Q3 2021 RPM International Inc Earnings Call

Following today's presentation. There will be a question-and-answer session at which time if you wish to ask question, you will need to press * then 1 on your telephone. Please note that only financial analyst will be permitted to ask questions at this time. I would like to turn the call over to our p.m. Is Chairman and CEO. Mr. Frank Sullivan for opening remarks, please go ahead sir.

Thank you, Michelle. Good morning, and welcome to the RPM International Inc. Investor call for our fiscal 2021 third quarter ended February 28th. 2021 joining me on a call today or Rusty Gordon RPM's vice president and Chief Financial Officer and Matt rata. Check our vice president of Global Tax and treasury who is who is also supporting our investor relation activities.

Before we begin I'd like to know that yesterday. I received my second COVID-19 vaccine shot. I've encouraged our Associates to get vaccinated and I recommend the same to everyone listening to this call. It's the only way we can all do our part to end the pandemic and return to normalcy and reinvigorate the global economy.

I'll start today's call by summarizing the factors that drove are strong financial performance for the quarter and how we were able to overcome the disruption caused by the severe winter weather storm that hit the US in February month, then discuss how we are utilizing our record cash from operations and provide an update on our map to growth opening Improvement program. After that. I'll turn the call over to Matt will review our third quarter results in more detail a rusty. Gordon will conclude our formal remarks with the outlook for our fourth quarter.

Is your recall in mid-February a severe winter storm blanketed nearly 75% of the US and snow which disrupted Transportation distribution and Supply chains in anticipation of severe Transportation gridlock the potential of losing multiple shipping days in north in North America, which makes up 70% of our Revenue in the desire to main transparent Communications with our masters. We lowered our third quarter guidance on February 18th. The third quarter is our seasonally low quarter and historically generates only 5% to 10% of our annual earnings. So the magnitude of relatively small changes and earnings becomes magnified however, in the end through the Extraordinary Measures of our Associates as well as the fact that plan change distribution centers and transportation Network resumed operations more quickly than we anticipated. We were able to catch up and execute delivery of most of our customer orders page.

the final week of February which

Enable us to exceed our original third-quarter sales and earnings guidance for the quarter. We generated record Consolidated sales earnings and cash from operations sales tax 8.1% with 4.9% being due to organic initiatives 2.1% resulting from Acquisitions and 1.1% as a result of favorable foreign-exchange internationally, Europe and Canada showed good growth as well Latin America showed growth in local currencies, but was flat when its results were translated back in the US dollars off like last quarter three of our four operating segments generated solid sales growth and significant leverage to the ebit line due to our map to growth operating Improvement program benefits package being leveraged to the bottom line as we've done for the last eight quarters. This was particularly impressive given the supply chain challenges and typical comparison to last year's third quarter when our wage

increased 30.4%

on a segment basis our Specialty Products group led the way with Organic growth of 13.4% in the quarter and produced a secutive second consecutive quarter of double-digit top-line and bottom-line growth are consumer group also generated double-digit organic growth as it continued to benefit from strong DIY demand the Construction Products group again generated solid sales and significant ebit growth in challenging market conditions by focusing on infrastructure, which encompasses about 15% of RPMs Consolidated sales office and its strong performance in repair and renovation.

Results in our performance Coatings group declined due to difficult conditions in its primary end-markets. Matt rataczak will cover the segment results in more detail in a minute. We continue to prove my RPM is the best home for entrepreneurial businesses in our industry with two Acquisitions in Mark March these include the tufcoat line of rubberized nonstick Coatings used for applications, which is a great strategic fit with our recreational Marine Products group and bison bison Innovative products a manufacturer of raised flooring systems. That wage rate is part of our fiber great business.

We have taken a more collaborative view of our manufacturing footprint as we add capacity for example to meet the consumer segments. It's explosive growth for its products were installing packaging and blending equipment at plants in our performance Coatings and Specialty Products groups. This is an addition to Capital spending in our consumer segments facilities, which includes new phone now for Consumer group plants with particular emphasis on meeting the increased demand for small project paints calks and sealants in our repair categories other investments in our operations include new presses and injection molding equipment to meet surging orders for our new Dura ICF products and Wall Systems and the construction of a new liquid applied Coatings plant.

now like to discuss our map to growth restructuring program which continues to pay dividends during

The quarter and so far in the fourth quarter. We announced the closure of two plants which brings our total 227 of the 31 plants that we originally targeted for consolidation at the beginning of the month to growth program as discussed last quarter. We continue to be more efficient and utilizing our manufacturing assets to generate cost-saving opportunities. The benefits of our Center left of it initiatives are becoming even more evident in the current inflationary ROM material environment Rusty Gordon will provide more color on this when he walks through our fourth quarter Outlook page lastly in the area. We continue to consolidate it systems and accounting and finance operations at the end of our fiscal year may 3121. We expect to see the original map to growth programs planned run rate of $290 in annualized savings the programs learnings of continuous Improvement in efficiency wage.

Become ingrained in our culture and we will continue to add to our robust pipeline of cost savings initiatives and operational improvements as we sustain the official wage gains achieved through map to growth. We are now shifting more focused and resources towards top-line growth through internal Investments and Acquisitions. Our goal is to return to the exceptional Revenue growth rates that have been one of the Hallmarks of RPM success since its founding in 1947.

I'll now turn the call over to Matt read a check for a detailed review of our financial results for the third quarter of fiscal 2021.

Thanks, Frank and good morning. Everyone know that my comments will be on an as adjusted basis during the third quarter. We generated Consolidated net sales of 1.27 billion increase of 8.1% compared to the one point one seven billion reported through the same quarter of fiscal 2020 as Frank mentioned organic sales growth was 4.9% or 58 million Acquisitions contributed 2.1% to sales or 24.5 million or foreign exchange was a Tailwind that increase sales by 1.1% or 6.9 million. This was strong top-line growth during the third quarter which typically generates are most modest results each year because it falls during the winter months when painting and construction activity lifo.

Adjusted diluted earnings per share with $0.38 an increase of 65.2% compared to twenty-three cents in the year-ago quarter are Consolidated adjusted ebit was off 32.2% to 79.9 million compared to sixty point five million reported in the fiscal 2020 third-quarter these excellent results largely due to initiatives under our map to growth restructuring program and our ability to leverage higher sales to the bottom line.

Turning out to our segments sales in our Construction Products group were strong and increased 6.4% to $396 million growth was practically organic at 5.4% or 20.3 million Warren currency translation increase sales by 1% or 3.6 million with soft drink commercial and institutional construction markets are Construction Products group remained focused on renovation and restoration projects leading to solid sales growth during the quarter Thursday evening business performed. Well as did our Dura insulated concrete forms or icf's which are experiencing accelerated long-term adoption as a wall system as a lumber supplier tightened and prices have skyrocketed.

ICL

Also provide the benefits of improved Energy Efficiency and structural Integrity adjusted ebit in the Construction Products group increased 206.4% to 18.5 million from 6 million during last year's third quarter the group generated 310 basis points of adjusted ebit margin growth do the math degree of savings and the federal leveraging sales volume increases the segments European businesses continue to improve as a result of ongoing restructuring and better product mix.

During the quarter challenging market trends persisted for a performance Coatings group including weekend and energy demands that impacted Industrial Coatings and COVID-19 protocols that continue to restrict access to facilities for flooring system installations.

Sales in the segment. We're 226.5 million and 11.4% decrease from the 250 5.7 million reported during last year's third-quarter loss organic sales decreased 12.7% or 32.4 million one exchange provided a Tailwind of 1.3% or 3.2 million.

Segment adjusted ebitda decreased 41.6% to 14.1 million from 24.2 million during last year's third quarter.

Lower sales volumes and pricing pressures resulted in earnings the leveraging which was offset in part by discretionary Cost Cuts and map to grow savings and vaccines on a minister and the impact of the pandemic diminishes. We expect the segment to rebound as its industrial customers catch up on maintenance and energy markets recover in part due to increased birth.

Nicca consumer group sales were robust increasing 19.8% to 177.7 million organic sales increased 12.7% or 50.4 million and Acquisitions increase sales by 6.1% or 24.5 million.

Foreign currency translation increase sales by 1% or 4.1 million the consumer group continue to capitalize on the positive DIY Home Improvement market trends by leveraging its broad distribution and Market leadership and talks sealants cleaners abrasives and small project paints.

Similar to the US segments International results were equally robust in Europe and Canada.

Adjusted ebit and the consumer group was 47.8 Million an increase of 48.6% over the prior-year adjusted ebit margin improved as a result of math too. Gross to leverage, you know higher sales volumes which offset Rising distributions expenses.

Results in our Specialty Products group where record and improved dramatically for the second consecutive quarter fiscal 2021 third-quarter net sales increased 14.7% of 269.2 million from 147.5 million in the fiscal 2020 third-quarter organic sales growth was 13.5% driven by more aggressive Business Development efforts and growth Investments initiated by New Management as well as improving market conditions for many of its businesses.

in particular

A restoration equipment business driven by extreme weather Events North America experienced excellent top-line growth as did our businesses serving the furniture outdoor recreation equipment food cleaning disinfecting and OEM markets.

Several foreign currency translation at 1.3% to sales adjusted ebit was 25.3 Million during the quarter an increase of 44.2% compared to a judge ebit of 17.5 million and last year's quarter. Especially prized group was able to drive map to grow savings and operating leverage from higher sales volumes to the bottom line.

Next a few comments on our liquidity. Are you today cash flow from operations improved by 270.7 million or 71% over last fiscal year to a record of 651.9 million as a result of continued better working Capital Management where all components are working capital improved as compared to the prior-year and off from our map to growth program and the quarters and our total equality was 1.4 billion.

Our net leverage ratio has calculated. Our bank agreements was 2.13 on February 28th, 2021, which was a significant Improvement as compared to 2.90 years ago our balance sheet remains strong and weak strategic Lee deployed a record cash flow to reduce debt simultaneously. We are completing Acquisitions and making Investments to improve the efficiency of our operations. Additionally. We repurchased approximately 24.6 million of stock during the quarter.

I'll now turn the call over to Rusty for a outlook for the remainder of fiscal 2021. Thanks, man.

The fourth quarter is seasonally our strongest and started off. Well in March, however, several macroeconomic factors are creating inflationary and Supply price on some of our product categories.

These factors include supplier refineries operating at lower levels due to low fuel demand the disruption winter storm. You recall caused on supply-chain intermittent supplier plant shutdowns in response to the pandemic and significant worldwide demand for packaging solvents and chemicals used cleaning products. We expect that these increased costs will be reflected in our results for the fourth quarter of fiscal 2021 and more significantly during law school 2022.

We are moving aggressively to offset these increased costs with commensurate selling price increases.

Fortunately due to our map to growth program. We are in much better position to whether these challenges than we were three years ago when the last inflationary cycle occur with a stronger partnership with our supplier base and longer-term contracts. We are working with our supplier Partners to secure necessary wrong materials and control costs to whatever extent possible in addition our improved Center lead processes and systems are providing more timely and actionable information to address these challenges. We are also working in collaboration with customers through the supply chain difficulty.

on a segment

Basis we are are encouraged by the following number one resumption of discussions on federal action on an infrastructure program as well as Municipal funding and the recent Federal COVID-19 stimulus bill that should support building maintenance and major end markets of our Construction Products group number to the resumption of travel and the recent rebound and energy markets give us optimism that are industrial protective Coatings business in our performance. Colby group may have bottomed out as they start to lap into easier comparisons.

number three the increasing re-entry of Home Improvement professionals into the market as more consumers become vaccinated and welcome outside contractors back into their homes, which will benefit our consumer group and number for high demand in our Specialty Products group for its Legend Brands restoration equipment and solutions, which resulted from the property damage caused by winter storm Yuri

Well, it disrupted many of our other businesses store and provided revenues for legend brands in February and a backlog of more orders in the fourth quarter long as we help our customers respond to this natural disaster.

As we look ahead to our fourth quarter and Beyond there is currently a great deal of volatility around input costs and uncertainty regarding material availability off. Well, our third-quarter earnings did not reflect recent material cost spikes due to our fifo inventory methodology inflation will likely be a significant in our fourth quarter and into the first quarter of fiscal 2022.

We have been and are in the process of implementing appropriate price increases and changes in terms which we anticipate will offset the inflation impact by the end of the first quarter of fiscal 2022.

There is also much uncertainty related to the breath and speed at which global economies reopen as people become vaccinated based on the information available to us today. We expect our fiscal 2021 fourth quarter sales to increase by double digits compared to the fiscal twenty twenty fourth quarter off last year's fourth-quarter should prove to be an easier Revenue comparison because it was heavily impacted by the onset of the pandemic. Our earnings compact is last year on the other hand will be more challenging because of raw material inflation as well as an extraordinary situation last year when our non-gaap operating segment reported a profit do to lower travel and medical expenses incentive reversals and other factors as a result our fourth quarter adjusted e

ebit is expected to

Increase double-digits but below the rate of sales growth excluding are not operating segments adjusted ebit for our for operating segments, and total is expected to increase by more than 20% This concludes our formal comments. We will now be pleased to take your questions.

At this time if anybody would like to ask a question, please press star one on your telephone keypad again. That would be star one on your telephone keypad. Your first question comes from Frank mitsch from Sir ma'am. Research. Your line is opened. Good morning. Good morning. Good morning Frank as well and congrats on your second shot and I hope I hope there's the other folks in the room are are making progress on that front as well and and appreciate the commentary, especially the interplay between raw materials and pricing you're going to have it fully offset by the end of the month first quarter of 22. I'm just curious if you could offer, you know, it's kind of qualitative comments or quantitative comments in terms of what percent raw material inflation. You think you're facing. Here's the fiscal fourth-quarter in the fiscal first-quarter how how significant are these are these headwinds? So I think a couple of things are happening number one. We were seeing inflation area increases at

The end of calendar 20 and the beginning of calendar twenty one that we're structural. Those were uh-uh impacted is I think everyone in this town knows or call knows, uh by the the winter storm and its impact. Um, we are seeing temporarily certain raw materials like a package that are more than double in cost what they were a year ago, that's true across a number of categories. And so that aside, you know, we think that you're going to see inflation in our markets long that's going to be a high single-digits and I think an important thing for people to understand is inflationary impact on us in in our market and our industry wage exists throughout the piano. It's not just raw material cost. It's Transportation costs of all types rail over-the-road truck ocean Freight dead.

Big issue for us but ocean Freight and it's also labor costs you're seeing higher labor costs and factories and distribution centers and and to a certain extent across the organization wage labor costs are particularly interesting over the last year to a certain extent. We're competing with the government. I mean some of our distribution centers we would have seasonal part-time workers decided that she could get paid more by staying at home. They would we've had to replace many of those with full-time Workforce that has a higher benefit expense. So inflation in total is going to be mid to high single digits throughout the year that's structural that does not include some of the extraordinary spikes that resulted from a storm and there throughout the piano.

That's very helpful.

So, uh, so you going to be placing that throughout the year, but by the by the time you come, you know within six months or or less than six months actually your price increases we'll we'll have more than well. We'll have to fully offset that that's how we think about it. Correct. That's correct. We will see some gross margin deterioration in our fourth quarter particularly in our consumer business will see gross deterioration in q1 again in the consumer business particularly is which will be a combination of two things one cost price mix and to the fact it and consumer and q1 will be uh, a rounding a first quarter performance last year where Gannett growth was up 34% and we do not expect to wage exceed that um, but those are the big challenges that we see in I think you'll you'll see a return to uh, gross margin Improvement after Q100.

With the strong sales leverage and the continued benefits of map to growth. We should see ebit margin Improvement modestly in Q4 at the operating level is rusty said and then continuing and fiscal 21. I'm sorry, very helpful when fiscal 2222. Yep. Got you that that's very helpful. Thanks so much. Thanks.

Your next question will come from Rosemarie more belly from G. Research your line is open. Thank you. Good morning everyone and I got my second shot as well. Rings a bell. So Frank, can you talk about the trends? You are seeing at the big box and other retailer outlets off as your consumer business is concerned. I mean, you mentioned the anticipated benefit from the increasing vaccinations for Performance Products, but people on the other hand are going back to work so they will be less do it yourself and is professional painters and others, you know enough to affect a potential decline on the DIY in 2022.

So in general we're seeing still solid consumer take away across all of our consumer group customer base, but it's certainly down from that was in the summer and the fall and the summer in the fall. We were looking at you know, 30% organic growth rates consumer. Take away in the third quarter was more in the wage low single-digit range low teens and um, uh, we expect to start rounding much more difficult comparisons in April and May and the first in a second quarter of fiscal twenty-two, so I would expect as we indicated a minute ago that we'll see some gross margin challenges in quite candidly some very difficult comparisons in our consumer segments. Our results will be above what is the time we're records in fiscal nineteen, but in the first half of next year and really starting in April and May

I would expect us to be flat.

Just slightly down relative to the comparisons that will be facing. The flipside is uh, as we sit here. We are starting to see positive sales and learning contribution from our performance Coatings group really the first, uh positive results in the top and bottom line from those more industrial focused businesses and and industries that we've seen in in more than a year. And as you can see in our results, the Specialty Products group is roaring and the construction projects group is roaring and the Dynamics of their underlying Market suggests that that will continue for some time in both segments and Frank you talk to about going back to 2 RPM historical Revenue growth. Can you remind us of what the you have had a lot of Acquisitions during that particular time?

So, can you remind us what The Organic close was historically?

Well historically Rosemary and this goes back to the beginning of our map to growth program. We had a fifteen or twenty year compounded annual growth rate of about 6% I'd say about half that was from Acquisitions. Um, but when you look at where we were after our last restructuring in the ninety nine two thousand range from two thousand and three for about a decade are organic growth averaged about five or six percent so very impressive numbers and uh, you know, we think we're going to get back to that. In fact, we are back to that as we speak and you know will tell you are fourth quarter. Our current view is we expect Revenue growth somewhere in the 15 to 20% range. And you know, we I think we're well-poised for good growth and fiscal twenty-two and the underlying fiscal.

Dynamics will support perhaps even stronger growth, although I think it remains to be seen what actually comes out of Washington in terms of a big and infrastructure Bill and also offer and how quickly Europe recovers, you know, we're continuing to see some modest challenges in Europe with these COVID-19 lockdowns across some of the major countries that we brought it in while the United States seems to be picking up and that pickup is gaining momentum. And if I may that Q4 just following up on one of your comments chew for Revenue growth of 15 to 20% How much is from effects and acquisition how much organic do you anticipate? I don't have that on a specific number. I would tell you in general, you know less than a quarter of it is uh is from price and the balance will be uh mostly from organic growth wage.

Yes, uh-huh, you know we look.

And and this quarter and acquisition activity two person. Yeah 2% So you would expect another 2% of wage impact from Acquisitions. I think in Q4 the balance will be organic growth. Okay. Thank you.

And your next question will come from Panjabi from Acura line is open morning ghansham. Good morning, everybody. So Frank can yep and your comments you talked about, you know, just given the journey you've been on and map to growth being better equipped to handle the current raw material environment. You can just give us some more detail in terms of what exactly that means. And then also how is your pricing strategy just broadly changed since the last inflation cycle, which was three years ago. Sure. So I'll hit you you're going to steal my concocting comments. Got you with that question, which is a good one arm app to growth program is fundamentally changed our p.m. And it's not just about you know, saving, uh, you know, or achieving the two thousand million in Savings. In fact that it made 3121 will be a roughly a $300 run rate and we expect fifty million dollars of maps.

Savings to benefit incrementally fiscal 22, but uh, it really has an in a relatively short period of time begun to engrain, uh, continuous Improvement some lean manufacturing disciplines into our manufacturing and operations and and really into our DNA. They're the the work that our teams have done and procurement has extraordinary. We went from a loose collaboration to a centralized procurement activity Mike Sullivan who took over as Chief restructuring officer from Steve canoe. And Tim kenzer and Gordy hide and their teams have done extraordinary work then then the other thing that has fundamentally transformed RPM is the work of Roscoe Gordon Scott Copeland Lonnie grew so who's our IT director and his team's we have developed systems for tracking savings and efficiency program.

I am side of the map to growth initiative we have a and so that is something we call Em PST. We have adopted that we started a year ago. We got disrupted by by COVID-19 have adopted in internal add corporate system to map growth initiatives called the mpg T. We have a Consolidated effort to look much more aggressively and much more proactively at cost price mix. So what we've been able to do in terms of utilizing information across RPM on a centralized basis back to communicate, uh, better share best practices and really have more real-time data in which to make decisions is dramatically different from where RPM was three years ago, and we expect to continue to build on that. The last comment I'll make is is that we have the the procurement effort has really established us as a good partner wage.

to some of our major raw material suppliers in ways

Lise that we were not before and we have substantially more and different ROM materials under Global contracts than we did three years ago and that has been very very fortuitous in and how that has helped us in this challenging raw material cost increase environment. But at least as we speak now also a raw material and beige availability environment, so it's pretty exciting cuz they'll be more to come around the kind of the cultural change that we've affected in map to growth which is I think in the long run probably more important than the execution of achieving uh, a particular efficiency number.

And that concludes my prepared remarks and it also for my second question. Go back two three q and you know original guidance before you took had that released on 5/18, you know construction came in well above you know, what you I think what you originally seemed I know it's a small quarter but you know, you just give us a sense as to where exactly the way I came from and and what drove that specific two three Q so I have commented before on this Paul whom the leads are Construction Products group and his team are doing extraordinary work wage and it's a combination of two things. That kind of it came together at the right time one is in effort to bring together and this started before map to growth our collection of Construction Products businesses show dryvit new Dura different parts of tremco. Some of which operated relatively independently owned. No,

Chemicals business into a much more integrated kind of holistic approach to the market. So while we call it the RPM Construction Products group, they're going to Market globally is the tremco Structured Products group. And so that integration on two, nighty platforms. We are getting some common specification efforts, uh is really paying big dividends you overlay that with the benefits of map to growth and you're seeing uh, a really good combination of market-beating top-line performance in The Leverage to the bottom line and that's continuing to see a continue in the fourth quarter and boy, I would expect it to continue for the next couple of years. We have some more work to do but the enthusiasm amongst our people in the Trump Grill Construction Products group and the extraordinary work they're doing yep.

Just fantastic and you can see the marketplace. The last comment I'll make is I ramble on here is there's been a decided shift there towards more renovation jobs as opposed to new construction new construction still probably 30% of the Construction Products group, uh, if not more but we've become more renovation focused package, which has really served as well infrastructure spending a big boom in construction activity will only serve to help accelerate the performance that we're seeing.

Okay, perfect. Thanks Frank and congrats again on the vaccine.

Thanks. Got you.

And your next question will come from Steve Byrne from Bank of America. Your line is open morning Steve morning Frank. So you made a comment about money down. You're going to start shifting your investment internally and I'm curious to hear your your outlook for the key Revenue growth drivers over these next couple of years. How would you rank these buckets the you know, potential sheer games from cross-selling, you know in integrating the commercial efforts is one bucket another one being growing more outside of the US in the in the third one being m&a.

Sure, and a great question in terms of where we're going and how we're thinking about growth. First of all in our investor presentation. We outline kind of what we think is the addressable markets globally off for our four segments and it comes up to about $134 billion dollars half of that relates to our Construction Products group. So given the comments I just made and the opportunities we see their own. I would expect that to be probably our our fastest-growing group particularly in light of the extraordinary year in which consumer has had we are also in the early stages of birth cross-selling if you will between our Construction Products group and our consumer group particularly where there's an interest with some of our big box customers in some of the Construction Products groups waterproofing Coatings and sealant products as well as concrete patch repair products. So there's opportunities there. Um, we have as part of map to growth. This was not part of the original authors.

And but we had added to it brought in McKenzie to really help kick-start growth in our Specialty Products group, you know, we had underinvested in our Specialty Products group for a long time part because most of those businesses were part of the sphc asbestos bankruptcy solution Challenge and so we're being managed for cash and I think you're seeing the early results of both our focus on growth and those business businesses in the Specialty Products group and some leadership changes that were affected by Ronnie Coleman whose leader of that group home. And so there's some exciting opportunities there that that will be in a position to talk about more in July and October as they come to fruition we get comfortable about what we want to do is publicly but you know, and then and then lastly we're better able to integrate bolt-on Acquisitions than we ever have having said that all of birth

Colton acquisition activity is really done with a focus on growth. How can we take a unique product line or a unique technology and double or triple and sales and a short period of time but leveraging it over our distribution our sales forces. So the combination is pretty exciting for us. And uh, it's a uh, there's a pretty good m&a pipeline all. It should be good historic valuation levels in terms of of highs relative to interest rates and stock market value.

It may be just a drill in on one of those Frank the the intermediary on your Construction Products is those are those contractors Thursday the do the renovation work and you obviously have good relationships with them. How do you how do you develop those in new regions and you know grow X off or do you need Acquisitions to give you kind of a footprint in in a new region that you can then grow relationships?

Sure, I think the best example in the near-term that you'd start to pay off is in Europe. So if we had a disparate collection of construction chemicals business office, when you look at Europe between flowcrete and drive it which is headquartered in Poland our business and our tremco business. They all operated independently and under the leadership of off the showroom is doing a great job over there has been with us for quite a while and uh leads the Construction tremco Construction Products group efforts in Europe. We have integrated those businesses wage going to Market more as tremco Construction Products group and it's been a real fixer up job. And I think we're getting towards the end stages of the fixer up part terms of plan consolidation, uh, really getting people to see themselves as part of One Construction Products group team, and then they'll quickly be a Thursday.

Shift to a focus on growth. Hopefully we'll be lucky on the timing because Europe is is certainly behind the United States relative to opening up an activity, uh, prep being related to these recurring National shutdowns and some of our major markets like Germany and France and Italy were actually doing pretty well in the UK month and then outside of that we've got really exciting growth in places like Europe and Asia, but it's on very small basis. And so Acquisitions will certainly help us accelerate growth and establish a bigger presence in international markets.

Thank you.

And your next question will come from Jack Jeff from JP Morgan your line is open. Hi, thanks for warning. Good morning, Jeff. Hi off by my calculation to offset your raw material inflation. You need about a 3% increase and 3% is normal life tough to get in the middle of a calendar year in that things really readjust themselves. Beginning of the year is the is 3% Roughly. The right number and is the reason that you're confident that you can achieve that is that customers really need product. And so they're willing to be more flexible and price in terms. So I I think that just to reflect the comments we made earlier, you know, we anticipate structural changes and inflation in our markets throughout our p&l that's going to be high.

single digits

And uh, we have gone out with price increases that are in the 68% range we wound. We went out some of our businesses went out early in life dissipation. These are industrial businesses and looking at the changes at the end of the calendar year and the beginning of of this new calendar year with three to five purchase price increases and as we sit here today, those aren't enough and they're going out again and um, you know in certain categories, I mentioned epoxies we've increased prices on a certain of our product Lines by 14% that's in light of epoxy prices, which we think are temporary which have more than doubled they'll certainly come down from their current home, but they will be substantially higher than they were a year ago and that from our perspective is a

A structural change in most all of our raw materials from acrylic resins to epoxy resins to all types of polymers and polyols and you know, it's just been an extraordinary period of time in terms of spikes but really in terms of inflation corrugated packaging Transportation costs all going on and that's so we'll have a be better information in July in terms of where we are in the last comment. I'll make to your question is we've been a I think both good and fortunate and in our ability not to have too short and or not be able to supply we have continued off work to do on working capital. We've been a heavy working capital company. We've generated in in excess of two hundred million of cash flow positive cash flow from approved.

Working capital, but whether it was raw material or inventory, whether it was new contract so far. We've been able to manage through these circumstances. I think pretty well.

Then for my my follow-up do you think volumes and consumer products are going to grow in fiscal 22, or do you think they're going to shrink or B flat or rough life? How do you say it? Sure. Is that accommodate earlier on the call starting in April and May and certainly through the the first and second quarter. We anticipate a consumer volume flat or slightly down. We think it'll be picking up in the second half of next year and that's in light of birth instance a first quarter of fiscal twenty organic growth of 34% which is a mountain. We don't expect to beat in the first quarter of this year. We do have some market share gains. We do have some nice introductions to the extent that there is acquisition activity that could end up resulting in your over your higher performance, but on organic basis start off.

April I think we anticipate flat too.

slightly Down results in our consumer segment on the top line and the bottom line

It seems a little more pessimistic than you were three months ago. Is that true or or you know, it's not true. I think yeah three months ago anytime. First of all, we didn't talk too much about fiscal 22, but I can tell you uh, we have made numerous references to the fact that we were not going to top a 34% organic growth in the first quarter and I believed it 6 months ago and I believe the three months ago and I believe it today and I wouldn't say we're pessimistic we will be meaningfully above the record results of where we were in a consumer business in fiscal nineteen. And so there has been an expansion broadly of the market of of more confident DIY wires, and we're excited about that but circumstantially starting in April and certainly through our first quarter we'd expect to be flat or slightly down in our consumer business versus these extraordinary comparisons to last

Last year, thank you so much. Thank you.

Your next question comes from John McNulty from BMO Capital markets. Your line is open. Yeah, good morning. Thanks for good morning, Frank and thanks for taking my question. So a question first. It sounds like that that business is kind of really turning the corner and some of it may have been on high lumber prices, I guess from your perspective is is it a function of okay your phone number cheaper now or more cost-competitive again Slumber, but if if and when Lumber eventually comes back down to earth it you give some of that back or is it more? Hey look you've gotten a lot of you know, a lot of contractors a lot more comfortable with it and maybe this High lumber prices kind of facilitated that but but because of that it's it's resulted in a little bit more of a secular shift. And now with that greater Comfort level you can kind of see growth continue to emerge from that. How should we be thinking about that very much the ladder John. I think the the lumber it was growing double digits before the lumber price issue. We are working on wage.

Greater specification. Um ICF with contractors is initially a challenging cell cuz you know for better for worse and some types of helps us with uh, uh contractors Architects and Engineers are hesitant to change from systems that work and when we get people to convert to ICF, they loved it. It is, uh, Less labor-intensive in many instances. It provides the most durable sidewall in the market today Bar None and it's highly energy-efficient. And so we had been focusing efforts through our tremco Construction Products group again and integrated basis, utilizing the sales force of two hundred plus people in the tremco waterproofing sealant business to really Drive sales in New durup. The lumber price situation was some added gravy to help accelerate that but we're very excited about that and we're also log

Excited about the ability to deliver a more integrated wall new Dura Independence.

Ali was bought and part of drive it today, they're all part of our tremco Construction Products group. So our specifications around who are not just for an ICF wall system there for the tremco ceilings and all the joints therefore dryvit or newbrick or other siding that were involved in and so the opportunity there is very very exciting. It's mostly residential in the opportunity to drive it and Light commercial institutional markets like schools is huge gotta know makes that definitely makes sense. And then could you give us a little bit of color in terms of the m&a pipeline? I it sounds like you've made a couple of opportunistic Acquisitions just as past quarter. That's how should we be thinking about that going forward cuz it does look like the Middle East some of the some of the pricing starts to start is starting to creep up at this point, I guess, how are you how you looking at the opportunities and and the value of those opportunities wage?

As you're looking forward sure. The m&a pipeline is really strong. We commented that we completed two Acquisitions. Just this this past month by 6, which is a a great addition to our fiber great business and I think also has some uh applicability to other parts of our p.m. That's a a patented level leveling system that we can use with grading or or other systems and then tough code again a a non-skid marine product that is already getting some interest from other parts of our p.m. And it's just real settings. So we're very excited about both of those. You've got management teams that are going to stay and run those, uh, even though will be pulling them in to RMS 168 manufacturing process and are centralized procurement activities. So there's more of that out there in general in our space. There are a lot of bigger transaction page.

Up there and I'll just repeat what I've said in the past. Um, you know, I don't see us uh-uh paying fifteen or sixteen times ebitda for anything. And so to the extent that there's life actions and people are willing to pay those relatively, uh, speak multiples in a period of time where there are Peak earnings, um, that will not likely be our p.m. But if there are some larger transactions that we can get done and what we believe to be a reasonable multiple with a reasonable, irr we certainly wouldn't preclude looking at them got it makes sense. Thanks very much for the caller. Thank you. Your next question comes from Vincent Andrews from Morgan Stanley your line is open. Thank you. Good morning, Frank. Just wanted to ask a couple of things one. You mentioned, you know COVID-19.

This is pretty much opened up in Florida is pretty much opened up like when you and there's a big geography, you know, when you when you look at your results. And in those states, are you seeing that with those restrictions lifted that you know, the performance of the line businesses is really snapping back or and has that comparing to what you're seeing and places that are kind of halfway open any any thoughts there would be helpful. Sure. I I comment earlier on the call that as we sit here in the spring we're seeing positive results for the first time in a year on the top-line and bottom-line of those businesses. I think we'll have better color in July because the biggest reason is is that we're starting to annualize really difficult. I'm sorry really poor results, you know, we've had in our car behind business in particular given their exposure to oil and gas heavy industry, you know, ten twelve percent sales declines pretty consistently stoneheart business and our floor and polymer flooring business has been wage.

So we're very hopeful that uh, you're going to see some some nice robust growth there, but we'll have better color for you in July to really look back over three or four months and and determine right. How much is this is a pickup and demand and and good robust organic growth versus how much of this is. Hey, we look great cuz last year was terrible. Okay fair enough look for wage that and just as a follow-up and Specialty Products, you mentioned that you know, you did benefit from the weather disruption, you know, creating some demand for you is that continuing, you know, given that that area was in the middle of the last month of the quarter is that continuing into the fiscal fourth-quarter in in from an order of magnitude perspective? That's something that we really need to be thinking about when we we model the these quarters for next fiscal year in terms of just tough comps.

Well, I think that's it is continuing to the fourth quarter. And I think that's true of our Legend Brands business. But you know, we have new leadership in a number of places of last two years have been really looking to drive growth. If you look at our Market profile and how it's improving and Specialty Products and the last two quarters. I think you'll see comprable, uh Improvement in Q4 of work that's in our Dayglo fluorescent color and color and business. It's in our MRT business, which is our our marine, uh-huh and and some of the Specialty Products there. Um, it's it's pretty exciting in terms of of what the work we're doing there and some of the leadership changes that we've affected is doing for that segment. So, uh, we'll have much tougher of cops next year into three to four and Legend Brands, but I think this specialty segment is poised for some pretty solid growth in the top and line bottom line for the coming year.

Okay, great and congrats on that second shot. Yeah, thank you. I encourage everybody to go get theirs.

Your next question will come from Kevin McCarthy from radical research. Your line is open morning Kevin. Good morning. How are you Frank in Washington DC. I imagine there'll be a long conversations and perhaps and horses traded before we know what a infrastructure bill could really look like but that said I'm tempted to ask two things, you know a what were your thoughts or luminary thoughts on on the bill as it was unveiled and then be it's the extent we might have a little bit better visibility at this juncture. Is there anything else you feel that you would be doing differently in terms of capital allocation or operating strategy, you know ahead of such substantial fiscal stimulus.

slightly down their backlog is bigger than ever and

sure, I

you know without being too much of a politician. I think we're going to have an infrastructure Bill. I'm hopeful it'll be more bipartisan than the than the most recent COVID-19. Yeah, and I say that because if it's more bipartisan whether it's large or small or it will be more focused on Bridges and highways and airports and stuff and and Port facilities and the things that will drive our business and so I do think will be a beneficiary of that and I think whatever benefit comes out of that will be in addition to the growth experiencing it or Construction Products group now, okay, then second. It'd be a bit more of a housekeeping question. But you know as it relates to winter storm you are you talked about catching up in the final week of February. You also talked about some benefits flowing through into your Legend Brands business. I mean if we we kind of roll up off

Puts and takes was was your age.

A material positive or negative, you know in February and and what do you think the answer to that question would be for for March as well? Sure. I'm certainly for our Legend Brands business. It was a positive in terms of driving, you know, there are handling equipment and see humidification equipment and stuff that they work with all their Majors customer is uh in in helping homeowners and Light commercial recover from you know, storms like this for RPM as a whole I would call it. Uh, net neutral. I think we panicked a little bit with literally two days of of you know trucks not coming in and trucks not going out and at least one of our more significant consumer plants club and not knowing when all that would change. I think we recovered most of it. So I would say in the quarter. It's uh net neutral as you think about what our peers

Comparison might be for next year with the exceptional Legend Brands business.

Okay. Thank you very much.

Next question comes from a run from RBC Capital markets your line is open.

Morning, everyone. Good morning Frank. Thanks for taking my question here. I guess if you know first off just on the pricing Outlook, could you just elaborate on maybe you know by business segments of possible? What feels the pricing Outlook is I'm just curious, you know the volumes obviously and consumer still relatively robust, um, you know, uh on the off and maybe industrial performance is a little bit weaker and does that kind of pretend for for a week or pricing prospects over the next couple of months. How should we think about kind of pricing bye-bye wage? I don't know that we would provide pricing by segment. I do think it's driven certainly by the underlying raw materials in specific areas and then by my commentary on inflation took our p&l in general, um, and so, you know, I would anticipate again we're we're not going to recover the spike from eurie. It's crazy and you'll see that in our fourth month.

And again with with epoxy resin some acrylic resins some you know, different solvents literally doubling price temporarily, you know in some cases it's more than double in price. Um, but we think there's a underlying inflation that's high single digits across our p&l and in you know, in some cases we've had modest price increases in other cases like epoxy resins is that commented earlier in certain product categories, we've gone out with a 14% price increase in it's sticking the other aspect of this. I think it's important to understand is you're trying to manage your supply chain. And so if if you want to get product to meet customer demands and serve your customers, then you're going to have to work with your suppliers on a product availability and and what their costs are doing and what they're doing with their prices in order to get raw materials to serve our customers. And so that's certainly part of what's driving.

some of our price increases

As well. Okay, that's helpful. And then this is a quick follow-up. So then when you think about you know subsequent quarters, ultimately, it sounds like you will be able to get a price here. Um, but it may take some time. Um, but in the future, I guess maybe be on the August quarter. Would you expect that? You know, uh, if Rose moderate that you should see some margin expansion i e, you know, hold on to that price, you know in subsequent periods as well.

Sure, I think there's as I mentioned there's 50 million dollars of expected kind of final incremental benefits of our map to growth program in fiscal 22,000 of that is in the manufacturing and procurement areas. And so I would hope that after as I commented earlier after our first quarter, you'll start to see that gross margin improved. We're keenly focused on that in terms of our conversion costs as well as that centralized procurement activity that we're talking about to an earlier question. Um, you know, I repeat we're seeing inflation throughout our p&l and from a political perspective the United Spence United States spent three trillion dollars on COVID-19 relief and stimulus June calendar 20, or we're going to spend already two trillion dollars more encounter 21, and if there's a big infrastructure bill, that's true. Yep.

Care to marry that with the inflation that our industry and Manufacturing in general is seeing across packaging and freight costs and metals and and everything else. You know, I think the bigger concern, uh, we already have broadly is, you know, are we in for a a return of of some level of inflation and what does that do to interest rates? I'm not an economist, but we don't see anything that suggests, uh that we're going to back go backwards in raw materials structurally. We're certainly going to come down from some of the crazy spikes that we've seen in certain raw materials again. I don't anticipate that epoxy resins will will be a hundred or a hundred fifty percent higher for the rest of the year, but they are as we speak here today same is true on some acrylics. So quite

You know to the contrary of your question, our price increased activity is anticipating some significant reductions of the real crazy spikes that we're experiencing as we sit here today. Okay, that's helpful. And sorry one more quick one. So just on the m&a side, I know that you said that the evaluations may be a little bit high now, especially for the larger deals, but the the changes in in your strategy through map and potentially integrating, you know prior Acquisitions. Do you foresee, you know greater Synergy opportunities wage in the in the with future Acquisitions or is there any color you could shed on what you expect to drive out of the bison or other Acquisitions that you completed recently? Sure. I I think that uh, if we look at bigger deals for the most part, they would have and and particularly if they're higher valuations that we've than we paid in the past. They would have to come with meaningful.

Energies and um, you know versus twenty years ago. My father would go out and

And and acquire at a reasonable fair price family-owned businesses that would operate independently as part of our p.m. The vast majority of our Acquisitions today are driven by the Strategic growth imperatives of our groups as opposed to buying totally free standing businesses that don't have a connection necessarily for in some level of aggregation within an RPM within one of our four segments.

Great. Thanks.

And your next question will come from Mike Harrison from Seaport Global Securities. Your line is open.

Hi, good morning morning, like wondering if if just to follow up on some of the acquisition discussion when you acquired the Ali business office, it looks like it had annual sales of around $75 million and this quarter. It sounds like around $2,425 million in what would what I would think is a seasonally weaker quarter. So can I talk about how you been able to leverage Ally and the gator brand relative to your expectations? And where we should think about that Revenue run rate as we get into the spring and summer have you received in here sure, you know the alley family had built a great business with a great band a brand a great adjacent product line for our consumer segments. And so we're excited to have it our first challenge there was kind of into the COVID-19. With a shutdown of a lie for a few weeks and a lot of catching up wage.

And and and really Sim supply issues and we have worked very aggressively both in terms of investment and Outsourcing in a few categories to correct that disruption and we have caught up and so now there is good demand there and it's just a great business and to the extent particularly in conjunction with the sales and marketing teams Rust-Oleum to go into some of our big accounts on a joint basis is something that we're excited about so long we would expect to see that business grow and high single-digit or low double-digit growth organically or thrilled to have them as part of our p.m. But we did have a month or two or three months unanticipated Supply disruption relative to how COVID-19 impacted that business after we acquired it.

All right, and then also in the consumer business you had noted that Europe and Canada were pretty robust. I believe that the the DIY demun trajectory was a little bit different in those International markets than what you saw with the strength in the US in April and May. So how should we think about the fact that International consumer business and and maybe the pace of DIY demand over the next couple of quarters there sure we do a couple of hundred million dollars of DIY business in Europe, you know disproportionately in the UK and so, you know, there has been more business activity in the UK for instance. This recent shutdown wasn't applied as a business activity as earlier UK activities were and we've had a surprising to me but really great execution by our leadership team there.

of a significant increase in

An e-commerce business literally, you know paying products and accessories direct to Consumers and that's growing. I think it's one of the area's broadly and the DIY markets back to me again surprisingly somewhat in the paint markets one of the positive outcomes of all, this is It's really accelerated consumer and customer interest in buying some of our products via e-commerce and Direct ship and our ability to learn how to do that more efficiently and that was particularly pronounced in Europe and really good entire leadership team and and their Associates there.

All right. Thanks very much.

And your next question will come from Joshua Spector from your BS. Your line is open morning Josh. Hey, good morning, Frank. Hi everyone Thanks for squeezing me in just a quick one on price again, you know when you talked about how you're going to capture the higher raw materials, you talked about changes in terms of something you could work with. Can you just give us an example of how that would work and how that would close the price raw Gap sure I without getting into specifics really, you know, the terms are are are part of price increase adjustments. And so it's really an account by account situation, you know, it's a function of when the price increase goes effective. It's a function of a customer saying, you know, can we can we change terms here? They're dead. I don't know the debt means a lot for the biggest slug of our receivables because we have a a program with mufg on the table.

Side that's uh been favorable for us and and favorable for both suppliers. And uh that's on on the on the purchase side there. So that's an area where terms have benefited from us. You can see that in our payables. So it's really throughout the supply chain. And any time you're talking price increases your talking level of price increases, you know, initiation dates and uh as how it might affect terms as part of the negotiation, but I wouldn't provide any specifics for obvious reasons.

Okay, thanks. That's helpful. And just quickly, you know, you talked about him and a for cash deployment. How about BuyBacks? And now that you have initiated BuyBacks again or started doing them, you know initially you had targets to pack do a certain amount over a period of time. I think there's maybe a half a billion left in that Target. Do you have any plans for the time frame you plan to execute that over?

I don't know that we've announced a specific time frame. We have an open-ended of repurchase program that's active again, you know, like everybody a reaction in the spring of last year wage to run the cash and and plan for the worst. And I think our our people managed through that pretty well and and our performance actually turned out to be better than we first feared and you know in the March April and May two year ago and so with our board's approval, we we reinitiated our repurchase program in January and so quite quickly with a board meeting at the end of January. We repurchased about twelve million dollars of stock in the quarter. So that was over essentially a two-month period and certainly subject to uh, various levels of our stock prices month. We intend to continue at different levels of purchasing our stock, uh on a go-forward basis, but I don't we certainly will not purchase the next half of birth?

Lars in stock as quickly as we affected the first

Which I think was about eighteen months. I would expect it to take us multiple years.

Okay. Thank you.

And your next question comes from Kevin host of our from North Coast research your line is open. Hey, good morning. Thank you for choosing me in here material supply side. You talked a lot about the inflation that you're seeing. But but curious if the supply issues here have impacted your ability to produce it all have you had to take any plant down time or or ships or or anything like that? Just yeah curious if it's impacted your your production capabilities at all. The answer is yes, thankfully not in a meaningful basis, but we've had situations where we would have to stop production and or wait for raw materials. And um, you know, we have pursued certain raw materials and certain chemicals.

Direct through distribution under contracts, you know in our industry. They're starting the good news is are starting to roll off but at the end of February and early March them are industry were met with about 30 plus force majeure triggers by primary raw material suppliers, and you know some of the biggest chemical supplier the world and um, most of those are starting to be to roll off which is a really good sign but we have not had any sustained outages month due to raw material disruptions, but we have had some spot outages here and there that have been temporary

Okay, and then on the roofing side of the business, I know you got a nice presence in liquid applied Roofing with with alphaguard. And you know, I believe that this is it sounds like you're even expand a capacity on this and I know it's a tends to be a lower-cost alternative to fully tearing off and and replacing the roof which I'd have to imagine in this environment is is pretty appealing so so curious. Um, you know, that product line in particular is how building owners are adjusting to the environment. Are you seeing a lot more adoption of of folks that might have previously done a full-term replace them with Roofing membranes using, you know, liquid applied and instead. Um, so just kind of curious how how that holding up in this environment.

Absolutely. We're we're in the process of a 20 million dollar Capital expansion in terms of our roof restoration Coatings. And I think we've made a a we've been the leader in a bad way, but we've been the leader and driving roof restoration Coatings as a way to extend the life of a you know, typical end of useful life Thirty or forty year old Roofing all types EPDM Rubber Roofing and other things the ability to extend that for anywhere from ten years in the short end to twenty years in the long end at a fraction of the cost of ripping something off replacing it and so the benefits of not filling up landfills the benefits to uh, building owners, um at lower costs and and a actual a re Roofing or a roof restoration process. It also is shorter time wise and duration are all positives that are now starting to be picked up in the market place. You know, of course we have compact

Research that are chasing tail.

Mark it as well, but that's continuing to grow for us and double digits and we're continuing to invest in expanding our capacity there.

Great. Thank you. Thank you. I have no further questions. Thank you. I turn the call back over to mr. Sullivan for closing remarks. Yeah. Thanks Michelle. And and I got you grab most of my concluding comments, but I I did want to just re-emphasize that our people have executed our twenty-twenty map to growth operation Improvement program extraordinarily well, but the real benefits of the of the map to growth program have been to to transition and and really transform RPM of ways that will serve us well into the future. It's a uh, uh a program that will formally end at May $31 21.5 months long then uh than we anticipated because of COVID-19 we are working on kind of what's next and look forward to communicating some of the details of that to our investors in July or birth.

I'm sorry, October, you know I mentioned a lot of people that are driving in success two people that have been Paramount to the success of that program are Steve group and Paul Hogan Steve as many of you know passed away a couple of years ago, but he was the primary architect of this and was a big big passionate believer a map to growth in our ability to exercise and we've done it and Paula who Kaboom was a leader in also developing that program. But as you have all heard driving our performance in our Construction Products group page, and there's a lot of exciting things to come in there. So with that I'd like to thank you all for your participation in our investor call today. I want to thank our Associates for their tremendous efforts and dedication and what's been the most volatile environment that any of us have ever operated in and then volatility continues and thank our investors for their investors.

RPM and we very much look forward to talking about the details of the conclusion of our fourth quarter and our fiscal twenty one full year when we talked to investors and released back in July and also provide you more detail both about our physical 22 Outlook and some of the longer-term map to growth, uh, a 2.0 ideas. We have both on the same side and efficiency side. Thanks for participating in our call today and have a great day. Thank you everyone. This will conclude today's conference call. You may now disconnect.

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