity or do you need to tweak godless a flood to you know the decline in D. I like grows so it's next year, which I expect will be.
Sure a couple of things on that.
Number one specific to D I y.
I think in our categories and many others and we have commented on this in the past. Good example is our wood stains and finishes category Thats up big.
That takes a.
A greater skill set and just passing in repairing and so we firmly believe in our big customers believe that the confident DIY wire based in North America.
Has grown and that bodes well for the DIY sector across a lot of categories and.
So we see solid growth in the consumer segment for the balance of this year and we think it will be on a new base, it's higher than what any of us could have achieved on our own as a result of I think one of the very few positive consequences of this pandemic in terms of driving.
Driving that that larger level of activity.
On the flip side is supply chains across all industries in certainly in DIY had been disrupted mightily.
We've seen some allocations on things like cans. Some of that's been driven by spikes in demand some of it's been driven by plant closures associated with covenant.
Cobot 19 infections, so thats in our supply base in.
Inventory levels are not where they need to be in the DIY channel.
Very few companies and we're one of them.
Sit around with idle capacity of 40, or 50% and so the 34% organic growth that we experienced in the first quarter.
Along with some of the supply chain disruptions has been challenging to us and everybody and we're working hard to make sure that we can drive the efficiency to overcome that so the long and the short of all that is we see solid performance in our consumer business for the balance of the year, we see a larger base that's going to be permanent.
And we continue to introduce new products and take market share. So we're pretty excited about what we see for the next couple of years in consumer.
Thank you Frank and good luck.
Thank you thanks Rosemarie.
Our next question comes from Mike Sison with Wells Fargo. Your line is now open.
Michael.
Hey, guys title and congrats on a good.
Great quarter and I Hope you are excited about the Browns is as I am.
In terms of the in terms of de I why it's it's yeah. We've had a really good run here what are your thoughts in terms of.
In terms of that business over the next year or two do you think there's good sustainability and demand for DIY over pro and Andy How long do you think this trend can continue of really strong growth.
Sure well I think.
The comments I just made in response to Rosemarie Morbelli.
To answer that question in terms of.
A larger base.
And.
I think really expectations by us and our customers.
Continuation at least for the next couple of quarters of.
This larger than usual organic growth basis.
You will also see a pick up in the pro and we're finally, starting to see that and we would expect more of that in the new calendar year.
Most of the big activity has been DIY.
As at least over the late spring early summer homeowners were reticent to allow contractors and were around their homes, that's starting to change and the pro.
The pro business, particularly at some of our biggest customers will start to pick up that has not been a big driver of demand so far but we think it will be in the in the coming quarters in the next year.
Okay and then in in terms of you close an acquisition.
In September I think Ken and yes. It is the environment, they're improving is that is that an opportunity for more incremental growth over the next couple.
Corridors as well.
Sure we closed Alley industries, great family business headquartered in Ohio.
They're essentially and abrasives and sand Paycom paper products and D. I Y., a great adjacency to our rust oleum business, but also with some of our other businesses. So we're very excited about that and we're thrilled to have the alley family in the Alley industries Associates joined RPM.
We had negotiated that transaction prior to the pandemic and we.
Just had put most of our acquisition activity on hold.
Given our strong results and our great cash flow we are comp.
Confident and restarting or acquisition activity.
And I would expect that particularly in the small to medium sized private company space across across all categories. You will see activity pick up pretty aggressively between now in calendar year end in part in anticipation or concern about possible tax changes with an administrative changes.
The new year.
Got it thank you.
Thank you Mike.
Our next question comes from gunshot Punjabi with Baird. Your line is now open.
Good morning, guys good morning.
You know, maybe Frank going back to the construction segment, which is one of the obviously the sources of upside relative to your original guidance, where did you see the upside relative to perhaps your initial predictions for the for the quarter and then related to that.
You know what that turned negative in the in the second quarter apart from just some pull forward based on pent up demand is that what you're expecting for that segment.
No I think I think.
I think it may be a flat to slightly down in Q2, but we see it turning.
Modestly positive in the second half.
The challenges there in our construction segment is really what happens with the economy.
Our results in the first quarter and continuing the spring suggest to us that we are taking market share.
We're seeing.
Decent.
Modest revenue growth, it's leveraging to our bottom line really well and some of our peers, where we can get data are still experiencing negative results.
If the economy continues to improve and if the health interventions around vaccines and treatment kind of help build confidence.
Confidence then upside for us for the balance of the year and into 22 could be the activities in our construction group.
Construction products group.
If there are hiccups relative the krona virus and further shutdowns like you are seeing in Israel and select parts of Europe.
That will be a challenge for us as we get into the new year. So that's the principal area that makes a scratch your head about providing any more detailed guidance for the year, but if things continue as they are will do.
We will do perhaps better than Weve indicated.
The second half of the year and for the full year of fiscal 21.
Very clear and then in terms of performance coatings, how would you characterize channel inventories for that segment I mean, obviously theres some dislocations in the energy markets, but I would imagine that some of it would just be a deferral because I don't think you can.
The maintenance forever for that that end market and then just a final question for the consolidated portfolio. How did September actually play out for your for your company from a sales standpoint. Thank you.
Sure I'll take the last question first.
I'll just repeat what Rusty said, we anticipate kind of a.
Good organic growth in the second quarter and it ought to leverage nicely to the bottom line with EBIT growth.
Of 20% or more and I think thats, all we would say about the second quarter.
As it relates to performance coatings, it's about $1 billion billion one segment in total and as you recall about 30% of the revenues are tied to the oil and gas energy and energy.
Specific broadly energy and.
That segment's taking it on the chin in terms of oil prices in the halting of spending and a lot of activity that will rebound eventually, but we don't anticipate seeing really any positive numbers there year over year until we get into the fourth quarter.
Thanks, so much Mike.
Thanks Ghansham.
Our next question comes from Arren. This monopoly with RBC capital markets. Your line is now open.
Good morning, everyone.
Good morning, Frank Thanks for taking my question.
Relates to the margin performance I guess first off and.
First off in consumer.
Really impressive margin performance and obviously, a good portion of that.
As volume and a good portion is a potentially mapped to growth.
Is there any way that you could help us identify what you think the noise.
What you think the normal margin is and.
Maybe you know do you expect margin to kind of moderate.
Moderate in the coming quarters as maybe some of the D. I Y search moderates.
Maybe we can just start with that and I also wanted to ask basically the same question for construction products again that was a little bit above our expectations. So just trying to think about how we should think about your your margin trajectory from here.
In those two segments. Thanks.
Sure.
Our original map the growth specific goals as you will recall $1 billion of EBIT and a 16% consolidated EBIT margin and as we indicated voice starting a year ago, mostly because the revenue growth up until recently wasn't meeting our expectations. We had a couple other headwinds.
That you know we did see achieving those within the timeframe. We talked about we're still keenly focused on a 16% consolidated EBIT margin it will take longer to get there than we thought.
But there.
There will be opportunities for continued margin expansion in certain parts of RPM and the.
In the coming you know I'd say 12 to 18 months. So those goals are still front and center for us and.
I think you'll see EBIT margins improve though they are likely to improve in places other than consumer.
With this performance some of which has been cobot driven we.
We finally gotten back to margin levels that we had experienced in the past and I.
I would expect to see continued margin improvement in our construction products group as.
As well as the specialty products group this year and.
And then eventually but probably not until 22 in the performance coatings group.
And then thanks for that and then I guess secondly could you just address.
International performance.
Obviously, I'm, you're seeing different trends.
In Europe, and a you know you mentioned potential locked out in risk.
Outside of North America, So I guess, where do you think you are in your in your international businesses recovery Wise.
Maybe if you could characterize it from a lending standpoint, or a 9% recovery, but yes.
Yeah, where do you think you are in some of those international markets sure I'll, let rusty handle that yeah, I think yeah in terms of international around.
We are.
Pretty flat in Europe after having taken it on the Chin of course in April and May there due to tighter lockdown risk.
Restriction currency.
Currency is not a headwind in Europe at the moment. So that's good news there as well in Latin America, it's been a really challenging as you can imagine in Brazil, and other places Mexico, we've had challenging results and that's made worse by.
Currencies that have weakened over time versus the US dollar. So Latin America has been a bit of a challenge and that's principally where most of our international businesses.
Canada did well in the first quarter that was another place where they had tighter lockdown restrictions versus the U.S. than April and May So we had.
So we had good performance there now we have very strong consumer brands in Canada. So of course that business mix helps us and should help us looking ahead. So I would just add to that that were.
We're starting to see similar trends in the UK and Europe in consumer takeaway.
That is a building a bigger base than what we had before and we would expect for instance in the second quarter, some pretty good organic growth in the UK and Europe, assuming they're not further lockdowns.
As the DIY markets start to look a little bit like what we've experienced in North America.
Great. Thanks, and just a quick one if I may just on price cost are you experiencing any inflation, whether it be on the petrochemical side or input cost side, there or a freight side could you just provide some commentary on those items. Thanks.
Yes, sure, yes, we are seeing some inflation and select raw materials like acetone. For example is one that really stands out.
Also as Frank mentioned due to.
Due to some supply chain issues and metal packaging, we are having to find new sources are often not with the same cost that we were used to from the old sources. So that will certainly provide some cost pressure.
I have heard of other raw materials and freight as you mentioned, we expect that to go up by a modest mid single digit percentage next year.
LTL freight always seems to go up and we expect more of the same yeah.
Yeah, and I would just add to that two things to keep in mind one in general the cost.
Price mix is relatively flat now we haven't had.
Any full price increases in some time, we are benefiting from the fact and we from minded folks to this in the past. We're one of the few of the major competitors that we get compared to the time FIFO accounting.
And so you'll see reflected in our results in the first quarter things that we experienced in terms of crop.
Cost price mix so.
60, or 90 days ago, and so thats worth keeping in mind as well as you think about RPM versus peers.
Thanks.
Thank you.
Our next question comes from Kevin Mccarthy with vertical research. Your line is now open.
Marty Kevin Yes, good morning, everyone.
Question on that to growth beyond sort of the discrete items throughout plant closures procurements and other facets of the program.
My sense is that it's had a large impact on rpms culture in terms of operational excellence continuous improvement et cetera.
If that's the case crank it can speak to sustained productivity benefits for example, some companies endeavor to offset inflation.
You know Adam Sun item have you thought about future opportunities and those terms and.
The curious to us.
To understand what impact that may have beyond the formal end to the program in late.
Late fiscal 21.
Sure.
So in terms of the lean manufacturing disciplines and continuous improvement disciplines that we are taking it now in places outside of just the factory floor I would say were in middle innings, and there's more to come obviously over time that incremental benefit will become less impactful, but it should be the gift that keeps on giving for along.
Time, and it it has changed our culture and the.
The way that our people have embraced that change and the speed with which it happened has been very impressive and.
And we work hard to make sure that we maintain those.
Those gains and so we see more to come in that category.
It'd be hard to talk about something offsetting inflation, because if youve as you have followed us over 20 years.
We're pretty raw material intensive as is everybody in our space and when you get spikes and raw materials up or down I see.
I, certainly think we proven through price increases, although not always timely but through price increases and now going forward our ability to operate more efficiently we can.
We can certainly maintain a level of margin profitability over a cycle.
But we'll we'll continue to see some swings in the future as we have in the past relative to the activity of Ross.
We are lastly, taking the map to growth.
Activities into some more data intensive areas.
Around product mix and other things.
They're going to help our margins in the future as well.
Understood. Good good to hear and then secondly, if I may frac. He made a comment that we're working around the clock in consumer and.
Another comment that I think you expect to face increased overhead costs do you need to invest and more capacity at this point and if so what impact might that have on your capital expenditures for this year and beyond.
Sure Oliver Rusty answer the Capex question.
Question, but we are investing in more capacity.
Particularly in consumer.
And we obviously at 34% organic growth rate isn't anything we expect to be sustained but there is a higher base of business and we're expanding to meet that particularly in small project paints and cleaning categories you know in the.
In the cleaning category, we've gone from what it was.
A modest start seven years ago with credit card or an acquisition that was $5 million to what should be a product category at rust oleum in excess of 100 million Bucks and.
That could be.
Meaningfully larger category for us in the future. So those are two areas for instance, where we're expanding we're also expanding capacity in the roof coating capabilities of our construction products group.
So Kevin back in July we set our Capex would be about 130 million. This year now because of this.
Above expectation demand in consumer the capex will probably be closer to $140 million, which will make it pretty comparable to last year. When we did about a $147 million.
I see thank you so much.
Kevin.
Our next question comes from Jeff Zekauskas with JP Morgan. Your line is now open.
Hi, good morning spread much hi, good morning.
You spoke about being on FIFO accounting.
Within LIFO benefits in the quarter and if there were how much were they ordered the fivefold benefits come.
In your second quarter given that.
Raw materials, probably bottomed in April.
Hey, Paul May.
Sure that again.
I don't know that we would provide that kind of detail other than to just make clear that on FIFO you're looking at.
Across price mix that.
Was in spot prices, but we experienced 60 or 90 days ago as opposed to somebody on LIFO, who would be reflecting spot prices as of today.
So if I understand what you're saying that you should have you're not going to feel the raw material.
Tremont in the second quarter, you might feel it in the third.
Thats correct.
Okay, and then last.
Lastly in other accrued liabilities I think they went up from maybe two to 72 to 365 sequentially.
What's that about and where will that number.
Sure Yeah, the other accrued liabilities.
Went up and the reason is that.
Customer rebates went up because of our strong VI why activity and it also relates to the timing of tax payments that was a big reason for the.
67 million increase versus 12 months ago.
Where should that be at the end of the year.
Well typically we pay out customer rebates at the end of their year, which should be.
In the winter time so.
So that aspect will go down on the timing of tax payments, Matt do you have any idea yes. Some of that is some of the deferrals on the FICA and stuff, but the income tax payments were price spike a little bit in the second quarter, our second quarter, and then catch up in the latter half of the year. So we've communicated.
In the spring when companies were able to defer FICA.
About $25 million benefit there, but a $25 million benefit and that's just a deferral into the next year.
We did not.
Choose to reduce the FICO payment of our payrolls.
That was an option and we chose not to pursue that.
Okay, great. Thank you so much.
Thank you.
Our next question comes from Josh Spector with you Yes. Your line is now open.
Morning, Josh, Yes, Hey, guys Hey, good morning, Thanks for taking my question.
Just a question around the topline guidance range of low to mid single digit just trying to think about what are the factors at this point that could move that from the top or bottom end of the guidance on that at one particular sector or region or segment that you. If you look at more.
I think we feel pretty good about our guidance for Q2.
As it relates to the second half of the year I really think it depends upon our construction products category. We've got a lot of new products. We've got a lot of good momentum there we are taking market share.
We are really pulling together what was.
A.
Not very well coordinated collection of company, serving the construction permit.
While industry broadly in water proofing, and sealants and floor coatings and things like that and that has become a very well coordinated and got good leadership. There. So we're poised to do really well and it really depends on economic activity as we get into the new calendar year and again it goes to our hesitancy.
To provide more specific guidance if the economic recovery continues we will outperform this year, if some combination of covidien disruptions around the elections reserve.
Result in an economic downturn as we get into calendar 21.
Then.
I think we'll be more at the bottom of what we talked about.
Okay, Thanks, and I mean, specifically for your fiscal second quarter. I mean is it a fair base assumption to say that you're planning on consumer up maybe mid teens in construction down low single digit percents or is it significantly different than that yes.
I wouldn't get into the segment details right now other than to say kind of mid single digit growth. We will continue to have outsized growth in consumer although not to the extent that we.
We had in the first quarter and we should have.
Flat to positive growth in our construction products group and I think the others go in line with what Rusty you talked about.
Okay.
Okay. Thanks, and then just maybe one quick one on working capital. So I mean, it's a mentioned a number of times that you've done better in the quarter to date I don't know if you have an update of what you're thinking in terms of core working capital for the year overall, if you're kinda.
If you're kind of back on track to maybe improve that in fiscal 2021, or if that's going to be further delayed following plant closures.
Sure It was delayed as Weve communicated from our original projection I think we just made bad assumptions at the beginning of map to growth that the working capital improvements that we expected to generate originally about $230 million in cash.
Would come evenly and the fact of the matter is the way. It happens is you get your plant improvements first you begin to get the benefits of some of your consolidating activities and then your working capital improvements follow we're seeing that now and certainly over the next 12 to 18 months. There is another 100 million bucks of relative.
Working capital improvement I say relative.
Obviously, the numbers will move based on a revenue growth.
Got it thank you.
Yes.
Our next question comes from Mike Harrison with Seaport Global Securities. Your line is now open.
Mike.
Hey, good morning, congrats on the nice quarter.
I was wondering if you can talk about the operational impact of co bid that you referenced.
In the specialty business.
How much can you quantify that impact for us and maybe discuss so whether whether you've overcome those disruptions at this point.
Sure I could do it just generally and buy some examples we provided in the past.
Our marine coatings business in April and May are guard.
Our guardian protective products business that supplies furniture retailers and furniture manufacturers business.
Businesses like debt literally saw their revenues drop fit.
50, 60, 70% in April and May and it was pretty scary.
We are seeing a significant return in the marine coatings business to be very positive.
As retailers open up we're seeing a bigger than anticipated return in the Guardian protected products business. So we're seeing a nice rebound in those businesses and.
Well the performance the specialty.
Products group had negative results in the first quarter.
You will see positive results out of that group I believe for the remainder of the fiscal year and it's for those reasons, but those are the those are the disruptions that we saw the disruptions in other parts of our business that have been hit and Miss and I really referenced to the supply chain issue our.
In many cases around cobot related plant closures, we had a protocol very quickly that if we had any infections, we would close that facility and.
Do a disinfecting and cleaning and if we've had very few.
If any work related exposures.
Most of our exposures over the summer have been from people, who had been working at home but in.
But in a few places we had to close a facility for two weeks, we've had suppliers that have had to close facilities for weeks and so those disruptions in different raw materials and or different parts of the supply chain.
Have been challenging.
We're not seeing those today, although we are still suffering the impact for instance in the in the canned category.
All right and then you mentioned price increases in the consumer business, how much pricing did you see.
And it sounds like maybe there wasn't a formal increase enough. So.
So this is just more a function of just less discounting or less promotional activity.
The strong demand environment, yes.
Yes, we did not have any price increases.
Over the summer or in the fourth quarter and so the price increases that we got were mostly a year ago and.
Those were necessary to overcome what were a couple of year of raw material challenges and we certainly have benefited from that in the subsequent quarters in terms of cost price mix, but from a price perspective across most all of RPM.
That's been.
There's been little or no price increases in the last couple of quarters.
All right and just lastly can you comment on what you're seeing in show to pricing right now.
Yeah, I don't have a good answer for that question, we can get back yet.
All right sounds good thanks very much thank you.
Okay.
Our next question comes from Vincent Andrews with Morgan Stanley. Your line is now open.
Hi, all thanks for squeezing me here given the emphasis this is actually at the bunker Vincent sorry.
In light of that.
I think just to come back to consumer for a second last quarter you want to comment.
Full year would be kind of up low to mid single digits and clearly outperformed in the first quarter versus initial expectations. So can you help us maybe kind of size, how we should be thinking about that prior guide going forward.
Sure I think consumer will be kind of mid to upper single digits for the balance of the year.
Okay.
Excellent. Thank you.
Our next question comes from Steve Byrne with Bank of America. Your line is now open.
So I think I've seen massive purchases of Baricitinib in my House I think my wife meaningfully contributed to your quarter.
I just wanted to drill in on your quote your consumer.
Your 34% organic growth how much of that was volume and how much was price mix.
Ladies and gentlemen, please standby your conference will resume momentarily.
Really.
[noise].
Okay. Please proceed with the call.
Thank you.
Apparently we had a a a technology hiccup with line disconnection, but we're back on if there are.
If there are any further questions we will take them.
And ladies if there are no further questions, let me know.
We do have Steve Byrne with the question. Please go ahead.
Go ahead, Steve sorry for the disconnect.
No worries, Frank so that 34% organic growth in consumer was that almost all volume or was there were some price mix in there it was.
It was all volume and it was broadly across the entire category of small project paints wood stains and finishes costs.
Caulks and sealants patch and repair products cleaners, where a big category.
And so that was good.
And when you when you look.
When you look at the you know those trends and I believe you've indicated in the past that you you have almost real time visibility on on the purchases of your products from from some of the home centers is there anything in particular that is driving that volume I mean as any.
Good or categories that that give you confidence that that one its de iwai, driven and not pro I'm not sure. How you you can differentiate that but are there particular products that give you confidence that this de iwai strength.
Some legs to it.
Sure so in talking to our largest customers. They believed that the iwai strength has some legs to it.
I think we concur that there is a it did that this crazy.
Crazy dynamic has created a larger base of confident YY wires profit across a lot of categories, including ours. So there is a new larger base of business. They quite candidly, neither we nor our big customers probably could have generated in this timeframe in normal circumstances, but it's here.
And.
And it is broad across all the different categories.
And it's continuing into the fall months, obviously, it's in our case, it's a seasonal business.
So we will see seasonal slowdowns in as we get into the colder winter months.
Winter months, we anticipate solid results in the spring whether they are back to kind of the normal mid single digits or there is still a uptick in the spring when the seasonality comes back we will fine we'll find out the hard way, but we're.
But we're pretty excited as our customers about this whole category by a larger base of business and also in our case some tests in a couple areas like wall paint a few other places that could get us into some new categories, but time will tell on that.
And I recall last quarter, you mentioned E commerce was somewhere in the tens of millions of revenue through home depot Dot com and Amazon or how would you characterize it now is it is it continuing to post a double or year over year.
Yeah, it's it's increasing at a rate of double.
To start a relatively small base call. It 10 million, but were seeing doubling of our E commerce business.
Through a number of platforms, but principally.
Home depot Dot com and.
Amazon.
Lastly, let those are the two biggest drivers there are there are other platforms.
And you just mentioned about the the Walmart paint this grab and go is there any interest at Walmart to to add in helping to color mixing machines and.
And advance that beyond this just grab and go approach.
So we have a tin based program that is a direction.
Direct ship.
We are.
Having test with a couple other customers. So we do have a tent based program there.
And on the color.
Color ready to go program, it's still in test.
At Walmart and its going well warmer Walmart has other paint vendors that have 10 based programs and Thats. We are the color to go program.
Okay. Thank you.
Thank you Steve.
I'm showing no further questions in queue at this time I'd like to turn the call back to Mr. Sullivan for closing remarks.
Sure before we hit our closing remarks, I'd like to qualify a couple of things.
In the construction products group in performance coatings group, we anticipate.
Flat to down sales for the next couple of quarters, the map to growth should allow us, particularly in construction products to leverage to pull.
To positive.
EBIT growth there.
And then we're hopeful that we'll see that turn up in the second half or certainly the fourth quarter.
As it relates to CIO too we're seeing over the last couple of months about two and a half to 2% to 2.5% price increase impact there.
At two o'clock Eastern time Tomorrow, we are going to hold our annual meeting of stockholders.
As many companies have done and for obviously, a solid and important health reasons, we will be doing it virtually our annual meeting of stockholders can be assessed accessed through our website at www dot RPM, the ink dot com or at www.
You Dot virtual shareholder meeting Dot com forward.
Forward Slash RPM 2020.
We remain optimistic that we'd be able to return to an in person meeting next year and continue our tradition of engaging with shareholders in person and also providing samples of our newest products.
We'd like to thank our associates worldwide for their continued hard work and dedication during these uncertain times through all.
Through all these challenges we've experienced over the last few months our associates have demonstrated incredible resilience as they find new innovative ways to safely operate our businesses and continue to deliver for our customers.
I'd like to especially thank our personnel at our Carboline plant in Lake Charles Louisiana is resiliency in the face of the aftermath of Hurricane Lora is inspiring to all of US a number of our employees lost homes, our facilities received structural damage or can.
There continue to be power outages in water outages for weeks after the hurricane and despite all that we were able to ship products to customers 11 days after the hurricane hit the area and their response is symbolic of the RPM culture, where our employees act like owners of their businesses.
I'd also like to thank our shareholders for their ongoing investment in RPM, we remain committed to completing our massive growth program to generating solid revenue and earnings growth and creating value for you over the long term and to everyone on the call I wish you and your families. Good health, we look forward to updating you on.
Our fiscal 2021 second quarter results in the first week of January and hope that many of you will join us for our annual meeting of stockholders Tomorrow. Thank you and have a great day.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.