Q2 2022 RPM International Inc Earnings Call

January 5, 2022

Yeah.

Welcome.

Operator: Welcome to RPM International's conference call for the fiscal 2022 second quarter. Today's call is being recorded. This call is also being webcast and can be accessed live or replayed on the RPM website at www.rpminc.com. Comments made on this call may include forward-looking statements based on current expectations that involve risk and uncertainties, which could cause actual results to be materially different. For more information on these risk and uncertainties, please review RPM's reports filed with the SEC. During this call, references may be made to non-GAAP financial measures. To assist you in understanding these non-GAAP terms, RPM has posted reconciliations to the most directly comparable GAAP financial measures on the RPM website. Following today's presentation, there will be a question-and-answer session. At which time, if you wish to ask a question, you'll need to press star then one on your telephone.

Two RPM Internationals conference call for the fiscal 2022 second quarter.

Today's call is being recorded.

This call is also being webcast and can be accessed live or replayed on the R. P M website at.

Www Dot R. P M I N C dot com.

Comments made on this call may include forward looking statements.

Just on current expectations that involve risks and uncertainties.

Which could cause actual results to be materially different.

For more information on these risks and uncertainties. Please review Rpm's reports filed with the FCC.

During this call references maybe made to non-GAAP financial measures to assist you in understanding these non-GAAP terms are.

RPM has posted reconciliations to the most directly comparable GAAP financial measures on the R. P M website.

Following today's presentation, there will be a question and answer session.

At which time, if you wish to ask a question you need to press Star then one on your telephone please.

Please note that only financial analysts will be permitted to ask questions.

Operator: Please note that only financial analysts will be permitted to ask questions. At this time, I would like to turn the call over to RPM's Chairman and CEO, Mr. Frank Sullivan, for opening remarks. Please go ahead, sir.

At this time I would like to turn the call over to Rpm's, Chairman and CEO, Mr. Frank Sullivan for opening remarks. Please go ahead Sir.

Thank you D.

Frank C. Sullivan: Thank you, Dean. Good morning and Happy New Year. Welcome to the RPM International Investor Call for our fiscal 2022 second quarter. Joining me on the call today is Rusty Gordon, our Vice President and Chief Financial Officer, and Mike Laroche, Vice President, Controller, and Chief Accounting Officer. I'll begin by sharing broad commentary on our consolidated performance for the quarter. Michael will provide details on our segment results, and Rusty will conclude our formal comments with our outlook for the fiscal 2022 third quarter. Our comments will be on an as-adjusted basis, and all comparisons are to the second quarter of fiscal 2021 unless otherwise indicated. Please note that we provided a supplemental slide presentation to support our comments on this call. These can be accessed in the presentations and webcast section of the RPM website at www.rpminc.com. After our formal remarks, we'd be pleased to take your questions.

Frank Sullivan: Thank you, Dean. Good morning and Happy New Year. Welcome to the RPM International Investor Call for our fiscal 2022 second quarter. Joining me on the call today is Rusty Gordon, our Vice President and Chief Financial Officer, and Mike Laroche, Vice President, Controller, and Chief Accounting Officer. I'll begin by sharing broad commentary on our consolidated performance for the quarter. Michael will provide details on our segment results, and Rusty will conclude our formal comments with our outlook for the fiscal 2022 third quarter. Our comments will be on an as-adjusted basis, and all comparisons are to the second quarter of fiscal 2021 unless otherwise indicated. Please note that we provided a supplemental slide presentation to support our comments on this call. These can be accessed in the presentations and webcast section of the RPM website at www.rpminc.com. After our formal remarks, we'd be pleased to take your questions.

Happy New year welcome.

Welcome to the RPM International Inc, Investor call for our fiscal 2022 second quarter.

Joining me on the call today is Rusty Gordon, our Vice President and Chief Financial Officer, and Michael The Roche, Vice President Controller, and Chief Accounting Officer.

I'll begin by sharing broad commentary on our consolidated performance for the quarter, Mike will provide details on our segment results and Rusty will conclude our formal comments with our outlook for the fiscal 2022 third quarter.

Our comments will be on an as adjusted basis and all comparisons are to the second quarter of fiscal 2021, unless otherwise indicated.

Please note that we provided a supplemental slide presentation to support our comments on this call.

These can be assessed in the presentations and Webcasts section of the RPM website at Www Dot RPM, Inc. Dot com.

After our formal remarks, we'll be pleased to take your questions.

Okay.

I'll start with comments related to the third slides in the presentation material.

Frank C. Sullivan: I'll start with comments related to the third slide in the presentation material. For the fiscal 2022 Q2, consolidated sales increased 10.3% to $1.64 billion, driven by continued robust demand for paints, coatings, sealants, and other building materials. This top-line performance was slightly ahead of the outlook we provided last quarter. Our Q2 sales growth could have been even stronger if not for continuing supply chain challenges that limited access to certain raw materials and cost us roughly $200 million of lost or deferred sales in the quarter. Organic sales growth was 8.6%. Foreign currency translation provided a tailwind of 0.4%, and acquisitions contributed 1.3%. Adjusted EPS was $0.79, decreasing 26% compared to the strong adjusted diluted EPS growth of nearly 40% in the prior year period.

Frank Sullivan: I'll start with comments related to the third slide in the presentation material. For the fiscal 2022 Q2, consolidated sales increased 10.3% to $1.64 billion, driven by continued robust demand for paints, coatings, sealants, and other building materials. This top-line performance was slightly ahead of the outlook we provided last quarter. Our Q2 sales growth could have been even stronger if not for continuing supply chain challenges that limited access to certain raw materials and cost us roughly $200 million of lost or deferred sales in the quarter. Organic sales growth was 8.6%. Foreign currency translation provided a tailwind of 0.4%, and acquisitions contributed 1.3%. Adjusted EPS was $0.79, decreasing 26% compared to the strong adjusted diluted EPS growth of nearly 40% in the prior year period.

For the fiscal 2022 second quarter consolidated sales increased 10, 3% to $1 six $4 billion driven by continued robust demand for paints coatings sealants and other building materials. This.

This topline performance was slightly ahead of the outlook, we provided last quarter.

Our second quarter sales growth could have been even stronger if not for continuing supply chain challenges that limited access to certain raw materials and cost us roughly $200 million of lost or deferred sales in the quarter.

Organic sales growth was eight 6% foreign currency.

See translation provided a tailwind of point <unk>.

4% and acquisitions contributed one 3% adjusted.

Adjusted EPS was <unk> 79, <unk> decreasing 26% compared to the strong adjusted diluted EPS growth of nearly 40% in the prior year period.

Consolidated adjusted EBIT for the quarter was $157 $3 million, a decrease of 21% which was in line with our outlook and was a result of continued material wage and freight inflation as well as supply chain disruptions that were exacerbated by hurricane either at the beginning of the second quarter and increased our.

Frank C. Sullivan: Consolidated adjusted EBIT for the quarter was $157.3 million, a decrease of 21%, which was in line with our outlook and was a result of continued material, wage, and freight inflation, as well as supply chain disruptions that were exacerbated by Hurricane Ida at the beginning of Q2 and increased our conversion costs. Because of this supply disruption, we lost the equivalent of nearly 300 production days across RPM facilities globally during Q2, which was similar to our lost production days in Q1. We partially offset these challenges with price increases, which averaged in the high single digits across RPM, and continued operational improvements from our MAP to Growth Program, which provided $19 million in incremental cost savings.

Frank Sullivan: Consolidated adjusted EBIT for the quarter was $157.3 million, a decrease of 21%, which was in line with our outlook and was a result of continued material, wage, and freight inflation, as well as supply chain disruptions that were exacerbated by Hurricane Ida at the beginning of Q2 and increased our conversion costs. Because of this supply disruption, we lost the equivalent of nearly 300 production days across RPM facilities globally during Q2, which was similar to our lost production days in Q1. We partially offset these challenges with price increases, which averaged in the high single digits across RPM, and continued operational improvements from our MAP to Growth Program, which provided $19 million in incremental cost savings.

Conversion costs.

Because of this supply disruption we lost the equivalent of nearly 300 production days across RPM facilities globally. During the second quarter, which was similar to our loss production days in the first quarter, we partially offset these challenges with price increases which averaged in the high single digits.

Across RPM and continued operational improvements from our map to growth program, which provides a $19 million and incremental cost savings. It's also worth noting that we faced a difficult comparison to the prior year when consolidated adjusted EBIT increased nearly 30% largely due to higher sales volumes driven by extraordinary.

Frank C. Sullivan: It's also worth noting that we faced a difficult comparison to the prior year when consolidated Adjusted EBIT increased nearly 30%, largely due to higher sales volumes driven by extraordinary demand for our home improvement products and our consumer group during the pandemic. To recover lost margin from inflation, we are implementing an additional round of price increases this quarter across our business segments as appropriate. In many instances, this will be the third round of price increases in a 12-month period. The next slide provides high-level results by segment. Much like last quarter, our performance reflects the benefits of our balanced business portfolio, where softness in one segment is generally offset by strength in others. During Q2 of fiscal 2022, three of our four operating segments (Construction Products Group, Performance Coatings Group, and Specialty Products Group) generated strong double-digit sales growth.

Frank Sullivan: It's also worth noting that we faced a difficult comparison to the prior year when consolidated Adjusted EBIT increased nearly 30%, largely due to higher sales volumes driven by extraordinary demand for our home improvement products and our consumer group during the pandemic. To recover lost margin from inflation, we are implementing an additional round of price increases this quarter across our business segments as appropriate. In many instances, this will be the third round of price increases in a 12-month period. The next slide provides high-level results by segment. Much like last quarter, our performance reflects the benefits of our balanced business portfolio, where softness in one segment is generally offset by strength in others. During Q2 of fiscal 2022, three of our four operating segments (Construction Products Group, Performance Coatings Group, and Specialty Products Group) generated strong double-digit sales growth.

Demand for our home improvement products in our consumer group during the pandemic.

To recover lost margin from in place inflation, we are implementing an additional round of price increases this quarter across our business segments as appropriate in many instances this will be the third round of price increases in a 12 month period.

The next slide provides high level results by segment.

Much like last quarter, our performance reflects the benefits of our balanced business portfolio, where softness in one segment is generally offset by strength in others during.

During the second quarter of fiscal 2022, three of our four operating segments construction products group performance coatings group and specialty products group generated strong double digit sales growth.

Combined sales in these three segments increased more than 18% with roughly 10% being unit volume growth year over year.

Frank C. Sullivan: Combined sales in these three segments increased more than 18%, with roughly 10% being unit volume growth year-over-year. While our Construction Products and Performance Coatings Group generated strong Adjusted EBIT growth, the Specialty Products and Consumer Group faced extreme supply chain constraints that put pressure on their earnings. In particular, the Specialty Products Group restoration equipment business was affected by worldwide semiconductor chip shortages that delayed sales to a growing backlog and unfavorably drove product mix. The Consumer Group continued to experience inflationary pressures as well as shortages of key raw materials driven largely by last year's production outage at a key resin supplier that negatively impacted conversion costs. In addition, the Consumer Group faced a difficult comparison to the prior year period when sales increased more than 21% and Adjusted EBIT was up 66%.

Frank Sullivan: Combined sales in these three segments increased more than 18%, with roughly 10% being unit volume growth year-over-year. While our Construction Products and Performance Coatings Group generated strong Adjusted EBIT growth, the Specialty Products and Consumer Group faced extreme supply chain constraints that put pressure on their earnings. In particular, the Specialty Products Group restoration equipment business was affected by worldwide semiconductor chip shortages that delayed sales to a growing backlog and unfavorably drove product mix. The Consumer Group continued to experience inflationary pressures as well as shortages of key raw materials driven largely by last year's production outage at a key resin supplier that negatively impacted conversion costs. In addition, the Consumer Group faced a difficult comparison to the prior year period when sales increased more than 21% and Adjusted EBIT was up 66%.

Our construction products and performance coatings group generated strong adjusted EBIT growth, especially products and consumer group faced extreme supply chain constraints that put pressure on their earnings.

In particular, the specialty products group restoration equipment business was affected by worldwide semiconductor chip shortages that delayed sales to our growing backlog and unfavorably drove product mix. The consumer group continued to experience inflationary pressures as well as shortages of key raw materials, driven largely by last year's production outage.

At a key resin supplier that negatively impacted conversion costs.

In addition, the consumer group faced a difficult comparison to the prior year period, when sales increased more than 21% and adjusted EBIT was up 66%.

These growth rates in the prior year period were largely due to the extraordinary DIY demand during the pandemic.

Frank C. Sullivan: These growth rates in the prior year period were largely due to the extraordinary DIY demand during the pandemic. All indicators suggest that the underlying demand for our consumer products remains strong, and that is continuing to grow in our Q3. Before we move to the details on our segment results, I'd like to touch on two larger trends that RPM is well positioned to capitalize on. First, as you know, the US government has passed a number of bills over the last two years that will direct billions and potentially trillions of dollars towards construction, infrastructure, and markets.

Frank Sullivan: These growth rates in the prior year period were largely due to the extraordinary DIY demand during the pandemic. All indicators suggest that the underlying demand for our consumer products remains strong, and that is continuing to grow in our Q3. Before we move to the details on our segment results, I'd like to touch on two larger trends that RPM is well positioned to capitalize on. First, as you know, the US government has passed a number of bills over the last two years that will direct billions and potentially trillions of dollars towards construction, infrastructure, and markets.

All indicators suggest that the underlying demand for our consumer products remains strong and that is continuing to grow in our third quarter.

Before we move to the details on our segment results I'd like to touch on two larger trends at RPM is well positioned to capitalize on.

First as you know the U S. Government has passed a number of bills over the last two years that will direct billions and potentially trillions of dollars towards construction and infrastructure end markets.

Based on our strong position with these markets with well recognized highly regarded brands such as shrimp <unk> roofing systems, and commercial sealants, Carboline corrosion control coatings, Euclid concrete admixtures and new insulated concrete forms all of which have been gaining market share in this fiscal year, we are well positioned for continuing meaningful.

Frank C. Sullivan: Based on our strong position with these markets, with well-recognized, highly regarded brands such as Tremco Roofing Systems and Commercial Sealants, Carboline Corrosion Control Coatings, Euclid Concrete Admixtures, and Nudura Insulated Concrete Forms, all of which have been gaining market share in this fiscal year, we are well positioned for continuing meaningful growth in North America and globally. Two years ago, we introduced the tagline "Building a Better World" in a number of our communications. It certainly represents our products and services, which literally contribute to making structures better through beautification, protection, restoration, and sustainability, but is also meant to be aspirational as we strive to make the world a better place for those we serve, including our customers, entrepreneurs, associates, shareholders, and the communities in which we operate.

Frank Sullivan: Based on our strong position with these markets, with well-recognized, highly regarded brands such as Tremco Roofing Systems and Commercial Sealants, Carboline Corrosion Control Coatings, Euclid Concrete Admixtures, and Nudura Insulated Concrete Forms, all of which have been gaining market share in this fiscal year, we are well positioned for continuing meaningful growth in North America and globally. Two years ago, we introduced the tagline "Building a Better World" in a number of our communications. It certainly represents our products and services, which literally contribute to making structures better through beautification, protection, restoration, and sustainability, but is also meant to be aspirational as we strive to make the world a better place for those we serve, including our customers, entrepreneurs, associates, shareholders, and the communities in which we operate.

<unk> in North America and globally.

Two years ago, we introduced the tagline building a better world.

Number of our communications it certainly represents our products and services, which literally contribute to making structures better through purification protection restoration and sustainability.

It has also meant to be aspirational as we strive to make the world a better place for those we serve including our customers entrepreneurs associates shareholders and the communities in which we operate.

Yeah.

As we all continue to manage through the global pandemic, we remain focused on coming together to make the world a better place for everyone. There are many examples where RPM is doing so some.

Frank C. Sullivan: As we all continue to manage through the global pandemic, we remain focused on coming together to make the world a better place for everyone. There are many examples where RPM is doing so. Some of the ways RPM is building a better world include the development of sustainable products such as our AlphaGuard liquid applied roofing products, which are gaining market share and allow roofs to be restored and eliminate the needs for tear-off replacement and significant contributions to waste sites. In addition, our Tremco Roofing business has been named a BioPreferred Program Pioneer by the USDA because of our early adoption of sustainable product solutions within our roofing division and the industry. Talent development, which includes the RISE Education and Training Initiative that is part of our WTI business and was developed in response to the shortage of qualified roofers, includes an element called Elevate.

Frank Sullivan: As we all continue to manage through the global pandemic, we remain focused on coming together to make the world a better place for everyone. There are many examples where RPM is doing so. Some of the ways RPM is building a better world include the development of sustainable products such as our AlphaGuard liquid applied roofing products, which are gaining market share and allow roofs to be restored and eliminate the needs for tear-off replacement and significant contributions to waste sites. In addition, our Tremco Roofing business has been named a BioPreferred Program Pioneer by the USDA because of our early adoption of sustainable product solutions within our roofing division and the industry. Talent development, which includes the RISE Education and Training Initiative that is part of our WTI business and was developed in response to the shortage of qualified roofers, includes an element called Elevate.

Some of the ways RPM is building a better world include the development of sustainable products, such as our Alfred <unk> liquid applied roofing products, which are gaining market share and allow roofs to be restored and eliminate the needs for tear off replacement.

And significant contributions to waste sites and.

In addition, our <unk> roofing business has been named a buyer preferred program pioneer by the USDA because of our early adoption of sustainable product solutions within our roofing.

Division and the industry.

Talent development, which includes the rise education and training initiative that is part of our <unk> business and was developed in response to the shortage of qualified roofers includes an element called elevate.

This involves the training of incarcerated individuals and roofing, so that they have skills and job opportunities upon their release at which time they are guaranteed a job at our <unk> roofing business.

Frank C. Sullivan: This involves the training of incarcerated individuals in roofing so that they have skills and job opportunities upon their release, at which time they are guaranteed a job at our Tremco Roofing business. Sustainability practices across our operations, such as initiatives to reduce water usage that are saving millions of gallons a year at our Day-Glo, Rust-Oleum, and other businesses. You can learn more about how RPM is building a better world on our website and in our ESG report at www.rpminc.com/esg. We have a great story to tell, and we will be organized to tell it better in the coming quarters and years. We remain focused on long-term growth and, despite COVID-related challenges, especially in supply chains, continue to invest in initiatives that will drive our business forward in the coming years. This includes operational improvements, the development of innovative new products, acquisitions, and manufacturing capacity expansions.

Frank Sullivan: This involves the training of incarcerated individuals in roofing so that they have skills and job opportunities upon their release, at which time they are guaranteed a job at our Tremco Roofing business. Sustainability practices across our operations, such as initiatives to reduce water usage that are saving millions of gallons a year at our Day-Glo, Rust-Oleum, and other businesses. You can learn more about how RPM is building a better world on our website and in our ESG report at www.rpminc.com/esg. We have a great story to tell, and we will be organized to tell it better in the coming quarters and years. We remain focused on long-term growth and, despite COVID-related challenges, especially in supply chains, continue to invest in initiatives that will drive our business forward in the coming years. This includes operational improvements, the development of innovative new products, acquisitions, and manufacturing capacity expansions.

And sustainability practices across our operations such as initiatives to reduce water usage that are saving millions of gallons of year day-glo rust oleum in other businesses.

You can learn more about how RPM is building a better world on our website and in our ESG report at Www Dot RPM, Inc. Dot com forward Slash ESG.

We have a great story to tell and we will be organized to tell it better in the coming quarters and years.

We remain focused on long term growth and despite COVID-19 related challenges, especially in supply chains continue to invest in initiatives that will drive our business forward in the coming years. This includes operational improvements the development of innovative new products acquisitions and manufacturing capacity expansions.

Our case in point is the 178000 square foot plant, we purchased in September which is located on 120 acres in Texas.

Frank C. Sullivan: A case in point is the 178,000 sq ft plant we purchased in September, which is located on 120 acres in Texas. This will serve as a manufacturing center of excellence for multiple RPM businesses. In just two months, it is already improving the resiliency of our supply chain and fill rates. During Q2, we began production of alkyd resins, which are an important raw material for a number of our products, particularly in our consumer group. In the coming quarters, the plant expansion expands production of a number of our high-growth product lines. I'll now turn the call over to Mike to discuss our segment financial results in more detail.

Frank Sullivan: A case in point is the 178,000 sq ft plant we purchased in September, which is located on 120 acres in Texas. This will serve as a manufacturing center of excellence for multiple RPM businesses. In just two months, it is already improving the resiliency of our supply chain and fill rates. During Q2, we began production of alkyd resins, which are an important raw material for a number of our products, particularly in our consumer group. In the coming quarters, the plant expansion expands production of a number of our high-growth product lines. I'll now turn the call over to Mike to discuss our segment financial results in more detail.

This will serve as a manufacturing center of excellence for multiple RPM businesses in just two months. It is already improving the resiliency of our supply chain and fill rates.

During the second quarter, we began production of alkyd resins, which are an important raw material for a number of our products, particularly in our consumer group in the coming quarters to plant expansion.

Production of a number of our high growth product lines.

I'll now turn the call over to Mike to discuss our segment financial results in more detail.

Thanks, Rick and good morning, everyone.

Michael J. Laroche: Thanks, Frank, and good morning, everyone. Turning to the next slide, our Construction Products Group generated all-time record sales of $614.2 million. Sales grew 22% for the quarter, the highest rate among our four segments. 19.9% was organic. Foreign currency translation provided a 0.3% tailwind, and acquisitions contributed 1.8%. CPG's market-leading top-line growth and positive mix were primarily driven by innovation and its high-performance building solutions, market share gains, and strong demand in North America for its construction and maintenance products. Businesses that generated the highest growth included those providing insulated concrete forms, roofing systems, concrete admixture and repair products, and commercial sealants. Sales of our Nudura ICFs have been particularly robust because they offer an alternative to lumber, which is in short supply and experiencing skyrocketing costs, and because Nudura's ICFs provide structural insulation and labor benefits.

Mike Laroche: Thanks, Frank, and good morning, everyone. Turning to the next slide, our Construction Products Group generated all-time record sales of $614.2 million. Sales grew 22% for the quarter, the highest rate among our four segments. 19.9% was organic. Foreign currency translation provided a 0.3% tailwind, and acquisitions contributed 1.8%. CPG's market-leading top-line growth and positive mix were primarily driven by innovation and its high-performance building solutions, market share gains, and strong demand in North America for its construction and maintenance products. Businesses that generated the highest growth included those providing insulated concrete forms, roofing systems, concrete admixture and repair products, and commercial sealants. Sales of our Nudura ICFs have been particularly robust because they offer an alternative to lumber, which is in short supply and experiencing skyrocketing costs, and because Nudura's ICFs provide structural insulation and labor benefits.

Turning to the next slide our construction products group generated all time record sales of $614 $2 million sales grew 22% for the quarter the highest rate among our four segments 19, 9% was organic foreign currency translation provided a 0.3% tailwind in the.

<unk> contributed one 8%.

Cpg's market, leading top line growth and positive mix were primarily driven by innovation and its high performance building solutions market share gains and strong demand in North America for its construction and maintenance products.

The businesses that generated the highest growth included those providing insulated concrete forms roofing systems concrete admixture and repair products and commercial <unk>.

Sales of our new Dura Ics have been particularly robust because they offer an alternative to lumber, which is in short supply and experiencing skyrocketing costs.

And because the jurors icf's provides structural installation and labor benefits.

Performance in international markets was mixed with Europe fairly flat.

Michael J. Laroche: Performance in international markets was mixed, with Europe fairly flat while emerging markets showed signs of recovery. The segment's adjusted EBIT increased 16.5% to a record level due to volume growth, operational improvements, and selling price increases, which helped to offset material inflation. Moving to the next slide, positive trends from Q1 carried over into Q2 for our Performance Coatings Group. Sales grew 16.9% to a record level, reflecting organic growth of 12.2%, a foreign currency translation tailwind of 0.8%, and a 3.9% contribution from acquisitions. Nearly all of PCG's major business units contributed to the positive growth, largely due to the catch-up of maintenance projects previously deferred by industrial customers, particularly as COVID restrictions relaxed and contractor access to construction sites improved.

Mike Laroche: Performance in international markets was mixed, with Europe fairly flat while emerging markets showed signs of recovery. The segment's adjusted EBIT increased 16.5% to a record level due to volume growth, operational improvements, and selling price increases, which helped to offset material inflation. Moving to the next slide, positive trends from Q1 carried over into Q2 for our Performance Coatings Group. Sales grew 16.9% to a record level, reflecting organic growth of 12.2%, a foreign currency translation tailwind of 0.8%, and a 3.9% contribution from acquisitions. Nearly all of PCG's major business units contributed to the positive growth, largely due to the catch-up of maintenance projects previously deferred by industrial customers, particularly as COVID restrictions relaxed and contractor access to construction sites improved.

While emerging markets showed signs of recovery.

The segment's adjusted EBIT increased 16, 5% to a record level due to volume growth operational improvements and selling price increases, which helped to offset material inflation.

Moving to the next slide positive trends from the first quarter carried over into the second for our performance coatings group sale.

Sales grew 16, 9% to a record level, reflecting organic growth of 12, 2% of foreign currency translation tailwind of 0.8% and a three 9% contribution from acquisitions nearly.

Nearly all of <unk> major business units contributed to the positive growth.

Largely due to the catch up of maintenance projects previously deferred by industrial customers, particularly as COVID-19 restrictions relaxed and contractor access to construction sites improved.

Sales growth was also facilitated by price increases and improved product mix driven by new decision support tools that help improve sales force efficiencies and product mix.

Michael J. Laroche: Sales growth was also facilitated by price increases and improved product mix, driven by new decision support tools that helped improve Salesforce efficiencies and product mix. Leading the way were the segment's largest businesses providing polymer flooring systems and corrosion control coatings, serving growing end markets including electric vehicles, semiconductors, and pharmaceuticals. Sales also remained strong at its recently acquired bison-raised flooring business and in emerging markets. Adjusted EBIT increased 41.3% to a record level as a result of pricing, volume growth, operational improvements, and product mix. Advancing to the next slide, our Specialty Products Group reported a sales increase of 10% to a record level as its businesses capitalized on the strong demand in the outdoor recreation, furniture, and OEM markets they serve. The segment's fluorescent pigments business also generated good top-line growth. Organic sales increased 9%, recent acquisitions added 0.4%, and foreign currency translation increased sales by 0.6%.

Mike Laroche: Sales growth was also facilitated by price increases and improved product mix, driven by new decision support tools that helped improve Salesforce efficiencies and product mix. Leading the way were the segment's largest businesses providing polymer flooring systems and corrosion control coatings, serving growing end markets including electric vehicles, semiconductors, and pharmaceuticals. Sales also remained strong at its recently acquired bison-raised flooring business and in emerging markets. Adjusted EBIT increased 41.3% to a record level as a result of pricing, volume growth, operational improvements, and product mix. Advancing to the next slide, our Specialty Products Group reported a sales increase of 10% to a record level as its businesses capitalized on the strong demand in the outdoor recreation, furniture, and OEM markets they serve. The segment's fluorescent pigments business also generated good top-line growth. Organic sales increased 9%, recent acquisitions added 0.4%, and foreign currency translation increased sales by 0.6%.

Leading the way, where the segment's largest businesses, providing polymer flooring systems and corrosion control coatings, serving growing end markets, including electric vehicles semiconductors and pharmaceuticals.

Sales also remained strong and its recently acquired bison raised flooring business and in emerging markets.

Adjusted EBIT increased 41, 3% to a record level as a result of pricing volume growth operational improvements and product mix.

<unk> to the next slide our specialty products group reported a sales increase of 10% to a record level as its businesses capitalized on the strong demand in the outdoor recreation furniture and OEM markets. They serve the.

The segment's fluorescent pigments business also generated good topline growth.

Organic sales increased 9% recent acquisitions added 0.4% and foreign currency translation increased sales by <unk>, 6% <unk>.

Adjusted EBIT decreased 29, 4% due to higher raw material and conversion costs from supply disruptions as well as unfavorable product mix.

Michael J. Laroche: Adjusted EBIT decreased 29.4% due to higher raw material and conversion costs from supply disruptions, as well as unfavorable product mix, particularly in our disaster restoration equipment business, which has been hindered by the semiconductor chip shortage, as Frank had mentioned. In addition, the segment experienced higher expenses resulting from investments in future growth initiatives plus higher legal expenses. These factors were partially offset by operational improvements. On the next slide, you'll see that the severe raw material shortages that the Consumer Group experienced during the fiscal 2022 Q1 persisted during the Q2. The resulting production outages negatively impacted segment sales by approximately $100 million. Segment sales decreased 3.3%, with organic sales down 3.5%, and foreign currency translation up 0.2%. Despite raw material shortages, the segment's fiscal 2022 Q2 sales were still 17.4% above the pre-pandemic levels of the Q2 of fiscal 2020.

Mike Laroche: Adjusted EBIT decreased 29.4% due to higher raw material and conversion costs from supply disruptions, as well as unfavorable product mix, particularly in our disaster restoration equipment business, which has been hindered by the semiconductor chip shortage, as Frank had mentioned. In addition, the segment experienced higher expenses resulting from investments in future growth initiatives plus higher legal expenses. These factors were partially offset by operational improvements. On the next slide, you'll see that the severe raw material shortages that the Consumer Group experienced during the fiscal 2022 Q1 persisted during the Q2. The resulting production outages negatively impacted segment sales by approximately $100 million. Segment sales decreased 3.3%, with organic sales down 3.5%, and foreign currency translation up 0.2%. Despite raw material shortages, the segment's fiscal 2022 Q2 sales were still 17.4% above the pre-pandemic levels of the Q2 of fiscal 2020.

Particularly in our disaster restoration equipment business, which has been hindered by the semiconductor chip shortage as Frank had mentioned.

In addition, this segment experienced higher expenses revolve, resulting from investment.

<unk> future growth initiatives, plus higher legal expenses.

These factors were partially offset by operational improvements.

On the next slide you'll see that the severe raw material shortages that the consumer group experienced during the fiscal 2022 first quarter persisted during the second quarter.

The resulting production outages negatively impacted segment sales by approximately $100 million.

Segment sales decreased three 3% with organic sales down three 5% and foreign currency translation up 0.2% despite.

Despite raw material shortages the segment's fiscal 2022 second quarter sales were still 17, 4% above the pre pandemic levels.

The second quarter of fiscal 2020.

Demand for its products remain high and inventories in many of its channels are low we expect to recover these sales when raw material and supply conditions stabilize.

Michael J. Laroche: Demand for its products remained high, and inventories in many of its channels are low. We expect to recover these sales when raw material and supply conditions stabilize. As Frank mentioned in his opening comments, the Consumer Group also faced a challenging comparison to the prior year period when sales increased 21.4% and Adjusted EBIT increased 65.8% due to extraordinarily high demand for its home improvement products during the first phase of the pandemic. Earnings declined during the fiscal 2022 Q2 from inflation of materials, freight, and labor, as well as the unfavorable impact of supply shortages on productivity. These factors were partially offset by price increases and operational improvements. The segment continues to add capacity to meet demand and build resiliency in its supply chain to secure the raw materials it requires.

Mike Laroche: Demand for its products remained high, and inventories in many of its channels are low. We expect to recover these sales when raw material and supply conditions stabilize. As Frank mentioned in his opening comments, the Consumer Group also faced a challenging comparison to the prior year period when sales increased 21.4% and Adjusted EBIT increased 65.8% due to extraordinarily high demand for its home improvement products during the first phase of the pandemic. Earnings declined during the fiscal 2022 Q2 from inflation of materials, freight, and labor, as well as the unfavorable impact of supply shortages on productivity. These factors were partially offset by price increases and operational improvements. The segment continues to add capacity to meet demand and build resiliency in its supply chain to secure the raw materials it requires.

As Frank mentioned in his opening comments the consumer group also faced a challenging comparison to the prior year period, when sales increased 21, 4% and adjusted EBIT increased 65, 8% due to extraordinarily high demand for its home improvement products. During the first phase of the pandemic.

Earnings declined during the fiscal 2022 second quarter from inflation of materials freight and labor as well as the unfavorable impact of supply shortages or productivity.

These factors were partially offset by price increases and operational improvements.

The segment continues to add capacity to meet demand and build resiliency in its supply chain.

Secure the raw materials that requires.

In order to meet customer demand it is using contract manufacturing higher costs until it can bring new manufacturing capacity online.

Michael J. Laroche: In order to meet customer demand, it is using contract manufacturing at higher costs until it can bring new manufacturing capacity online. It is also qualifying new sources for raw materials, including our new manufacturing plant in Texas. Now I'll turn the call over to Rusty to discuss our outlook.

Mike Laroche: In order to meet customer demand, it is using contract manufacturing at higher costs until it can bring new manufacturing capacity online. It is also qualifying new sources for raw materials, including our new manufacturing plant in Texas. Now I'll turn the call over to Rusty to discuss our outlook.

It is also qualify new sources for raw materials, including our new manufacturing plant in Texas.

Now I will turn the call over to Rusty to discuss our outlook. Thanks, Mike.

Russell L. Gordon: Thanks, Mike. Looking ahead to our fiscal 2022 Q3, we expect that the strong demand for our paints, coatings, sealants, and other building materials will continue. Supply chain challenges and raw material shortages have persisted in December, further compounded by disruptions from the Omicron variant on RPM's operations and those of our supplier base. These factors are expected to put pressure on our top-line and productivity. In spite of these challenges, we expect to generate double-digit consolidated sales growth in the fiscal 2022 Q3 versus last year's record Q3 sales, which increased 8.1%. We anticipate high double-digit sales growth along with margin accretion in our Construction Products Group and Performance Coatings Group. SPG sales are expected to be up low double digits as compared to last year's Q3.

Rusty Gordon: Thanks, Mike. Looking ahead to our fiscal 2022 Q3, we expect that the strong demand for our paints, coatings, sealants, and other building materials will continue. Supply chain challenges and raw material shortages have persisted in December, further compounded by disruptions from the Omicron variant on RPM's operations and those of our supplier base. These factors are expected to put pressure on our top-line and productivity. In spite of these challenges, we expect to generate double-digit consolidated sales growth in the fiscal 2022 Q3 versus last year's record Q3 sales, which increased 8.1%. We anticipate high double-digit sales growth along with margin accretion in our Construction Products Group and Performance Coatings Group. SPG sales are expected to be up low double digits as compared to last year's Q3.

Looking ahead to our fiscal 2022 third quarter, we expect that the strong demand for our paint coatings sealants and other building materials will continue.

Supply chain challenges in raw material shortages have persisted in December further compounded by disruptions from the omicron variant on Rpm's operation and those of our supplier base.

These factors are expected to put pressure on our top line and productivity.

In spite of these challenges we expect to generate double digit consolidated sales growth in the fiscal 2022 third quarter versus last year's record third quarter sales, which increased eight 1%.

We anticipate high double digit sales growth along with margin accretion in our construction products group and performance coatings group.

SPG sales are expected to be up low double digits as compared to last year's third quarter.

The consumer group faces a tough comparison to the prior year period, when its sales increased 19, 8% and as a result net sales are anticipated to increase by low single digits.

Russell L. Gordon: The Consumer Group faces a tough comparison to the prior year period when its sales increased 19.8%, and as a result, its sales are anticipated to increase by low single digits. Consolidated Adjusted EBIT for the third quarter of fiscal 2022 is expected to decrease 5% to 15% versus the same period last year, when Adjusted EBIT was up 29.7%. We anticipate that earnings will be affected by ongoing raw material, freight, and wage inflation, as well as the impact of raw material shortages on sales volumes plus the renewed COVID disruption from the surging Omicron variant. These challenges will disproportionately impact our consumer segment. We continue to work to offset these challenges by implementing price increases, improving operational efficiencies, and bringing on additional manufacturing capacity. Finally, I'd like to note that we remain laser-focused on executing our strategies for sustained growth.

Rusty Gordon: The Consumer Group faces a tough comparison to the prior year period when its sales increased 19.8%, and as a result, its sales are anticipated to increase by low single digits. Consolidated Adjusted EBIT for the third quarter of fiscal 2022 is expected to decrease 5% to 15% versus the same period last year, when Adjusted EBIT was up 29.7%. We anticipate that earnings will be affected by ongoing raw material, freight, and wage inflation, as well as the impact of raw material shortages on sales volumes plus the renewed COVID disruption from the surging Omicron variant. These challenges will disproportionately impact our consumer segment. We continue to work to offset these challenges by implementing price increases, improving operational efficiencies, and bringing on additional manufacturing capacity. Finally, I'd like to note that we remain laser-focused on executing our strategies for sustained growth.

Consolidated adjusted EBIT for the third quarter of fiscal 2022 and is expected to decrease 5% to 15%.

As the same period last year, when adjusted EBIT was up 29, 7%.

We anticipate that earnings will be affected by ongoing raw material freight and wage inflation.

As well as the impact of raw material shortages on sales volumes.

The renewed COVID-19 disruption from the surging omicron variants.

Challenges will disproportionately impact our consumer segment.

We continue to work to offset these challenges by implementing price increases improving operational efficiencies and bringing on additional manufacturing capacity.

Finally, I'd like to note that we remain laser focused on executing our strategies for sustained growth.

We remain vigilant about protecting the health of our employees their families and the communities in which we operate.

Russell L. Gordon: We remain vigilant about protecting the health of our employees, their families, and the communities in which we operate. With the rise in COVID cases worldwide, we remain focused on processes and procedures to maintain safe and productive working environments for our associates. We continue to be agile in our management of the business, allowing us to navigate supply chain issues and meet customer needs. We expect that margins will recover towards pre-pandemic levels once supply challenges abate. Lastly, we are investing in employee training and other initiatives that will drive long-term growth, including operational improvements, innovation, acquisitions, capacity expansions, and information technology. These actions will optimally position RPM to deliver long-term growth and increased value for our stakeholders. This concludes our formal comments. We will now be pleased to take your questions.

Rusty Gordon: We remain vigilant about protecting the health of our employees, their families, and the communities in which we operate. With the rise in COVID cases worldwide, we remain focused on processes and procedures to maintain safe and productive working environments for our associates. We continue to be agile in our management of the business, allowing us to navigate supply chain issues and meet customer needs. We expect that margins will recover towards pre-pandemic levels once supply challenges abate. Lastly, we are investing in employee training and other initiatives that will drive long-term growth, including operational improvements, innovation, acquisitions, capacity expansions, and information technology. These actions will optimally position RPM to deliver long-term growth and increased value for our stakeholders. This concludes our formal comments. We will now be pleased to take your questions.

With the rise in Covid cases worldwide, we remained focused on processes and procedures to maintain safe and productive working environment for our associates.

We continue to be agile in our management of the business, allowing us to navigate supply chain issues and meet customer needs. We.

We expect that margins will recover towards pre pandemic levels once supply challenges abate.

Lastly, we are investing in employee training and other initiatives that will drive long term growth, including operational improvements innovation acquisitions capacity expansions and information technology.

These actions will optimally position RPM to deliver long term growth and increased value for our stakeholders.

This concludes our formal comments, we will now be pleased to take your questions.

Thank you Sir as a reminder.

Operator: Thank you, sir. As a reminder, if you would like to ask a question, you may do so by pressing star, then the number one on your telephone. Your first question comes from the line of Frank Mitsch of Fermium Research.

If you would like to ask a question you may do so by pressing Star then the number one on your telephone.

Your first question comes from the line of Frank Mitsch Fermium Research Good morning, Frank Hey, Good morning, Frank and happy New year to you.

Frank C. Sullivan: Morning, Frank.

Frank Sullivan: Morning, Frank.

Frank J. Mitsch: Hey, good morning, Frank, and happy New Year to you. Hey, obviously, a lot of comments regarding price. You indicated that price was up in the high single digits here in the fiscal Q2, and you announced another round of price increases. What are your expectations for pricing in the back half of the fiscal year, and where do we stand in terms of the raw material inflation? Can you give us some color as to what you were facing in the fiscal Q2 and what your outlook is on the raw side for the fiscal Q3?

Frank Mitsch: Hey, good morning, Frank, and happy New Year to you. Hey, obviously, a lot of comments regarding price. You indicated that price was up in the high single digits here in the fiscal Q2, and you announced another round of price increases. What are your expectations for pricing in the back half of the fiscal year, and where do we stand in terms of the raw material inflation? Can you give us some color as to what you were facing in the fiscal Q2 and what your outlook is on the raw side for the fiscal Q3?

Hey al.

Obviously, a lot of comments regarding price you indicated that that price was up in the high single digits here in the fiscal second quarter.

You announced another round of price increases what are your expectations for pricing in the back half of the fiscal year end and where do we stand.

In terms of the raw material inflation can you give us some color as to what you were facing in the fiscal second quarter. What your outlook is on the raw side for the fiscal third quarter.

Sure.

Frank C. Sullivan: Sure. In Q2, on a consolidated basis, price was up 7.5%, and with the price that's already been announced and enacted in fiscal 2022, we expect price to have an 11.5% impact in Q3. Our raw materials are up pretty significantly in terms of where we are year-over-year. We're up about 30% in total. We're up 40% to 50% on our top 20 raw materials. We're up in a couple of categories year-over-year, like epoxy resins, alkyd resins, over 100%. And so that's some of the color you're seeing. I can tell you, in general, that the supply chain situation is still very stressed, but as we sit here today, it seems to be improving. Feedstocks are improving, although we're not seeing that yet translated into the intermediates and specialties, which we buy. Availability of raw materials is improving in most areas.

Frank Sullivan: Sure. In Q2, on a consolidated basis, price was up 7.5%, and with the price that's already been announced and enacted in fiscal 2022, we expect price to have an 11.5% impact in Q3. Our raw materials are up pretty significantly in terms of where we are year-over-year. We're up about 30% in total. We're up 40% to 50% on our top 20 raw materials. We're up in a couple of categories year-over-year, like epoxy resins, alkyd resins, over 100%. And so that's some of the color you're seeing. I can tell you, in general, that the supply chain situation is still very stressed, but as we sit here today, it seems to be improving. Feedstocks are improving, although we're not seeing that yet translated into the intermediates and specialties, which we buy. Availability of raw materials is improving in most areas.

In the second quarter on a consolidated basis price was up seven 5% and with the price that's already been announced and enacted in fiscal 'twenty two.

We expect price to have an 11, 5% impact in Q3.

Our raw materials are up pretty.

Pretty significantly in terms of.

Where we are year over year, we're up about 30% in total.

We're up 40% to 50% and our top 20 raw materials.

We're up in a couple of categories year over year like a proxy resins alkyd resins.

Over 100% and and so thats some of the color Youre seeing.

Can tell you in general.

Supply chain situation is still very stressed but as we sit here today it seems to be improving.

Feedstocks are improving although we're not seeing that yet translated into the intermediates and specialties, which we buy.

<unk> ability of raw materials is improving in most in most areas.

But I will tell you.

Frank C. Sullivan: But I will tell you, the whole supply chain is still very susceptible to unexpected shocks. So there doesn't seem to be much cushion or resiliency in this improving environment. The last comment I'll make on that is freight is a kind of uniquely growing problem. Freight costs have been rising across all categories, as we have commented in the past, particularly for truck transportation and most probably related to COVID infections or quarantines. Literally, the availability of freight to move goods has become a challenge in the first part of Q3.

Frank Sullivan: But I will tell you, the whole supply chain is still very susceptible to unexpected shocks. So there doesn't seem to be much cushion or resiliency in this improving environment. The last comment I'll make on that is freight is a kind of uniquely growing problem. Freight costs have been rising across all categories, as we have commented in the past, particularly for truck transportation and most probably related to COVID infections or quarantines. Literally, the availability of freight to move goods has become a challenge in the first part of Q3.

Whole supply chain is still very susceptible to unexpected shocks. So it doesn't seem to be much appreciate and our resiliency.

In this improving environment.

Last comment I'll make on that is freight is.

And a uniquely growing problem freight costs have been rising across all categories. As we have commented in the past for particularly for truck transportation and most probably related to COVID-19.

Infections or quarantines.

Literally the abate availability of freight to move goods.

Has become a challenge in the first part of Q3.

Gotcha Gotcha.

Frank J. Mitsch: Gotcha. Gotcha. Feeding off of that supply chain issue that you mentioned, it's obviously part of the reason why you decided to increase your inventories here in the fiscal Q2 to try and get ahead of that where you can. So it kind of begs the question, as you look at your customers, you'd assume that your customers are probably doing the same. Yourself and Rusty mentioned from time to time the robust demand that you're seeing out there, which is obviously very positive. But to what extent might that be a little bit of double counting as customers are also seeking to raise their inventory levels? Do you have any good feel as to how that interplay is playing out?

Frank Mitsch: Gotcha. Gotcha. Feeding off of that supply chain issue that you mentioned, it's obviously part of the reason why you decided to increase your inventories here in the fiscal Q2 to try and get ahead of that where you can. So it kind of begs the question, as you look at your customers, you'd assume that your customers are probably doing the same. Yourself and Rusty mentioned from time to time the robust demand that you're seeing out there, which is obviously very positive. But to what extent might that be a little bit of double counting as customers are also seeking to raise their inventory levels? Do you have any good feel as to how that interplay is playing out?

And feeding off of that supply chain issue that you mentioned, it's obviously part of the reason why you decided to increase your inventories if youre in the fiscal second quarter to try and.

Get ahead of that where you can and so it kind of begs the question as you look at your customers you'd assume that your customers are probably doing the same so.

Yourself and Rusty you mentioned time and again, the robust demand that youre seeing out there, which is obviously very positive but to what extent might that be a little bit of double counting is as customers are also seeking to raise their inventory levels do you have any good feel as to how that interplay is playing out.

Sure well I can I can.

Frank C. Sullivan: Sure. Well, I can assure you that our inventory levels are lower than they normally would be, and provide tons of examples. But our fill rates are not at the 98%, 99% levels that have been the norm for decades, and there is a meaningful backlog in consumer. So the supply chains there are very tight on the finished goods side. In most of our product categories, the hundreds of millions of dollars per quarter that we're missing in revenue is in part due to supply chain disruptions and our ability, production-wise, just to get products out. And so I don't think there's much cushion, Frank, in the inventory of our customer base, and we are working hard to get some cushion back in there. And I suspect our customers would appreciate getting back to normal levels.

Frank Sullivan: Sure. Well, I can assure you that our inventory levels are lower than they normally would be, and provide tons of examples. But our fill rates are not at the 98%, 99% levels that have been the norm for decades, and there is a meaningful backlog in consumer. So the supply chains there are very tight on the finished goods side. In most of our product categories, the hundreds of millions of dollars per quarter that we're missing in revenue is in part due to supply chain disruptions and our ability, production-wise, just to get products out. And so I don't think there's much cushion, Frank, in the inventory of our customer base, and we are working hard to get some cushion back in there. And I suspect our customers would appreciate getting back to normal levels.

I assure you that our inventory levels are lower than they normally would be and provide tons of examples but our fill rates are not at the 90, 899% levels.

That had been the norm for decades.

And there is a meaningful backlog in consumer.

So the supply chain there are very tight on the finished goods side.

In most of our product categories.

The one hundreds of millions of dollars.

Per quarter that we're missing in revenue is in part due to supply chain disruptions in our ability production wise just to get products out.

And so I don't.

I don't think theres much Cushing Frank.

Inventory of our customer base and we are working hard to get some cushing back in there and I suspect our customers who would appreciate getting back to normal levels, but we've had to defer revenues across multiple businesses and product lines because of the supply chain and production disruptions.

Frank C. Sullivan: But we've had to defer revenues across multiple businesses and product lines because of these supply chain and production disruptions.

Frank Sullivan: But we've had to defer revenues across multiple businesses and product lines because of these supply chain and production disruptions.

Very helpful.

Frank J. Mitsch: Very helpful. Thank you.

Frank Mitsch: Very helpful. Thank you.

Thank you.

Frank C. Sullivan: Thank you.

Frank Sullivan: Thank you.

Your next question comes from the line of John Mcnulty of BMO capital markets.

Operator: Your next question comes from the line of John McNulty of BMO Capital Markets.

Yeah. Thanks for taking my question Frank Good morning.

Frank J. Mitsch: Yeah, thanks for taking my question, Frank. Morning. So when I look at the various businesses with regard to some of the inflationary pressures, construction managed it pretty well over the last couple of quarters, performance as well. Consumer seems to be taking it on the chin a lot harder, and I assume that's largely tied to the alky outage that you referenced earlier. I guess, can you help us to understand how long before you feel like things are back to a steady state in terms of alky supply, whether it's from the capacity that you're bringing on yourself or from other suppliers that you may be able to procure it from? Can you give us a little bit of color on that?

John McNulty: Yeah, thanks for taking my question, Frank. Morning. So when I look at the various businesses with regard to some of the inflationary pressures, construction managed it pretty well over the last couple of quarters, performance as well. Consumer seems to be taking it on the chin a lot harder, and I assume that's largely tied to the alky outage that you referenced earlier. I guess, can you help us to understand how long before you feel like things are back to a steady state in terms of alky supply, whether it's from the capacity that you're bringing on yourself or from other suppliers that you may be able to procure it from? Can you give us a little bit of color on that?

So when I look at the various businesses.

With regard to some of the inflationary pressures construction managed it pretty well over the last couple of quarters performance as well consumer seems to be taking it on the chin a lot harder and I assume that's largely tied to the al Qaeda outage.

You referenced earlier I guess can you help us to understand how long before you feel like things are back to a steady state in terms of al could supply whether it's from the capacity that you're bringing on yourself or from other suppliers that you may be able to to be able to procure it from can you give us a little bit of color on that.

Sure and I appreciate your comments broadly.

Frank C. Sullivan: Sure. Yeah, and I appreciate your comments broadly. We anticipate in Q3 continuing really strong growth in our Construction Products Group and Performance Coatings Group, including a return to some meaningful margin improvement. So you'll see nice leverage to the bottom line there as we manage cost-price mix in those businesses and have continued to take market share. You'll see improvement in our specialty segment. And I think, as we sit here today, unless the COVID, Omicron disruptions continue to get worse, we anticipate, although the quarter's not over, that it'll be the first quarter in three where you'll have all four of our segments positive from a revenue perspective. The Consumer Group is the principal challenge in Q3. Will be nicely positive in terms of EBIT across all our other businesses. And it's really related to a couple of things. It is related to alkyd resins.

Frank Sullivan: Sure. Yeah, and I appreciate your comments broadly. We anticipate in Q3 continuing really strong growth in our Construction Products Group and Performance Coatings Group, including a return to some meaningful margin improvement. So you'll see nice leverage to the bottom line there as we manage cost-price mix in those businesses and have continued to take market share. You'll see improvement in our specialty segment. And I think, as we sit here today, unless the COVID, Omicron disruptions continue to get worse, we anticipate, although the quarter's not over, that it'll be the first quarter in three where you'll have all four of our segments positive from a revenue perspective. The Consumer Group is the principal challenge in Q3. Will be nicely positive in terms of EBIT across all our other businesses. And it's really related to a couple of things. It is related to alkyd resins.

We anticipate Q3, continuing really strong growth in our construction products group and performance coatings group, including a return to <unk>.

Some meaningful margin improvement so youll see nice leverage to the bottom line. There is we managed cost price mix in those businesses and.

Continued to take market share, you'll see improvement in our specialty segment.

I think as we sit here today unless the COVID-19.

Micron disruptions continue to get worse, we anticipate although the quarter's not over that it'll be the first quarter and three where you will have all four of our segments positive from a revenue perspective.

The consumer group is the principal challenge in Q3 will be will be nicely positive.

In terms of EBIT across all of our other businesses and it's really related to a couple of things.

It is related to alkyd resins, our primary supplier as you know had an outage that negatively impacted us we've been scrambling. Both in terms of getting product and then I'll also outsourcing production. That's been an 18 month issue that we're working to resolve and we will start making headway. This spring.

Frank C. Sullivan: Our primary supplier, as you know, had an outage that negatively impacted us. We've been scrambling both in terms of getting product and then also outsourcing production. That's been an 18-month issue that we're working to resolve, and we'll start making headway this spring. We are packaging intensive, not only within RPM, but within the consumer paint industry, within RPM's Consumer Group. We are small project paints, small project patch and repair, caulks and sealants. So packaging has been both a disproportionately bigger challenge in terms of cost and also in terms of availability. I think the last straw to drop there is an anticipation of another significant increase this spring in tinplate costs, which will impact metal packaging across the whole industry.

Frank Sullivan: Our primary supplier, as you know, had an outage that negatively impacted us. We've been scrambling both in terms of getting product and then also outsourcing production. That's been an 18-month issue that we're working to resolve, and we'll start making headway this spring. We are packaging intensive, not only within RPM, but within the consumer paint industry, within RPM's Consumer Group. We are small project paints, small project patch and repair, caulks and sealants. So packaging has been both a disproportionately bigger challenge in terms of cost and also in terms of availability. I think the last straw to drop there is an anticipation of another significant increase this spring in tinplate costs, which will impact metal packaging across the whole industry.

We are packaging intensive.

Not only within RPM, but within the consumer paint industry within Rpm's consumer group. We are small project paints, we are small project patch and repair.

We are cautious and sealants. So packaging has been both a disproportionately bigger challenge in terms of cost and also in terms of bit availability.

The last straw to drop there is an anticipation of another significant increase this spring and tin plate costs, which will impact metal packaging across the whole industry.

Last comment I'll make is that we've had significant COVID-19 disruptions.

Frank C. Sullivan: Last comment I'll make is that we've had significant COVID disruptions within our Consumer Group, and I can give you just some statistics. Broadly speaking, this is what the world's seeing. First, from a corporate campus of 100 people, we had 20 cases over the 18-month period of March 2020 through November on our corporate campus. We've had 14 cases in the last two weeks, and most of those have been breakthrough, and most of those, as far as we can tell, have been at home. In our consumer segment, we had 108 cases in our operations alone. That's manufacturing and distribution sites. Over the last six months, we've had 97 cases in December. And so those are also disproportionately happening because we're pretty intensive in distribution, manufacturing, and consumer. Freight's been another issue. So sorry for the long litany of challenges.

Frank Sullivan: Last comment I'll make is that we've had significant COVID disruptions within our Consumer Group, and I can give you just some statistics. Broadly speaking, this is what the world's seeing. First, from a corporate campus of 100 people, we had 20 cases over the 18-month period of March 2020 through November on our corporate campus. We've had 14 cases in the last two weeks, and most of those have been breakthrough, and most of those, as far as we can tell, have been at home. In our consumer segment, we had 108 cases in our operations alone. That's manufacturing and distribution sites. Over the last six months, we've had 97 cases in December. And so those are also disproportionately happening because we're pretty intensive in distribution, manufacturing, and consumer. Freight's been another issue. So sorry for the long litany of challenges.

Within our consumer group and I can give you just.

Some statistics broadly speaking this is what the world seeing.

First from a corporate campus of 100 people. We had 20 cases over the 18 month period of March 2020 through.

Through November.

On our corporate campus, we've had 14 cases in the last two weeks.

And most of those had been breakthrough in most of those as far as we can tell have been at home and our consumer segment. We had 108 cases in our operations alone that's manufacturing and distribution sites.

Over the last six months, we've added 97 cases in December and so those are also disproportionately happening because we're pretty intensive in distribution and.

In manufacturing and consumer.

It's been another issue.

So.

Sorry for the long litany of challenges.

To be positive in terms of sales growth year over year and consumer for the first time in three quarters.

Frank C. Sullivan: We're going to be positive in terms of sales growth year-over-year in consumer for the first time in three quarters, and you're going to see significantly better resin flow as we continue to ramp up the Texas facility that we acquired in September. That's going as well or better than we anticipated.

Frank Sullivan: We're going to be positive in terms of sales growth year-over-year in consumer for the first time in three quarters, and you're going to see significantly better resin flow as we continue to ramp up the Texas facility that we acquired in September. That's going as well or better than we anticipated.

And youre going to see significantly better resin flow as we continue to ramp up.

Texas facility that we acquired in September that's going as well or better than we anticipated.

Got it.

Frank J. Mitsch: Got it. No, that's a helpful color. And I guess maybe a question on the longer term. I know in the past, you've cited a margin target of 16% in the long term, and I think that was still kind of the goal, even though MAP to Growth had maybe gotten held back a little bit, so maybe the timing was off. I guess when you think about the huge pricing that you're pushing through and volumes that you're seeing now, but also the higher cost, I guess, how should we think about that as still kind of a longer-term target? Does the bogey change at all? Is it either a little bit lower just given everything's so inflationary? Is it a little bit higher because the pricing goes up and maybe eventually the raw is stabilized? I guess how should we be thinking about that?

John McNulty: Got it. No, that's a helpful color. And I guess maybe a question on the longer term. I know in the past, you've cited a margin target of 16% in the long term, and I think that was still kind of the goal, even though MAP to Growth had maybe gotten held back a little bit, so maybe the timing was off. I guess when you think about the huge pricing that you're pushing through and volumes that you're seeing now, but also the higher cost, I guess, how should we think about that as still kind of a longer-term target? Does the bogey change at all? Is it either a little bit lower just given everything's so inflationary? Is it a little bit higher because the pricing goes up and maybe eventually the raw is stabilized? I guess how should we be thinking about that?

That's helpful color and I guess, maybe a question on the longer term I know in the past you've cited a margin target of 16% in the long term and I think that that was that was still kind of the goal, even though map to grow with that maybe gotten put.

We held back a little bit so maybe the timing was off I guess when you think about the.

The huge pricing that you're pushing through and volumes that youre seeing now, but also the higher cost I guess, how should we think about that as still kind of a longer term target is the bogey changed at all is it either a little bit lower just given everything so inflationary is it a little bit higher because the pricing goes up and maybe eventually the raw stabilize like I guess, how should we be thinks.

About that.

Great question, and we still very much have in mind, a 16% EBIT margin to get there we're going to have to drive gross margins on a consolidated basis towards 42% and we have a lot of work to do there having said that we anticipate this spring that you will see a return to record Mark.

Frank C. Sullivan: Great question. We still very much have in mind a 16% EBIT margin. To get there, we're going to have to drive gross margins on a consolidated basis towards 42%, and we have a lot of work to do there. Having said that, we anticipate this spring that you will see a return to record margins in our Construction Products Group and our Performance Coatings Group. You'll see good progress in our Specialty Products Group and the area, again, that has had this most significant margin deterioration, roughly half of which has been a cost-price mix issue, and the other half of which has been just the incredible disruption to production throughput is in the Consumer Group. That part of our business is getting a lot of attention.

Frank Sullivan: Great question. We still very much have in mind a 16% EBIT margin. To get there, we're going to have to drive gross margins on a consolidated basis towards 42%, and we have a lot of work to do there. Having said that, we anticipate this spring that you will see a return to record margins in our Construction Products Group and our Performance Coatings Group. You'll see good progress in our Specialty Products Group and the area, again, that has had this most significant margin deterioration, roughly half of which has been a cost-price mix issue, and the other half of which has been just the incredible disruption to production throughput is in the Consumer Group. That part of our business is getting a lot of attention.

<unk> and our construction products group and our performance coatings group.

Youll see good progress in our specialty products group and the area again that has had the most significant margin deterioration roughly half of which has been a cost price mix issue and the other half of which has been just the incredible disruption to production throughput is in the consumer group and then.

Part of our business is getting a lot of attention.

Got it thanks very much for the color Frank Thank you.

Frank J. Mitsch: Got it. Thanks very much for the color, Frank.

John McNulty: Got it. Thanks very much for the color, Frank.

Frank C. Sullivan: Thank you.

Frank Sullivan: Thank you.

Your next question comes from the line of Glenn Schorr Punjabi of Baird.

Operator: Your next question comes from the line of Ghansham Panjabi of Baird.

Good morning, guys, Hey, guys. Good morning, Good morning, Frank Happy New year to you as well.

Frank C. Sullivan: Morning, Gotcha.

Frank Sullivan: Morning, Gotcha.

Frank J. Mitsch: Hey, guys. Good morning. Morning, Frank. Happy New Year to you as well.

Ghansham Panjabi: Hey, guys. Good morning. Morning, Frank. Happy New Year to you as well.

Frank C. Sullivan: Happy New Year.

Frank Sullivan: Happy New Year.

Thank you on the construction products group.

Frank J. Mitsch: Thank you. On the Construction Products Group, just in terms of the regional breakdown that you cited in your press release, you pointed towards Europe being relatively flat and clearly strengthened North America. Can you just give us a little bit more color in terms of what specifically is going on in Europe? Is that just deferred sort of activity and how you see that evolving as the year unfolds, calendar year?

Ghansham Panjabi: Thank you. On the Construction Products Group, just in terms of the regional breakdown that you cited in your press release, you pointed towards Europe being relatively flat and clearly strengthened North America. Can you just give us a little bit more color in terms of what specifically is going on in Europe? Is that just deferred sort of activity and how you see that evolving as the year unfolds, calendar year?

In terms of the regional breakdown that you cited in your press release.

You pointed towards Europe, being relatively flat and clearly strength in North America can.

Can you just give us a little bit more color in terms of what specifically is going on in Europe is that just deferred sort of.

Activity in and how you see that evolving as the year unfolds calendar year.

Sure. So a couple of things going on in Europe number one over the last two years, we have been intensely focused on margin improvement there even.

Frank C. Sullivan: Sure. So a couple of things going on in Europe. Number one, over the last two years, we have been intensely focused on margin improvement there, even to the extent of shedding some lower margin business deliberately. And so there has been a focus on profitability because the profit levels in our European Construction Products Group are not up to where we are in North America or, for that matter, in Latin America. And then the other issue is I think that the reaction to this new surge, in every case, to the surges of coronavirus have caused more market and customer-facing disruptions, which has inhibited some of the growth there versus what we're seeing in North America.

Frank Sullivan: Sure. So a couple of things going on in Europe. Number one, over the last two years, we have been intensely focused on margin improvement there, even to the extent of shedding some lower margin business deliberately. And so there has been a focus on profitability because the profit levels in our European Construction Products Group are not up to where we are in North America or, for that matter, in Latin America. And then the other issue is I think that the reaction to this new surge, in every case, to the surges of coronavirus have caused more market and customer-facing disruptions, which has inhibited some of the growth there versus what we're seeing in North America.

Even to the extent of shedding some lower margin business deliberately and so there has been a focus on profitability because of the profit levels and our European construction products group are not up to where we are in North America or for that matter in Latin America.

And then the other issue is I think that the reaction to this new surge in every case to the searches.

Coronavirus have cost more.

Market and customer facing disruptions, which is inhibited some of the growth there versus what we're seeing in North America I think our experience mirrors, the headlines which is the U S economy has been.

Frank C. Sullivan: I think our experience mirrors the headlines, which is the US economy has been growing through the coronavirus circumstances in calendar 2021 quite well, and that has not been as true in Europe.

Frank Sullivan: I think our experience mirrors the headlines, which is the US economy has been growing through the coronavirus circumstances in calendar 2021 quite well, and that has not been as true in Europe.

Growing through the coronavirus circumstances in calendar 'twenty, one quite well and that has not been as true in Europe.

Got it and the $100 million in lost sales specific to consumer for <unk> that you called out if I, if I read that correctly that would imply quite an increase of quite.

Frank J. Mitsch: Got it. And the $100 million in lost sales specific to consumer for Q2, that you called it, if I read that correctly, that would imply quite an increase of quite a bit of an increase of 40% relative to the quarter-over-quarter fiscal year 2020 baseline. Can you just give us a bit more color on the bridge between the two periods? I know pricing is a piece of that, obviously volume and share gains, but how should we think about the sustainability of that improvement? It seems like a very large number.

Ghansham Panjabi: Got it. And the $100 million in lost sales specific to consumer for Q2, that you called it, if I read that correctly, that would imply quite an increase of quite a bit of an increase of 40% relative to the quarter-over-quarter fiscal year 2020 baseline. Can you just give us a bit more color on the bridge between the two periods? I know pricing is a piece of that, obviously volume and share gains, but how should we think about the sustainability of that improvement? It seems like a very large number.

Quite a bit of an increase of 40% relative to the <unk> fiscal year 'twenty baseline.

Can you just give us a bit more color on the bridge between the two periods I know pricing is a piece of that obviously volume and share gains but.

How should we think about the sustainability of that improvement it seems like a very large number.

Sure I'll turn that over to Rusty I think he can give you the balance between broadly I think it was more like $200 million in the bigger chunk of that is consumer Russ you want to add some color to that.

Frank C. Sullivan: Sure. I'll turn that over to Rusty. I think he can give you the balance between broadly, I think it was more like $200 million, and the bigger chunk of that is consumer. Rusty, you want to add some color to that?

Frank Sullivan: Sure. I'll turn that over to Rusty. I think he can give you the balance between broadly, I think it was more like $200 million, and the bigger chunk of that is consumer. Rusty, you want to add some color to that?

Sure Yes.

Russell L. Gordon: Sure. Yeah. Ghansham, in the second quarter, consumer sales are down $18 million. But like we said, the sales could have been $100 million or maybe more, higher, had it not been for supply chain disruptions. In terms of price increases, they are going through the third round of price increases here in Q3, but they have had two significant price increases in the fall and spring, that's contributing to that. The market is still good. We're just losing out on opportunity temporarily to meet the extraordinary demand that's out there. We think that'll come back to us through the revenue line as we increase capacity, as supply chain disruptions settle down. There's a lot of reasons why the business long-term looks fantastic. They are well-positioned. They have great market share and market-leading brands.

Rusty Gordon: Sure. Yeah. Ghansham, in the second quarter, consumer sales are down $18 million. But like we said, the sales could have been $100 million or maybe more, higher, had it not been for supply chain disruptions. In terms of price increases, they are going through the third round of price increases here in Q3, but they have had two significant price increases in the fall and spring, that's contributing to that. The market is still good. We're just losing out on opportunity temporarily to meet the extraordinary demand that's out there. We think that'll come back to us through the revenue line as we increase capacity, as supply chain disruptions settle down. There's a lot of reasons why the business long-term looks fantastic. They are well-positioned. They have great market share and market-leading brands.

Okay.

In the second quarter.

Consumer sales are down $18 million, but like we said the sales could have been a 100 million or maybe more higher had it not been for supply chain disruptions.

In terms of price increases.

Our going through the third round of price increases here in Q3.

I have had two significant price increases in the fall and spring that's contributing to that the market is still good.

We're just losing out on opportunity temporarily.

To meet the extraordinary demand Thats out there, we think that'll come back.

To us through the revenue line as we increase capacity.

Supply chain disruptions settled down.

There's a lot of reasons why the business long term looks fantastic.

They are well positioned they have great market share and market leading brands.

But temporarily.

Russell L. Gordon: But temporarily, they face the most acute situation due to the alkyd resin supplier outage last spring, and that's why they're suffering more on the lost sales.

Rusty Gordon: But temporarily, they face the most acute situation due to the alkyd resin supplier outage last spring, and that's why they're suffering more on the lost sales.

Faced the most acute.

Situation due to the alkyd resins.

Supplier outage last spring and Thats why theyre suffering more on the lost sales.

I will add to that it's our anticipation that the resin availability issue will be back to normal sometime this spring and the plant that we.

Frank C. Sullivan: I will add to that that it's our anticipation that the resin availability issue will be back to normal sometime this spring. And the plant that we acquired in September is going to supply probably 30% of our previously purchased alkyd resin production. So that's been a big help for us as we ramp that up. And we would anticipate a Q4 that looks good across all four of our segments.

Frank Sullivan: I will add to that that it's our anticipation that the resin availability issue will be back to normal sometime this spring. And the plant that we acquired in September is going to supply probably 30% of our previously purchased alkyd resin production. So that's been a big help for us as we ramp that up. And we would anticipate a Q4 that looks good across all four of our segments.

Acquired September is going to supply probably 30% of our previously purchased.

Purchased.

Alfred resin production. So that's been a big help for us as we ramp that up.

And we would anticipate.

Our fourth quarter that looks good across all four of our segments.

Thanks, so much Frank and Rusty.

Frank J. Mitsch: Thanks so much, Frank and Rusty.

Ghansham Panjabi: Thanks so much, Frank and Rusty.

Thank you.

Frank C. Sullivan: Thank you.

Frank Sullivan: Thank you.

Your next question comes from the line of Steve Byrne of Bank of America.

Operator: Your next question comes from the line of Steve Byrne of Bank of America.

Morning, Steve.

Frank C. Sullivan: Morning, Steve.

Frank Sullivan: Morning, Steve.

Morning, Frank.

Steve Byrne: Morning, Frank. Perhaps you can help us better understand the differential performance between consumer product or construction and performance coatings. You had higher organic growth in the construction products, which your EBIT performance was so much stronger in performance coatings. Was there just more of the price? You referenced the 7.5% kind of price up. Was it much higher than that in performance coatings, or was there something? Was it just maybe less of a raw material cost drag in that segment? Help us better understand how we can look at that going forward from here.

Perhaps you can help.

Help us better understand the differential performance between.

Consumer product.

Construction and performance coatings, you had higher organic growth.

The construction products, which youre EBIT performance.

So much stronger in.

In performance coatings is there was there just more more of the price you referenced the 75% kind of price.

Was it much higher than that in.

In performance coatings or was there something was there just a.

Maybe less of a raw material cost drag in that segment helped us better understand.

How we can look at that going forward from here.

Sure.

Frank C. Sullivan: Sure. So the Performance Coatings Group lagged some of the MAP to Growth strong performance in other parts of RPM because of some cyclical challenges, particularly in the oil and gas industry, as you'll recall. So part of the stronger performance in our Performance Coatings Group is easier comparison to prior year periods. And their underlying execution in MAP to Growth was as good as anywhere else. It was just muted by top-line challenges. With the top-line growing again, you're seeing an extra boost as the MAP to Growth benefits in the Performance Coatings Group are starting to be realized as our revenues are growing again, particularly in relationship to the recovery in some of the more cyclical oil and gas and industrial capital spending markets that the Performance Coatings Group serves. That's the first part. Construction products has really been showing strength on strength.

Frank Sullivan: Sure. So the Performance Coatings Group lagged some of the MAP to Growth strong performance in other parts of RPM because of some cyclical challenges, particularly in the oil and gas industry, as you'll recall. So part of the stronger performance in our Performance Coatings Group is easier comparison to prior year periods. And their underlying execution in MAP to Growth was as good as anywhere else. It was just muted by top-line challenges. With the top-line growing again, you're seeing an extra boost as the MAP to Growth benefits in the Performance Coatings Group are starting to be realized as our revenues are growing again, particularly in relationship to the recovery in some of the more cyclical oil and gas and industrial capital spending markets that the Performance Coatings Group serves. That's the first part. Construction products has really been showing strength on strength.

So the.

Performance coatings group lagged some of the map to growth.

Strong performance in other parts of RPM.

Because of some cyclical challenges, particularly in the oil and gas industry as Youll recall, so part of the stronger performance in our performance coatings group.

Easier comparison to prior year periods and their underlying execution.

In map to growth was as good as anywhere else. It was just muted by topline challenges with the top line growing again, youre seeing a an extra boost as the map to growth benefits.

In the performance coatings group are being started or starting to be realized as our revenues are growing again, particularly in relationship.

To the recovery in some of the more cyclical oil and gas and industrial capital spending markets. The performance coatings group serves that's the first part construction products has really been showing strength on strength, while we've lost a little margin there in the last couple of quarters and Youll see that turnaround in Q3.

Frank C. Sullivan: While we've lost a little margin there in the last couple of quarters, and you'll see that turn around in Q3, we are generating really strong performance on what were prior period record results. We are well-positioned in product categories in general. And in certain instances, the COVID disruptions are actually helping us, whether that's in the new Nudura build-out, which we expect to have expanded capacity by the end of the summer, or whether it's in the roof restoration coatings. The other thing I'll say about both Stonhard and flooring and our Tremco roofing division is in both cases, we're uniquely a supply and apply house. And so while labor issues are a challenge everywhere, including in the construction markets, our ability with dedicated crews to provide installations where perhaps others can't has also helped us.

Frank Sullivan: While we've lost a little margin there in the last couple of quarters, and you'll see that turn around in Q3, we are generating really strong performance on what were prior period record results. We are well-positioned in product categories in general. And in certain instances, the COVID disruptions are actually helping us, whether that's in the new Nudura build-out, which we expect to have expanded capacity by the end of the summer, or whether it's in the roof restoration coatings. The other thing I'll say about both Stonhard and flooring and our Tremco roofing division is in both cases, we're uniquely a supply and apply house. And so while labor issues are a challenge everywhere, including in the construction markets, our ability with dedicated crews to provide installations where perhaps others can't has also helped us.

We are generating really strong performance on what where prior period record results, we are well positioned and product categories in general.

And in certain instances the COVID-19 disruptions are actually helping us.

Whether that's in the new direct build out which we expect to have expanded capacity by the end of the summer or whether it's the roof restoration coatings.

The other thing I'll say about both stone hard and in flooring and our <unk> roofing Division is in both cases, we're uniquely as supply and apply house.

And so while labor issues are a challenge everywhere, including in the construction markets.

Our ability with dedicated crews to provide.

Installations, where perhaps others can't has also helped us.

Thank you for that and wanted to ask a little bit about this plan.

Steve Byrne: Thank you for that. Wanted to ask a little bit about this plant that you acquired back in September. In the last quarter, it was referred to as a Tremco purchase. So is the alkyd resins being produced at this plant? Will that only flow through construction products, or will consumer benefit from that? And what other chemistries are you likely to pursue at this facility down the road?

You acquired back in September.

Last quarter. It was referred to as a trickle purchases. So is the the alkyd resins being produced at this plant will not only be through not only flow through construction.

Construction products or will consumer benefit from that.

And what other what other.

Chemistries are you likely to pursue it.

Facility down the road.

That's a great question and we will keep that in mind and have a better answer for you.

Frank C. Sullivan: So that's a great question, and we'll keep that in mind and have a better answer for you in our April conference call broadly. It is part of our Construction Products Group because we are making various intermediate chemicals for numerous RPM companies. It's also in our Construction Products Group because, as you know, from an RPM perspective, there are no RPM-owned and operated plants. Our plants are owned and operated by our subsidiaries. And so we had to choose a subsidiary that was in a good position both from an operations leadership perspective and the ability to coordinate throughout RPM. And our performance I'm sorry, our Construction Products Group was the right home for that business. Initially, the biggest chunk of focus is producing alkyd resins for our consumer group. But we expect a strong resin supply and other unique intermediate chemical supplies for other RPM companies.

Frank Sullivan: So that's a great question, and we'll keep that in mind and have a better answer for you in our April conference call broadly. It is part of our Construction Products Group because we are making various intermediate chemicals for numerous RPM companies. It's also in our Construction Products Group because, as you know, from an RPM perspective, there are no RPM-owned and operated plants. Our plants are owned and operated by our subsidiaries. And so we had to choose a subsidiary that was in a good position both from an operations leadership perspective and the ability to coordinate throughout RPM. And our performance I'm sorry, our Construction Products Group was the right home for that business. Initially, the biggest chunk of focus is producing alkyd resins for our consumer group. But we expect a strong resin supply and other unique intermediate chemical supplies for other RPM companies.

In our April conference call broadly.

It is part of our construction products group, because we are making.

Various intermediate chemicals for numerous RPM companies. It's also in our construction products group because as you know.

From an RPM perspective, there are no RPM owned and operated plants. Our plants are owned and operated by our subsidiaries and so we had to choose a subsidiary that was in a good position.

Both from from a operations leadership perspective.

And the ability to coordinate throughout RPM and our performance I'm sorry, our construction products group was the right home for that business. Initially the biggest chunk of focus is producing alkyd resins for our consumer group.

But we expect.

Strong.

Resin supply and other unique intermediate chemical supplies for other RPM companies and I'll have a better answer.

Frank C. Sullivan: I'll have a better answer in more detail for you in April.

Frank Sullivan: I'll have a better answer in more detail for you in April.

More detailed for you in April.

Very good thank you Frank thank.

Steve Byrne: Very good. Thank you, Frank.

Thank you.

Frank C. Sullivan: Thank you.

Frank Sullivan: Thank you.

Your next question comes from the line of Vincent Andrews of Morgan Stanley.

Operator: Your next question comes from the line of Vincent Andrews of Morgan Stanley.

Thank you and good morning, everyone can.

Vincent Andrews: Thank you. And good morning, everyone. Can we just talk maybe about SG&A a little bit? It's up about $60 million year-to-date. I know you called out in the release that there's higher incentive compensation this year. But what are the other buckets that have caused that increase? And should we be annualizing that year-to-date increase for the entire fiscal year?

Can we just talk maybe about SG&A, a little bit it's up about $60 million year to date I know you called out in the release that there's higher incentive compensation this year, but.

Other buckets that have caused that increase and should we be annualizing that year to date increase for the.

In prior fiscal year.

Russ do you want to handle that with some detail.

Frank C. Sullivan: Rusty, you want to handle that with some detail?

Frank Sullivan: Rusty, you want to handle that with some detail?

Sure I'd be happy to.

Russell L. Gordon: Sure. I'd be happy to. Yeah. One of the main sources of increase year over year is commissions. We are increasing sales rapidly in some of our higher commission construction and industrial product line areas, Vincent. So commissions is a big chunk of that. T&E is back, I wouldn't say, anywhere close to back. Maybe it's getting close to halfway back to what it used to be. But T&E basically was zeroed out last year. We've also added some modest SG&A from acquisitions. We have, of course, pay increases and some growth initiatives that we're pursuing at specialty products, and a lot at Construction Products Group as well. So those are the main sources for that.

Rusty Gordon: Sure. I'd be happy to. Yeah. One of the main sources of increase year over year is commissions. We are increasing sales rapidly in some of our higher commission construction and industrial product line areas, Vincent. So commissions is a big chunk of that. T&E is back, I wouldn't say, anywhere close to back. Maybe it's getting close to halfway back to what it used to be. But T&E basically was zeroed out last year. We've also added some modest SG&A from acquisitions. We have, of course, pay increases and some growth initiatives that we're pursuing at specialty products, and a lot at Construction Products Group as well. So those are the main sources for that.

One of the main.

Sources of increase year over year.

Commissions.

We are increasing sales rapidly.

Some of our higher commission construction and industrial product line areas. Vincent So commissions is a big chunk of that TNT.

<unk> is back I wouldn't say anywhere close to back may be getting close to halfway back to what it used to be but <unk> basically was zeroed out last year. We've also added some modest SG&A from acquisitions.

Of course pay increases.

And some growth initiatives that we're pursuing at specialty products.

A lot of construction products group as well so those are the main sources for that.

Okay, and then just in the non consumer segments, there with some call outs about some of the revenue that was deferred during the heart of the pandemic coming back now which is obviously great.

Vincent Andrews: Okay. And then just in the non-consumer segments, there were some callouts about some of the revenue that was deferred during the heart of the pandemic coming back now, which is obviously great. I just want to make sure that we're thinking about the go-forward properly. Are these new base levels of revenue growth that you can grow off of, or should we be thinking about having difficult comparisons maybe a year from now because just as last year's revenue was understated because revenue is being deferred, is this year's revenue a little overstated because you made some of that up? Or how should we think about that continuum?

Wanted to make sure that we're thinking about.

The go forward properly or these new base levels of revenue growth that you grow off of or should we be thinking about having difficult comparisons may be.

Or from now because.

Just as last year's revenue was understated because revenue is being deferred as is this year's revenue a little overstated, because you've made some of that or how should we think about that continuing.

Sure.

Frank C. Sullivan: Sure. I think we'll have some difficult comparisons. So I don't know how likely we are to be showing the 8% or 10% unit volume growth and the 20% revenue growth and growing. But certainly, for the next couple of quarters, you'll see out of the non-consumer segments, which you referenced, the same type of strength that we've seen but with better leverage to the bottom line. And in general, in construction products, it's new product categories. I think there's more growth to come out of Europe once we get the margin profile where we want it. I think the categories like Nudura, the roof restoration coatings, some of the potential there is being quite candidly impacted by capacity, which we're addressing and should have fully addressed in both cases by the end of the summer. So there's really good strength there.

Frank Sullivan: Sure. I think we'll have some difficult comparisons. So I don't know how likely we are to be showing the 8% or 10% unit volume growth and the 20% revenue growth and growing. But certainly, for the next couple of quarters, you'll see out of the non-consumer segments, which you referenced, the same type of strength that we've seen but with better leverage to the bottom line. And in general, in construction products, it's new product categories. I think there's more growth to come out of Europe once we get the margin profile where we want it. I think the categories like Nudura, the roof restoration coatings, some of the potential there is being quite candidly impacted by capacity, which we're addressing and should have fully addressed in both cases by the end of the summer. So there's really good strength there.

I think we will have some difficult comparisons so I don't know how likely we are to be showing the eight or 10% unit volume growth in the 20% revenue growth and growing but certainly for the next couple of quarters Youll see out of the non consumer segments, which you referenced the same type of strength that we've seen.

That with better leverage to the bottom line.

And in general we are in construction products its new product categories.

I think there is more growth to come out of Europe. Once we get the margin profile, where we want it.

The categories like new.

The roof restoration coatings some of the potential there is being quite candidly impacted by capacity, which we're addressing and should have fully addressed in both cases by the end of the summer.

So there's really good strength there.

And I don't anticipate.

Frank C. Sullivan: I don't anticipate anything but positive sales and earnings growth as we get into fiscal 2023 that starts in June. The big recovery in terms of year-over-year performance, not surprisingly, will come out of our consumer group because we anticipate finally addressing some of these supply disruptions and COVID disruptions by the spring, so our Q4. As we get into next year, hopefully, you'll be seeing better flow-through, improved supply chains, and in that case, pretty significantly disrupted performance results in the quarters in fiscal 2022 and consumer.

Frank Sullivan: I don't anticipate anything but positive sales and earnings growth as we get into fiscal 2023 that starts in June. The big recovery in terms of year-over-year performance, not surprisingly, will come out of our consumer group because we anticipate finally addressing some of these supply disruptions and COVID disruptions by the spring, so our Q4. As we get into next year, hopefully, you'll be seeing better flow-through, improved supply chains, and in that case, pretty significantly disrupted performance results in the quarters in fiscal 2022 and consumer.

Anything, but positive sales and earnings growth as we get into fiscal 'twenty three that starts in June.

Big.

The big recovery in terms of year over year performance, not surprisingly will come out of our consumer group because we anticipate finally addressing some of these supply disruptions and COVID-19 disruptions by the spring so our fourth quarter and as we get into next year, hopefully youll be seeing.

Better flow through.

Improved supply chains and in that case.

Pretty significantly disrupted performance.

Results in the quarters in fiscal 'twenty, two and consumer.

Okay makes sense, thanks very much thank.

Vincent Andrews: Okay. Makes sense. Thanks very much.

Thank you.

Frank C. Sullivan: Thank you.

Frank Sullivan: Thank you.

Your next question comes from the line of Kevin Mccarthy of vertical research.

Operator: Your next question comes from the line of Kevin McCarthy of Vertical Research.

Good morning, Kevin Good morning, and happy new year or two.

Frank C. Sullivan: Morning, Kevin.

Frank Sullivan: Morning, Kevin.

Vincent Andrews: Good morning and happy new year to you. Frank, your specialty product segment had been tracking quite well under new management, but margins came in a little bit less than we would have expected this quarter. In your commentary, you cited a number of different issues in terms of investments, conversion costs, semiconductor chips, legal, etc. Can you give us a feel for how many of those issues might persist in Q3 and beyond versus other ones that could be fleeting? And more broadly, when do you think you might start to compare positively on the segment margin and specialty?

Kevin McCarthy: Good morning and happy new year to you. Frank, your specialty product segment had been tracking quite well under new management, but margins came in a little bit less than we would have expected this quarter. In your commentary, you cited a number of different issues in terms of investments, conversion costs, semiconductor chips, legal, etc. Can you give us a feel for how many of those issues might persist in Q3 and beyond versus other ones that could be fleeting? And more broadly, when do you think you might start to compare positively on the segment margin and specialty?

Frankly, our specialty products segment had been tracking quite well under new management, but margins came in a little bit less than we would've expected. This quarter in your commentary you said it a number of different issues in terms of investments conversion costs semi chips legal et cetera can you give us a feel for.

How many of those issues might persist in the third quarter beyond versus other ones that could be fleeting and more broadly when do you think you might start to compare positively on the segment margin in specialty.

I think that we have a good shot.

Frank C. Sullivan: I think that we have a good shot. First of all, you'll see performance in Q3. I think we have a good shot at seeing not only sales growth but EBIT year over year looking positive. The biggest challenge there, as Rusty and Mike have alluded to, is in our Legend Brands business. That is a business that is a leader in restoration equipment, dehumidification equipment, air filtering equipment, air moving, and high-performance fans. And from 10 years ago, where this was all manual equipment, this is all stuff for industrial and commercial settings that can be run off your iPhone. They have significantly more sophistication in terms of boards and chips, and we can't get them. And that's a business that didn't run on a big backlog and now has a $40 or $50 million backlog.

Frank Sullivan: I think that we have a good shot. First of all, you'll see performance in Q3. I think we have a good shot at seeing not only sales growth but EBIT year over year looking positive. The biggest challenge there, as Rusty and Mike have alluded to, is in our Legend Brands business. That is a business that is a leader in restoration equipment, dehumidification equipment, air filtering equipment, air moving, and high-performance fans. And from 10 years ago, where this was all manual equipment, this is all stuff for industrial and commercial settings that can be run off your iPhone. They have significantly more sophistication in terms of boards and chips, and we can't get them. And that's a business that didn't run on a big backlog and now has a $40 or $50 million backlog.

First of all Youll see performance in Q3, I think we have a good shot at seeing not only sales growth but.

EBIT year over year looking positive.

Positive.

The biggest challenge there is rusty and Mike alluded to is in our legend brands business that is a business that is a leader in <unk>.

<unk> equipment dehumidification equipment.

Air filtering equipment are moving in and high performance fans and from 10 years ago, where this was all manual equipment. This.

This is all stuff for industrial and commercial settings that can be run off your iPhone.

We have significantly more sophistication in terms of of boards.

Boards and chips, and we can't get them.

And that's a business that didnt run on a big backlog and now has a 40 or $50 million backlog, we haven't lost market share and we hope to see that.

Frank C. Sullivan: We haven't lost market share, and we hope to see that being resolved. Performance in Q3 will look better or worse based on that one business unit's ability to get supply. Back to an earlier question, and this is the most extreme example, but it's true in other parts of RPM about inventory. We typically don't operate with much WIP, work in process. We got a ton of WIP at our Legend Brands business because we have bought all the steel and all the components to put together all of this equipment. We literally have a fair amount of inventory sitting waiting for chips, which once installed, kind of like the challenges in the automotive industry, should lead to significant improvements in revenues and earnings.

Frank Sullivan: We haven't lost market share, and we hope to see that being resolved. Performance in Q3 will look better or worse based on that one business unit's ability to get supply. Back to an earlier question, and this is the most extreme example, but it's true in other parts of RPM about inventory. We typically don't operate with much WIP, work in process. We got a ton of WIP at our Legend Brands business because we have bought all the steel and all the components to put together all of this equipment. We literally have a fair amount of inventory sitting waiting for chips, which once installed, kind of like the challenges in the automotive industry, should lead to significant improvements in revenues and earnings.

Being resolved performance in Q3 will look better or worse based on that one business unit's ability to get supply back to an earlier question and this is the most extreme example, but it's true in other parts of RPM about inventory.

We typically don't operate with much with work in process and we get a ton of width at our legend brands business, because we have block all the steel and all the components to put together all of this equipment and we literally have a fair amount of inventory sitting waiting for chips, which once installed kind of.

The challenges in the automotive industry should lead to significant improvements in revenues and earnings.

I see that's good to know.

Vincent Andrews: I see that. That's good to know. And secondly, Frank, you've talked in the past about a potential MAP 2.0 program. What are your latest thoughts on timing and potential savings as we continue to flesh that out?

Kevin McCarthy: I see that. That's good to know. And secondly, Frank, you've talked in the past about a potential MAP 2.0 program. What are your latest thoughts on timing and potential savings as we continue to flesh that out?

Secondly, Frank.

You've talked in the past about potential map two <unk> program what are your latest thoughts on timing.

And potential savings continue to flesh that out.

Sure a year ago, we had hoped to be in a position to provide some details now.

Frank C. Sullivan: Sure. A year ago, we had hoped to be in a position to provide some details now. I think it now appears that that's more likely to be this summer. So we'll get through this fiscal year. I think we anticipate a return to more normalcy across all our businesses in Q4. And so we'll have a better base of business and more normal flow-through. And hopefully, the Omicron surge here is kind of the beginning of the end for COVID. That would be a nice New Year gift to the world. So we have been continuing to work on that. As I commented earlier to John McNulty's question, we are intensely focused on achieving a 16% EBIT margin. All of our businesses know it. We were making great progress there. We're back on track in two of our three businesses already, which is construction products and performance coatings.

Frank Sullivan: Sure. A year ago, we had hoped to be in a position to provide some details now. I think it now appears that that's more likely to be this summer. So we'll get through this fiscal year. I think we anticipate a return to more normalcy across all our businesses in Q4. And so we'll have a better base of business and more normal flow-through. And hopefully, the Omicron surge here is kind of the beginning of the end for COVID. That would be a nice New Year gift to the world. So we have been continuing to work on that. As I commented earlier to John McNulty's question, we are intensely focused on achieving a 16% EBIT margin. All of our businesses know it. We were making great progress there. We're back on track in two of our three businesses already, which is construction products and performance coatings.

It now appears that.

That's more likely to be this summer so we will get through this fiscal year.

I think we anticipate a return to more normalcy across all our businesses in Q4.

And so we will have a better base of business in a more normal flow through and hopefully the omicron search here is kind of the beginning of the end for Covid that would be a nice through your gift to the world.

So we have been continuing to work on that as I commented earlier to chime in northeast question. We are intensely focused on achieving a 16% EBIT margin all of our businesses know what we were making great progress. There. We're back on track in two of our three businesses already which is construction products and performance coatings.

And we just need to get through these supply disruptions and supply chain challenges and then we will be providing I hope this summer in some detail what a map to grow two point out it looks like.

Frank C. Sullivan: We just need to get through these supply disruptions and supply chain challenges. Then we will be providing, I hope, this summer in some detail what a MAP to Growth 2.0 looks like.

Frank Sullivan: We just need to get through these supply disruptions and supply chain challenges. Then we will be providing, I hope, this summer in some detail what a MAP to Growth 2.0 looks like.

Great. Thanks, so much.

Vincent Andrews: Great. Thank you so much.

Kevin McCarthy: Great. Thank you so much.

<unk>.

Frank C. Sullivan: Thank you.

Frank Sullivan: Thank you.

Your next question comes from the line of Josh Spector of UBS.

Operator: Your next question comes from the line of Josh Spector of UBS.

Hey, good morning, guys good morning.

Joshua Spector: Hey. Good morning, guys. Good morning. Just a follow-up on the lost sales and specifically consumer. Just wanted to get your view there. Do you need a continued supportive demand environment to get those sales back, or is getting those sales back just an inventory function of customers restocking?

Josh Spector: Hey. Good morning, guys. Good morning. Just a follow-up on the lost sales and specifically consumer. Just wanted to get your view there. Do you need a continued supportive demand environment to get those sales back, or is getting those sales back just an inventory function of customers restocking?

Just a follow up on the lost sales and specifically consumer just wanted to get your view there do you need a continued supported demand environment to get those sales back or is getting those sales back just an inventory function of customers restocking.

I think it's a combination of both when you look at the charts that we supply.

Frank C. Sullivan: I think it's a combination of both. When you look at the charts that we supplied, we've been relatively, I think, good comparison when you go back to our fiscal 2020 results versus where we are in fiscal 2022. So we feel like there's an expanded user base because of the pandemic situations. Quite candidly, all you need to do is go to the shelves in our big customers. And it's not only in our categories, it's other categories. But you're looking at fill rates from one week to the next that are 50% to 70% in an industry.

Frank Sullivan: I think it's a combination of both. When you look at the charts that we supplied, we've been relatively, I think, good comparison when you go back to our fiscal 2020 results versus where we are in fiscal 2022. So we feel like there's an expanded user base because of the pandemic situations. Quite candidly, all you need to do is go to the shelves in our big customers. And it's not only in our categories, it's other categories. But you're looking at fill rates from one week to the next that are 50% to 70% in an industry.

We've been relatively good.

Good comparison, when you go back to our fiscal 'twenty results versus where we are in fiscal 'twenty. Two so we feel like there is an expanded user base because of the pandemic situations.

Quite candidly all you need to do is go to the shelves and our big customers and it's not only in our categories. It's other categories, but youre looking at fill rates from one week to the next that are 50% to 70%.

And in industry and in the case of RPM, where our fill rates have been.

Frank C. Sullivan: In the case of RPM, where our fill rates have been 99%, 98%, and it's just been a massive chunk of disruption, whether it's having stuff ready and no trucks to pick it up, whether it's being able to produce for three days but having to pay your workforce, obviously, full-time because you can't lose people. It's been, and we were making actually good progress, and we're anticipating a better Q3 than we're forecasting now. I just provided some of the details on the coronavirus cases and the operations in our consumer group. It's just another unanticipated setback that we will overcome.

Frank Sullivan: In the case of RPM, where our fill rates have been 99%, 98%, and it's just been a massive chunk of disruption, whether it's having stuff ready and no trucks to pick it up, whether it's being able to produce for three days but having to pay your workforce, obviously, full-time because you can't lose people. It's been, and we were making actually good progress, and we're anticipating a better Q3 than we're forecasting now. I just provided some of the details on the coronavirus cases and the operations in our consumer group. It's just another unanticipated setback that we will overcome.

<unk> 90, 998% and it's just been a massive chunk of disruption.

Whether it's having stuff ready and no trucks to pick it up.

Whether it's being able to produce for three days, but having to pay your workforce, obviously full time, because you can't lose people.

And.

It's Ben.

And we were making actually good progress and we're anticipating a better Q3 than we're forecasting now.

And I just provided some of the details on the coronavirus cases in the operations in our consumer group and it's just another unanticipated setbacks that we will overcome.

Okay. Thanks, that's helpful and if I could just ask on performance coatings I guess two things there first when you talk about maintenance spending coming back can you comment on your backlog in that business is it multiple times higher than perhaps you ran in the past, which gives you visibility there and then in your slides you.

Joshua Spector: Okay. Thanks. That's helpful. And if I could just ask on performance coatings, I guess two things there. First, when you talk about maintenance spending coming back, can you comment on your backlog in that business? Is it multiple times higher than perhaps you've ran in the past, which gives you visibility there? And then in your slides, you talked about decision support tools, improving Salesforce efficiencies, and mix. Can you just kind of explain what exactly that is and how that's helping?

Josh Spector: Okay. Thanks. That's helpful. And if I could just ask on performance coatings, I guess two things there. First, when you talk about maintenance spending coming back, can you comment on your backlog in that business? Is it multiple times higher than perhaps you've ran in the past, which gives you visibility there? And then in your slides, you talked about decision support tools, improving Salesforce efficiencies, and mix. Can you just kind of explain what exactly that is and how that's helping?

<unk> talked about decision support tools, improving sales force efficiency. The mix can you just kind of explain what exactly that is and how that's helping.

Sure.

Frank C. Sullivan: Sure. So first on that last comment, and we had commented over the last year or so out of our MAP to Growth program, and it was really not originally a part of it, we had hired a consulting firm to help a number of our businesses look at their cost-price mix situation. And literally, it's not a go raise your prices assessment. It's a better analysis of mix. It's helped us make decisions, like I referenced in Europe, about product lines that when you look at from a long-term basis, you make decisions as to whether or not they're worth our investment, our time, and our capacity. And they're also trying to get us to the point where we can utilize a better understanding of mix to proactively and offensively incentivize our salesforce in the marketplace versus just using mix as a retrospective analysis of performance.

Frank Sullivan: Sure. So first on that last comment, and we had commented over the last year or so out of our MAP to Growth program, and it was really not originally a part of it, we had hired a consulting firm to help a number of our businesses look at their cost-price mix situation. And literally, it's not a go raise your prices assessment. It's a better analysis of mix. It's helped us make decisions, like I referenced in Europe, about product lines that when you look at from a long-term basis, you make decisions as to whether or not they're worth our investment, our time, and our capacity. And they're also trying to get us to the point where we can utilize a better understanding of mix to proactively and offensively incentivize our salesforce in the marketplace versus just using mix as a retrospective analysis of performance.

So first on that last comment and we had commented over the last year or so out of our map to growth program and it was really not originally part of it.

We had hired a consulting firm to help a number of our businesses look at their cost price mix situation.

It's literally it is not a go raise your prices assessment, it's a better analysis of mix.

<unk> helped us make decisions like I referenced in Europe about product lines that when you look at from a long term basis.

Make decisions as to whether or not they're worth.

Our investment of our time and our capacity.

And they're also trying to get us to the point, where we can utilize a better understanding our mix to proactively and offensive Lee incentives.

Set of eyes.

Our sales force in the marketplace.

Versus just using mixes.

Retro perspective analysis of performance and so we're doing a lot of work there and some of that is looking at commission structures in relationship to product margin profiles and things like that.

Frank C. Sullivan: And so we're doing a lot of work there. And some of that is looking at commission structures in relationship to product margin profiles and things like that. As Rusty had commented and Mike commented earlier, the billions and trillions of dollars that have been allocated in the United States alone towards infrastructure will benefit our construction products group and performance coatings group. We are well-positioned in terms of public and private infrastructure spending, what's going into hospitals, what's going into schools. Those are markets that we serve. The onshoring and technology, we continue to be the leader, for instance, in floors for all the major tech companies. With static dissipating floors as an example. So the onshoring of a lot of that is leading to upticks in our business. So I think the next couple of years in those two business segments look very bright.

Frank Sullivan: And so we're doing a lot of work there. And some of that is looking at commission structures in relationship to product margin profiles and things like that. As Rusty had commented and Mike commented earlier, the billions and trillions of dollars that have been allocated in the United States alone towards infrastructure will benefit our construction products group and performance coatings group. We are well-positioned in terms of public and private infrastructure spending, what's going into hospitals, what's going into schools. Those are markets that we serve. The onshoring and technology, we continue to be the leader, for instance, in floors for all the major tech companies. With static dissipating floors as an example. So the onshoring of a lot of that is leading to upticks in our business. So I think the next couple of years in those two business segments look very bright.

Sure.

I guess Rusty had commented and Mike commented earlier.

The billions and trillions of dollars that.

That had been allocated in the United States alone towards infrastructure will benefit our construction products group and performance coatings group, we are well positioned.

In terms of.

Public and private infrastructure spending.

What's going into hospitals, what's going into schools those are markets that we serve.

The onshoring and technology, we continue to be the leader for instance, and floors for all the major tech companies with static dissipating, Florida as an example, so the onshoring of a lot of that is leading to upticks in our business. So I.

I think the next couple of years and those two business segments look very bright.

Okay. Thank you.

Joshua Spector: Okay. Thank you.

Josh Spector: Okay. Thank you.

Your next question comes from the line of Jeff Zekauskas of Jpmorgan.

Operator: Your next question comes from the line of Jeff Zekauskas of JP Morgan.

Good morning, Thank you hi.

Frank C. Sullivan: Morning, Jeff.

Frank Sullivan: Morning, Jeff.

Hi, good morning, Thanks very much.

Vincent Andrews: Hi. Good morning. Thanks very much. When you think about the board's compensation targets for management, it's very difficult to understand whether management is meeting the targets, is a little bit behind, is ahead, given that there are so many raw material factors and disruption factors. Can you give us a hand in understanding what the board wants from management and if you're ahead or behind their targets, their base targets?

Jeff Zekauskas: Hi. Good morning. Thanks very much. When you think about the board's compensation targets for management, it's very difficult to understand whether management is meeting the targets, is a little bit behind, is ahead, given that there are so many raw material factors and disruption factors. Can you give us a hand in understanding what the board wants from management and if you're ahead or behind their targets, their base targets?

When you think about the board's compensation targets for management.

Very difficult to understand.

Whether management is meeting the targets a little bit behind is ahead given that there are so many raw material factors and disruption factors can you give us a hand and understanding what the board wants from management and if you are ahead or behind their targets. They are based.

That's.

Sure.

Frank C. Sullivan: Sure. I guess the specifics I would direct you to are proxy, where I think we do a pretty good job of outlining, in retrospect for a particular year, what the targets were and what our achievement level were to those targets. We have actually very good discipline in relationship to compensation. We have never repriced options. We did not make specific compensation changes or adjustments in relationship to COVID situations. And so I'd say we have good discipline there, and the details outlined in our proxy. The board has used discretion last year and this year in some areas in relationship to making sure that we are focused on market share gains in advancing our businesses.

Frank Sullivan: Sure. I guess the specifics I would direct you to are proxy, where I think we do a pretty good job of outlining, in retrospect for a particular year, what the targets were and what our achievement level were to those targets. We have actually very good discipline in relationship to compensation. We have never repriced options. We did not make specific compensation changes or adjustments in relationship to COVID situations. And so I'd say we have good discipline there, and the details outlined in our proxy. The board has used discretion last year and this year in some areas in relationship to making sure that we are focused on market share gains in advancing our businesses.

I guess the specifics I would.

Direct you to our proxy.

I think we do a pretty good job of outlining in retrospect.

For a particular year.

What the targets were and what our achievement level were to those targets.

We have actually very good discipline in relationship to compensation.

We have never re priced options, we did not make specific compensation changes or adjustments.

In relationship to Covid situations.

And so.

We have good discipline, there and the details outlined in our proxy.

The board has used.

Discretion last year and this year in some areas in relationship to making sure that we are focused on market share gains and advancing our businesses.

And then also at least through fiscal 'twenty one.

Frank C. Sullivan: And then also, at least through fiscal 2021, our progress on a relative basis to our peers and our prior year performance in relationship to the MAP to Growth program, which was very effective but obviously disrupted by COVID and now supply chain issues. Compensation this year will be a tough issue because, like everybody, everybody's working twice as hard. Everybody's dealing with a VUCA environment, the likes of which nobody's really seen. And the impact on compensation relative to performance won't look particularly great because in a number of our businesses, our bottom line targets aren't meeting what our original expectations were. May not be fair, but that's life. And again, I would refer you to the details for past comp to our proxy, and you'll see the same type of detail in the proxy we put out in August 2022.

Frank Sullivan: And then also, at least through fiscal 2021, our progress on a relative basis to our peers and our prior year performance in relationship to the MAP to Growth program, which was very effective but obviously disrupted by COVID and now supply chain issues. Compensation this year will be a tough issue because, like everybody, everybody's working twice as hard. Everybody's dealing with a VUCA environment, the likes of which nobody's really seen. And the impact on compensation relative to performance won't look particularly great because in a number of our businesses, our bottom line targets aren't meeting what our original expectations were. May not be fair, but that's life. And again, I would refer you to the details for past comp to our proxy, and you'll see the same type of detail in the proxy we put out in August 2022.

Our progress on a relative basis to our peers and our prior year performance in relationship to the map to growth program.

Which was very effective, but obviously disrupted by COVID-19 and now supply chain issues.

Compensation this year.

It will be a tough tough issue because.

Like everybody everybody's working twice as hard everybody is dealing with a luca environment, the likes of which nobody has really seen.

The impact on compensation relative to performance.

Won't look, particularly great because in a number of our businesses our bottomline targets aren't meeting.

Our original expectations, where it.

May not be fair, but that's life and again I would refer you to the details for past comp to our proxy and Youll see the same type of detail in the proxy we put out in August of 'twenty two.

Okay.

Vincent Andrews: Okay. And secondly, were volumes in the quarter up on a consolidated basis, up low single digit? And if you were on LIFO instead of FIFO, would your cost of goods sold have been very different?

Jeff Zekauskas: Okay. And secondly, were volumes in the quarter up on a consolidated basis, up low single digit? And if you were on LIFO instead of FIFO, would your cost of goods sold have been very different?

Okay.

Secondly.

Where volumes in the quarter up on a consolidated basis up low single digit.

And if.

If you were on LIFO instead of FIFO would your.

Cost of goods sold have been very different.

Well I'll have to defer that question to Rusty I don't know the LIFO FIFO difference.

Frank C. Sullivan: Well, I'll have to defer that question to Rusty. I don't know the LIFO/FIFO difference. Again, he can provide maybe the details of unit volume. I can tell you in performance coatings and construction products, unit volume was high single digits or even in the 10% range. In some of our specialty products groups, we had good unit volume growth except for Legend Brands. Obviously, we've had negative unit volume growth in consumer. But Rusty could provide better color and perhaps has an answer for the LIFO/FIFO question because I do not.

Frank Sullivan: Well, I'll have to defer that question to Rusty. I don't know the LIFO/FIFO difference. Again, he can provide maybe the details of unit volume. I can tell you in performance coatings and construction products, unit volume was high single digits or even in the 10% range. In some of our specialty products groups, we had good unit volume growth except for Legend Brands. Obviously, we've had negative unit volume growth in consumer. But Rusty could provide better color and perhaps has an answer for the LIFO/FIFO question because I do not.

And again he can provide maybe the details of our unit volume I can tell you in performance coatings and construction products.

Unit volume was high single digits or even in the 10% range.

And in some of our specialty products groups, we had good unit volume growth except for legend brands.

And obviously, we've had negative unit volume growth in consumer, but rusty can provide better color and perhaps as an answer for the LIFO FIFO question because I do.

Okay.

Michael J. Laroche: Okay. Well, it's been a while since I cracked open my accounting books. But in a rising cost environment, LIFO would generally give you the higher, more current costs as compared to FIFO. Mike, is there anything you want to add to that?

Rusty Gordon: Okay. Well, it's been a while since I cracked open my accounting books. But in a rising cost environment, LIFO would generally give you the higher, more current costs as compared to FIFO. Mike, is there anything you want to add to that?

It's been a while some side cracked open my accounting books, but in a rising cost environment LIFO would generally give you the higher more current costs as compared to FIFO. Mike is there anything you want to add to that.

No I mean, we haven't done the math on it but.

[Analyst] (North Coast Research): No. I mean, we haven't done the math on it, but I would agree with what you said.

Mike Laroche: No. I mean, we haven't done the math on it, but I would agree with what you said.

I would agree with what you said.

How about volume how about consolidated volume for the quarter, what was that we set up a little bit or no.

Vincent Andrews: How about volume? How about consolidated volume for the core? What was that? Was it up a little bit or no?

Jeff Zekauskas: How about volume? How about consolidated volume for the core? What was that? Was it up a little bit or no?

Yes, it was up low single digit quite Frank mentioned.

Michael J. Laroche: Yeah. It was up low single digits, like Frank mentioned.

Mike Laroche: Yeah. It was up low single digits, like Frank mentioned.

Okay, great. Thank you so much thank you.

Vincent Andrews: Okay. Great. Thank you so much.

Jeff Zekauskas: Okay. Great. Thank you so much.

Frank C. Sullivan: Thank you.

Frank Sullivan: Thank you.

Your next question comes from the line of renewed this one up on.

Operator: Your next question comes from the line of Arun Viswanathan of RBC Capital Markets.

Of RBC capital markets.

Good morning.

Frank C. Sullivan: Good morning.

Frank Sullivan: Good morning.

Good morning, Frank Thanks for taking my question good morning, Rusty as well I'm happy new year to all of you.

Joshua Spector: Morning, Frank. Thanks for taking my question. Morning, Rusty, as well. Happy New Year to all of you. I guess my question is around the guidance. So if you look at the next quarter, you do expect a range for EBIT in that 5% to 15% range down. I guess when you think about the cadence through the year, this is typically your weakest quarters just given winter seasonality. So do you expect that range to kind of improve also in light of improving raw material availability as you move through the year? And said another way, do you expect kind of this quarter to be the worst as far as supply chain disruptions and raw material availability?

Arun Viswanathan: Morning, Frank. Thanks for taking my question. Morning, Rusty, as well. Happy New Year to all of you. I guess my question is around the guidance. So if you look at the next quarter, you do expect a range for EBIT in that 5% to 15% range down. I guess when you think about the cadence through the year, this is typically your weakest quarters just given winter seasonality. So do you expect that range to kind of improve also in light of improving raw material availability as you move through the year? And said another way, do you expect kind of this quarter to be the worst as far as supply chain disruptions and raw material availability?

I guess my question is around the guidance. So if you look at the next quarter.

Do you expect.

Our range for EBIT in that 5% to 15% range.

And I guess when you when you think about the cadence through the year.

This is typically your weakest quarter, just given winter seasonality. So do you expect that range to kind of improve.

Also in light of improving raw material availability as you move through the year.

Said another way do you expect kind of.

This quarter it would be the worst as far as supply chain disruptions and raw material availability.

I think in general that's the right way to think about it our resin flow for our consumer business is improving.

Frank C. Sullivan: I think in general, that's the right way to think about it. Our resin flow for our consumer business is improving. The Texas plant, and we will provide more detail in April broadly on that. But the Texas plant ramp-up and alkyd resins is helping significantly. And so I think you're going to see improvement in each of our segments. The specialty products group will be particularly related to recovery in our Legend Brands business or not. And so you'll see that's a big part of the swing there. And then the throughput on consumer, I think the biggest variability here that we're not certain about is this Omicron, significant disruption in December. It actually changed what we thought a month or so ago would be more positive results in consumer to another quarter of declines in EBIT in our consumer segment.

Frank Sullivan: I think in general, that's the right way to think about it. Our resin flow for our consumer business is improving. The Texas plant, and we will provide more detail in April broadly on that. But the Texas plant ramp-up and alkyd resins is helping significantly. And so I think you're going to see improvement in each of our segments. The specialty products group will be particularly related to recovery in our Legend Brands business or not. And so you'll see that's a big part of the swing there. And then the throughput on consumer, I think the biggest variability here that we're not certain about is this Omicron, significant disruption in December. It actually changed what we thought a month or so ago would be more positive results in consumer to another quarter of declines in EBIT in our consumer segment.

Texas plant and we will provide more detail on April broadly on that but the Texas plant ramp up and alkyd resins is helping significantly.

And so.

I think youre going to see improvement in each of our segments.

The specialty products group will be particularly.

Related to recovery in our legend brands business or not.

And so youll see us that's a big part of the swing there.

And then.

Throughput on.

Consumer I think the biggest.

Variability here that we're not certain about is.

This omni crime significant disruption in December.

It actually changed what we thought a month or so ago would be more positive results in consumer to another quarter of.

Declines in EBIT in our consumer segment, you will see for the first time in.

Frank C. Sullivan: You will see for the first time in three quarters positive year-over-year sales growth in Consumer. And if trends continue and there's no shocks that we don't anticipate, you're going to see a significant improvement across all four segments as we get into the spring.

Frank Sullivan: You will see for the first time in three quarters positive year-over-year sales growth in Consumer. And if trends continue and there's no shocks that we don't anticipate, you're going to see a significant improvement across all four segments as we get into the spring.

Three quarters positive year over year sales growth in consumer and if trends continue and Theres no shocks that we don't anticipate.

Youre going to see a significant improvement across all four segments as we get into the spring.

Thanks for that.

Vincent Andrews: Thanks for that. Then if I could just go back to the demand question. So as you noted, demand appears relatively robust across many of your verticals. Where would you say demand is the weakest, I guess? And would you think that you still haven't seen a recovery because of COVID, or is it something else? And then I guess furthermore, as you implement these price increases, among your customer base, is there a willingness to kind of pass on these price increases to their customers? And is that what is keeping demand so robust, or do you see any risk of this demand kind of slowing down because of price increases crowding out that demand? Thanks.

Arun Viswanathan: Thanks for that. Then if I could just go back to the demand question. So as you noted, demand appears relatively robust across many of your verticals. Where would you say demand is the weakest, I guess? And would you think that you still haven't seen a recovery because of COVID, or is it something else? And then I guess furthermore, as you implement these price increases, among your customer base, is there a willingness to kind of pass on these price increases to their customers? And is that what is keeping demand so robust, or do you see any risk of this demand kind of slowing down because of price increases crowding out that demand? Thanks.

If I could just go back to the demand question. So you know as.

You noted demand appears relatively robust across many of your verticals.

Where would you say demand is the weakest I guess and is that.

Would you say that you still haven't seen a recovery because of Covid or is it is it is it something else.

And then I guess Furthermore, as you implement these price increases.

Is there amongst your customer base is there a willingness to kind of pass on these price increases to their customers.

Is that what is keeping demand so robust or do you see any risk of this demand kind of slowing down because of that.

Increases crowding out.

That demand thanks.

Sure.

Frank C. Sullivan: Sure. As we had commented earlier, I think geographically, our weakest area of performance is in Europe. We would hope to see European economies pick up more along the lines of the US. In our product categories, we don't see a lot of weakness right now. I do think it will be interesting as we get into calendar 2022 throughout this calendar year, the balance between consumer demand and getting a supply chain and inventory levels back to normal, which they're really not close to right now.

Frank Sullivan: Sure. As we had commented earlier, I think geographically, our weakest area of performance is in Europe. We would hope to see European economies pick up more along the lines of the US. In our product categories, we don't see a lot of weakness right now. I do think it will be interesting as we get into calendar 2022 throughout this calendar year, the balance between consumer demand and getting a supply chain and inventory levels back to normal, which they're really not close to right now.

As we have commented earlier I think our geographically our weakest area performance as in Europe.

And we would hope to see European economies pick up more along the lines of the U S.

In our product categories, we don't see a lot of weakness right now I do think it will be interesting as we get into calendar 'twenty two.

This calendar year.

The balance between consumer demand and getting our supply chain and inventory levels back to normal, which they are really not close to right now and so seeing where that settles out in terms of demand and consumer is the area, where I think we have the least visibility just because.

Frank C. Sullivan: And so, seeing where that settles out in terms of demand and consumer is the area where I think we have the least visibility, just because once we can get the supply chain disruptions in place, we should have really strong performance for a period of time if for no other reason to get inventory levels at our customers and in our own shop back to normal levels.

Frank Sullivan: And so, seeing where that settles out in terms of demand and consumer is the area where I think we have the least visibility, just because once we can get the supply chain disruptions in place, we should have really strong performance for a period of time if for no other reason to get inventory levels at our customers and in our own shop back to normal levels.

We can get the supply chain disruptions in place we should have really strong performance for a period of time.

For no other reason to get inventory levels at our customers and our own shop back to normal levels.

Great. Thank you.

Vincent Andrews: Great. Thank you.

Arun Viswanathan: Great. Thank you.

Thank you. Your next question comes from the line of Mike Sison of Wells Fargo.

Frank C. Sullivan: Thank you.

Frank Sullivan: Thank you.

Operator: Your next question comes from the line of Mike Sisson of Wells Fargo.

Good morning, Michael.

Frank C. Sullivan: Morning, Michael.

Frank Sullivan: Morning, Michael.

Hey, guys happy new year.

Vincent Andrews: Hey, guys. Happy New Year. It sounds like the sales momentum will continue into the fourth quarter. Just curious, and I know it's early given all the headwinds, but if you think about the potential scenarios for EBIT growth or decline in the fourth quarter, what do you think they are given all the raw material headwinds, the Omicron, so on and so forth could be for the fourth, particularly if you have positive sales growth again?

Mike Sison: Hey, guys. Happy New Year. It sounds like the sales momentum will continue into the fourth quarter. Just curious, and I know it's early given all the headwinds, but if you think about the potential scenarios for EBIT growth or decline in the fourth quarter, what do you think they are given all the raw material headwinds, the Omicron, so on and so forth could be for the fourth, particularly if you have positive sales growth again?

It sounds like the sales momentum will continue into the fourth quarter I'm just curious I know it's.

Early given all the headwinds, but if you think about the potential scenarios for EBIT growth or decline in the fourth quarter. What do you think they are given.

Now I'll have raw material headwinds.

And so on so forth could be for the fourth.

Particularly if you have positive sales growth again.

Sure.

Frank C. Sullivan: Sure. When you see where our consumer, I'm sorry, where our Construction Products Group is going, where our Performance Coatings Group is going, we see that strength continuing in the second half of fiscal 2022. So that's strong top line. And for the second half in particular, really good leverage to the bottom line. We anticipate, but it's literally month-to-month recovery in our Specialty Products Group. And we've talked about Legend Brands. Our expectation is for recovery in consumer nicely in Q4. But we have been providing guidance one quarter at a time because the visibility of what's happening and the impact of disruptions in light of stressed supply chains just made it really difficult to forecast forward with much accuracy.

Frank Sullivan: Sure. When you see where our consumer, I'm sorry, where our Construction Products Group is going, where our Performance Coatings Group is going, we see that strength continuing in the second half of fiscal 2022. So that's strong top line. And for the second half in particular, really good leverage to the bottom line. We anticipate, but it's literally month-to-month recovery in our Specialty Products Group. And we've talked about Legend Brands. Our expectation is for recovery in consumer nicely in Q4. But we have been providing guidance one quarter at a time because the visibility of what's happening and the impact of disruptions in light of stressed supply chains just made it really difficult to forecast forward with much accuracy.

When you see where our consumer I'm, sorry, where our construction products group is going where our performance coatings group is growing we see that strength continuing in the second half.

Fiscal 'twenty, two so thats strong topline and for the second half in particular really good leverage to the bottom line.

We anticipate but it's literally month to month recovery in our specialty products group and we've talked about legend brands.

Sure.

Our expectation is for recovery consumer nicely in Q4.

But we have been providing guidance one quarter at a time, because the visibility of what's happening and the impact of disruptions in light of stress supply chains, just made it really difficult to forecast forward with much accuracy.

But if the current trends of a stabilizing raw material supply base cost wise.

Frank C. Sullivan: But if the current trends of a stabilizing raw material supply base cost-wise, improving base chemicals, which are moving in the right direction, and if Omicron is kind of the last gasp of COVID, which would sure be a blessing, then we should have a bang-up Q4. And that is easy to calculate if we can get some of these supply chain issues behind us and we can see a raw material environment that's, it doesn't even have to be declining. It just needs to stabilize.

Frank Sullivan: But if the current trends of a stabilizing raw material supply base cost-wise, improving base chemicals, which are moving in the right direction, and if Omicron is kind of the last gasp of COVID, which would sure be a blessing, then we should have a bang-up Q4. And that is easy to calculate if we can get some of these supply chain issues behind us and we can see a raw material environment that's, it doesn't even have to be declining. It just needs to stabilize.

Proving.

Base chemicals, which are moving in the right direction.

And if OMA Kron is.

The last gasp of Covid, which would sure be a blessing.

Then we should have a bang up fourth quarter.

And Thats.

That is easy to calculate if we can get some of these supply chain issues behind us and we can see a raw material environment.

It doesn't even have to be declining it just needs to stabilize.

Got it and then just on that you mentioned I think in the slides.

Vincent Andrews: Got it. And then just on that, you mentioned, I think, in the slides or in the opening comments that you're looking to expand your supplier base. Can you give us a little bit of color on that, what you're doing and how you're doing that to maybe improve availability longer term?

Mike Sison: Got it. And then just on that, you mentioned, I think, in the slides or in the opening comments that you're looking to expand your supplier base. Can you give us a little bit of color on that, what you're doing and how you're doing that to maybe improve availability longer term?

In the opening comments that youre looking to expand your supplier base.

Can you give us a little bit of color on that what you're doing and how youre doing that to maybe improve availability longer term.

Sure.

Frank C. Sullivan: Sure. I think that notwithstanding the disruptions and supply chains, there's always a battle. The communications with us and our major suppliers have been really good through this whole COVID thing. And understanding how to deal through force majeure, which are down two-thirds from where they were. We're in the mid-teens on force majeure now across a couple of 100 product categories. We were in the 50s plus across 500 or 600 product categories. So that's improved. So there's been good communication there. There have been 1 or 2 instances where suppliers have acted in circumstances that have broken contracts and very transactionally. And so we have opportunities to, particularly with a more consolidated procurement activity, to make changes where appropriate. And then the Corsicana, Texas plant also improves our internal production. We don't intend to be a king of any raw material.

Frank Sullivan: Sure. I think that notwithstanding the disruptions and supply chains, there's always a battle. The communications with us and our major suppliers have been really good through this whole COVID thing. And understanding how to deal through force majeure, which are down two-thirds from where they were. We're in the mid-teens on force majeure now across a couple of 100 product categories. We were in the 50s plus across 500 or 600 product categories. So that's improved. So there's been good communication there. There have been 1 or 2 instances where suppliers have acted in circumstances that have broken contracts and very transactionally. And so we have opportunities to, particularly with a more consolidated procurement activity, to make changes where appropriate. And then the Corsicana, Texas plant also improves our internal production. We don't intend to be a king of any raw material.

<unk>.

I think that not withstanding the disruptions in supply chains, there's always a battle the communications with us and our major suppliers.

<unk> been really good through this whole COVID-19 thing and understanding how to deal through force matures, which are down two thirds from where they were in the mid teens on force matures now across a couple of hundred product categories. We were in the <unk> plus across five or 600 product categories. So that's improved so theres been good good communication there.

There have been one or two instances where suppliers have acted.

And circumstances that have.

Broken contracts and very.

Transactional and and so we have opportunities to particularly with a more consolidated procurement activity to.

To make changes where appropriate and then the Corsicana, Texas plant also improves our internal production, we don't intend to be a king of any raw material.

The area that will probably have the biggest capacity isn't then alkyd resins and sometime this spring, we should be up and running to the tune of 30% of our internal needs.

Frank C. Sullivan: The area that will probably have the biggest capacity is in that Alkyd Resins. Sometime this spring, we should be up and running to the tune of 30% of our internal needs. So those are the areas that we think about when we reference supply.

Frank Sullivan: The area that will probably have the biggest capacity is in that Alkyd Resins. Sometime this spring, we should be up and running to the tune of 30% of our internal needs. So those are the areas that we think about when we reference supply.

And so those are the areas that we think about when we referenced supply.

Got it thank you.

Vincent Andrews: Got it. Thank you.

Mike Sison: Got it. Thank you.

Thank you Mike.

Frank C. Sullivan: Thank you, Mike.

Frank Sullivan: Thank you, Mike.

Your next question comes from the line of Mike Harrison of Seaport Research.

Operator: Your next question comes from the line of Mike Harrison of Seaport Research.

Good morning, Mike.

Frank C. Sullivan: Good morning, Mike.

Frank Sullivan: Good morning, Mike.

Hi, good morning, happy new year.

Michael J. Laroche: Hi. Good morning. Happy New Year. Wanting to ask a question about the Pureair acquisition. You did this back in August. It seems like it's kind of the right product at the right time as people are starting to return to office buildings, return to other institutions, and wanting to be more confident around their indoor air quality. You said in the press release that that was running at a $10 million annual sales rate when you acquired it. Was wondering if you could talk about where the backlog is for that Pureair deal and maybe or Pureair business, I should say, and where you think you can take sales over the next couple of years.

Mike Harrison: Hi. Good morning. Happy New Year. Wanting to ask a question about the Pureair acquisition. You did this back in August. It seems like it's kind of the right product at the right time as people are starting to return to office buildings, return to other institutions, and wanting to be more confident around their indoor air quality. You said in the press release that that was running at a $10 million annual sales rate when you acquired it. Was wondering if you could talk about where the backlog is for that Pureair deal and maybe or Pureair business, I should say, and where you think you can take sales over the next couple of years.

Wanted to ask a question about the <unk> acquisition you did this back in August it seems like it's kind of the right product at the right time as people are starting to return to office buildings returned to other institutions wanting to be more confident around their indoor air quality.

You said in the press release that that was running at a 10 million dollar annual sales rate when you acquired it.

Was wondering if you could talk about where the backlog is for that pure deal.

And maybe our Purion business I should say and where you think you can take sales over the next couple of years.

So it's a great question and I appreciate that you are paying attention to that our M&A activity has been successful in the small to medium size range.

Frank C. Sullivan: So that's a great question. I appreciate that you're paying attention to that. Our M&A activity has been successful in the small to medium-size range. And the real home runs are where we can buy a unique business or product line and through our distribution, Salesforce, or market presence expand it. And I think Pureair is going to be a great example of that. That's a $10 or 15 million business that we acquired this year. I would anticipate that in fiscal 2023, we'll do north of $50 million. And if we can expand that in the coming years to what we believe is possible, that could be $100 million of product and services that's part of our WTI business.

Frank Sullivan: So that's a great question. I appreciate that you're paying attention to that. Our M&A activity has been successful in the small to medium-size range. And the real home runs are where we can buy a unique business or product line and through our distribution, Salesforce, or market presence expand it. And I think Pureair is going to be a great example of that. That's a $10 or 15 million business that we acquired this year. I would anticipate that in fiscal 2023, we'll do north of $50 million. And if we can expand that in the coming years to what we believe is possible, that could be $100 million of product and services that's part of our WTI business.

And.

The real homeruns are where we can buy a unique business or product line and through our distribution or sales force or market presence expanded and I think purion is going to be a great example of that.

That's a 10 or $15 million business that we acquired this year.

Anticipate that in fiscal 'twenty, three will do north of 50 million Bucks.

If we can expand that in the coming years to what we believe is possible.

That could be $100 million of products and services that is part of our WTO business. So boy, if we can find more and more.

Frank C. Sullivan: And so, boy, if we can find more and more $10 or 15 million product lines that we think 18 or 24 months later or $40 or 50 and with an upside of $100 million, we would be excited. That's a real winner for us. And that's one example of kind of those who have followed RPM, and I'll talk about somebody here at the end of the call for a long time, have seen us evolve from a very decentralized holding company to what is four groups today. And our construction products group was a collection of very decentralized different businesses and has now been much more integrated. We're leveraging our sales forces, and that's allowing us to take advantage of product lines like Pureair and really expand it aggressively.

Frank Sullivan: And so, boy, if we can find more and more $10 or 15 million product lines that we think 18 or 24 months later or $40 or 50 and with an upside of $100 million, we would be excited. That's a real winner for us. And that's one example of kind of those who have followed RPM, and I'll talk about somebody here at the end of the call for a long time, have seen us evolve from a very decentralized holding company to what is four groups today. And our construction products group was a collection of very decentralized different businesses and has now been much more integrated. We're leveraging our sales forces, and that's allowing us to take advantage of product lines like Pureair and really expand it aggressively.

10, or $15 million product lines that we think 18 or 24 months later 40, or 50 and with an upside of 100 million.

We would be excited that's a real winner for us and that's one example of kind of.

Those who have followed RPM and I'll talk about somebody here at the end of the call for a long time, you've seen us evolve from a very decentralized holding company to what it is for groups today and our construction products group was a collection of very decentralized different businesses and has now been much more integrated.

We're leveraging our sales forces and thats, allowing us to take advantage of product lines like pure air and really expanded aggressively.

Alright, and just a quick one on the.

Michael J. Laroche: All right. And just a quick one on the specialty group. I believe you mentioned some legal expenses. Can you give some color on what that entailed and what the magnitude of those expenses were in the quarter?

Mike Harrison: All right. And just a quick one on the specialty group. I believe you mentioned some legal expenses. Can you give some color on what that entailed and what the magnitude of those expenses were in the quarter?

The specialty group I believe you mentioned some legal expenses can you give us some color on what that entailed and what the magnitude of those expenses were in the quarter.

Sure It was.

Frank C. Sullivan: Sure. It was related to one of our OEM service providers around furniture coatings, furniture warranties, and a disagreement that's been ongoing for a long, long time with a West Coast distributor. And that was resolved with a jury verdict. And I believe in the quarter, we took a $2 million charge. Is that right, Rusty?

Frank Sullivan: Sure. It was related to one of our OEM service providers around furniture coatings, furniture warranties, and a disagreement that's been ongoing for a long, long time with a West Coast distributor. And that was resolved with a jury verdict. And I believe in the quarter, we took a $2 million charge. Is that right, Rusty?

Related to.

One of our OEM.

Service providers around furniture coatings and furniture warranties.

A disagreement that's been ongoing for a long long time with a west coast distributor and that was resolved with.

With a jury verdict in I believe in the quarter, we took a $2 million charge is that right Rusty.

Yes, that's right.

Michael J. Laroche: Yes, that's right. All right. Thanks very much.

Mike Harrison: Yes, that's right. All right. Thanks very much.

Alright, thanks very much thank.

Thank you.

Frank C. Sullivan: Thank you.

Frank Sullivan: Thank you.

Your next question comes from the line of Kevin Hocevar of Northcoast research.

Operator: Your next question comes from the line of Kevin Hoelscher of North Coast Research.

Hey, Kevin.

Frank C. Sullivan: Morning, Kevin.

Frank Sullivan: Morning, Kevin.

[Analyst] (North Coast Research): Hey. Good morning, everybody. Happy to be here. On the supply chain issues, so $200 million headwind in the quarter. I think it was the same headwind in the first quarter. Forgive me if I missed this, but did you quantify how much you're expecting in the fiscal third quarter and what's baked into the sales guidance that you provided?

Kevin Hocevar: Hey. Good morning, everybody. Happy to be here. On the supply chain issues, so $200 million headwind in the quarter. I think it was the same headwind in the first quarter. Forgive me if I missed this, but did you quantify how much you're expecting in the fiscal third quarter and what's baked into the sales guidance that you provided?

Turning everybody happy new year.

Sure.

On the supply chain issues.

So $200 million headwind in the quarter I think it was the same headwind in the first quarter.

Forgive me if I missed this but did you quantify how much you are expecting in the fiscal third quarter.

And what's baked into the sales guidance that you provided.

I don't know that we've quantified that have we rusty.

Frank C. Sullivan: Yeah. I don't know that we've quantified that. Have we, Rusty?

Frank Sullivan: Yeah. I don't know that we've quantified that. Have we, Rusty?

Yes, it's a pretty big range.

Michael J. Laroche: Yeah. It's a pretty big range. I mean, if you look at December, Kevin, we're running at that same pace of the past two quarters because of the disruption from Omicron. And the rest of the quarter is a bit of a wild card simply because typically in the slow seasonal period for RPM, we can rebuild the pipeline, fill up store shelves that have been empty during this supply chain mess. And to the extent we're able to do that, we might be able to catch up on the previously deferred sales from the past three quarters. We said $200 million in Q2, $200 million in Q1, $100 million back in the fourth quarter of FY21. So that would be the hope. But so far, December isn't panning out. So I'm not giving you numbers, Kevin, for that reason. It's highly uncertain whether that trend will shift.

Rusty Gordon: Yeah. It's a pretty big range. I mean, if you look at December, Kevin, we're running at that same pace of the past two quarters because of the disruption from Omicron. And the rest of the quarter is a bit of a wild card simply because typically in the slow seasonal period for RPM, we can rebuild the pipeline, fill up store shelves that have been empty during this supply chain mess. And to the extent we're able to do that, we might be able to catch up on the previously deferred sales from the past three quarters. We said $200 million in Q2, $200 million in Q1, $100 million back in the fourth quarter of FY21. So that would be the hope. But so far, December isn't panning out. So I'm not giving you numbers, Kevin, for that reason. It's highly uncertain whether that trend will shift.

<unk>.

If you look at December Kevin we're running at the same pace.

The past two quarters because of the disruption from omicron and the rest of the quarter is a bit of a wildcard simply because typically in the slow seasonal period for RPM.

We can rebuild the pipeline.

Fill up.

Store shelves have been empty during this.

Supply chain math.

And to the extent, we're able to do that we might be able to catch up on the previously deferred sales from the past three quarters.

We said $200 million in Q2 $200 million in Q1 100 million back in the fourth quarter of F. 'twenty, one so that would be the hope, but so far December than panning out so I'm not giving you numbers Kevin for that reason, it's highly uncertain.

Whether that trend will ship.

Yes, yes makes sense.

[Analyst] (North Coast Research): Yep. Yep. Makes sense. Just a quick clarification on the guidance. You mentioned high double-digit growth expectations out of construction products and performance coatings in the third quarter. Could you maybe give what that means? Does that mean high teens? Or if you can maybe give just a little bit more color on what you mean by high double-digit growth out of those segments.

Kevin Hocevar: Yep. Yep. Makes sense. Just a quick clarification on the guidance. You mentioned high double-digit growth expectations out of construction products and performance coatings in the third quarter. Could you maybe give what that means? Does that mean high teens? Or if you can maybe give just a little bit more color on what you mean by high double-digit growth out of those segments.

And just a quick clarification on the guidance.

You mentioned <unk> growth expectations out of construction products and performance coatings in the third quarter could you maybe give what that means does that mean like high teens or if you can maybe give us a little bit more color on what you mean by high double digit growth out of those segments.

Russ do you want to address the.

Frank C. Sullivan: Rusty, why don't you address the outlook for the quarter?

Frank Sullivan: Rusty, why don't you address the outlook for the quarter?

The outlook for the quarter.

Sure Yeah, when we say high double digit we meant.

Michael J. Laroche: Sure. Yeah. When we say high double-digit, we meant high teens. So sorry for the confusion, Kevin.

Rusty Gordon: Sure. Yeah. When we say high double-digit, we meant high teens. So sorry for the confusion, Kevin.

High teens.

Sorry for that.

Kevin.

Okay, Yes, that's perfect that's what I.

[Analyst] (North Coast Research): Okay. Yeah. That's perfect. That's what I was looking for. All right. Thank you very much.

Kevin Hocevar: Okay. Yeah. That's perfect. That's what I was looking for. All right. Thank you very much.

Alright, Thank you very much.

Thank you.

Frank C. Sullivan: Thank you.

Frank Sullivan: Thank you.

Your last question comes from the line of Rosemarie <unk> of Gabelli <unk> company.

Operator: Your last question comes from the line of Rosemarie Morelli of Gabelli & Company.

Good morning, everyone and happy new year.

Rosemarie J. Morbelli: Good morning, everyone, and Happy New Year. I was just wondering if PPG's announcement today that they are expanding their relationship with Home Depot would affect your business with Home Depot, or they are mostly sticking to Propaint and you are not in that particular side of the business?

Rosemarie Morbelli: Good morning, everyone, and Happy New Year. I was just wondering if PPG's announcement today that they are expanding their relationship with Home Depot would affect your business with Home Depot, or they are mostly sticking to Propaint and you are not in that particular side of the business?

I was just wondering if the PPG is announcement today that they are expanding their relationship with home depot would ask.

Thank you.

Business with home depot, they are mostly sticking to propane and you are not nothing.

And that's in that particular side of the business.

Yes, I have not seen that released this morning, Rosemarie I will look at it.

Frank C. Sullivan: Yeah. I have not seen that release this morning, Rosemarie. I will look at it. But we do not compete directly at Home Depot with PPG. They're principally an architectural paint, and they are not actively involved in any direct way in the small project paint or caulks and sealants or patch and repair product categories that we are the leaders in. So we will look at that. But as of today, they're principally an architectural paint supplier and a second tier or third tier to our products.

Frank Sullivan: Yeah. I have not seen that release this morning, Rosemarie. I will look at it. But we do not compete directly at Home Depot with PPG. They're principally an architectural paint, and they are not actively involved in any direct way in the small project paint or caulks and sealants or patch and repair product categories that we are the leaders in. So we will look at that. But as of today, they're principally an architectural paint supplier and a second tier or third tier to our products.

But we do not compete directly at home depot with PPG there principally.

Architectural paint.

They are not active.

Actively involved in any direct way in the small project paint or clocks, and sealants or patch repair product categories that we are the leaders in so we will look at that but.

As of today, they are principally architectural paint supplier.

<unk>.

A second tier third tier two to the bear products.

And then if I may.

Rosemarie J. Morbelli: Okay. And then if I may follow up on that architectural paint, I seem to recall that in the past, you have mentioned being eventually interested in that. Would it be mostly in terms of buying an architectural paint regional manufacturer, just mostly focusing on one particular niche?

Rosemarie Morbelli: Okay. And then if I may follow up on that architectural paint, I seem to recall that in the past, you have mentioned being eventually interested in that. Would it be mostly in terms of buying an architectural paint regional manufacturer, just mostly focusing on one particular niche?

On that architectural paint I seem to recall that in the past you have mentioned.

Being eventually interested in that.

It would be mostly in terms of buying and you could.

Do you think <unk>.

Regional manufacturer, just mostly focusing on one particular niche.

No, it's really organically grown in relationship to customer inquiries.

Frank C. Sullivan: No. It's really organically grown in relationship to customer inquiries. So we've gone from a 500-store test, maybe smaller with Walmart, and that has expanded to 1,500 stores. It's principally a pre-color, so a colored product for exterior and interior. And we would hope to be able to see that grow significantly in the spring, but we've had nice trajectory there. And then we have had some e-commerce online architectural paint programs that are in their very initial phases with Menards and with the Home Depot.

Frank Sullivan: No. It's really organically grown in relationship to customer inquiries. So we've gone from a 500-store test, maybe smaller with Walmart, and that has expanded to 1,500 stores. It's principally a pre-color, so a colored product for exterior and interior. And we would hope to be able to see that grow significantly in the spring, but we've had nice trajectory there. And then we have had some e-commerce online architectural paint programs that are in their very initial phases with Menards and with the Home Depot.

So we've gone from a 500 store test, maybe smaller with Walmart and that has expanded to 500 stores, it's principally a pre color.

A colored product for exterior and interior and we.

We would hope to be able to see that grow significantly in the spring, but we've had a nice trajectory. There and then we have had some e-commerce online.

Architectural paint programs that are in your very initial phases with monarch and with the home depot.

Thank you Ross.

Rosemarie J. Morbelli: Thank you.

Rosemarie Morbelli: Thank you.

Frank C. Sullivan: Those are all organic.

Frank Sullivan: Those are all organic.

All organic okay, great. Thanks.

Rosemarie J. Morbelli: Okay. Great. Thanks.

Rosemarie Morbelli: Okay. Great. Thanks.

Thank you.

Frank C. Sullivan: Thank you.

Frank Sullivan: Thank you.

This concludes today's Q&A session I will now turn the call back over to Frank Sullivan.

Operator: This concludes today's Q&A session. I will now turn the call back over to Frank Sullivan.

Good. Thank you D and I think it was fitting that Rosemary more belly at the final price.

Frank C. Sullivan: Good. Thank you, Dee. And I think it was fitting that Rosemarie Morelli had the final question. After almost 30 years of covering RPM and being a champion for us in some periods and challenging us in others, she has had an extraordinary career of being an equity analyst and a research analyst in the paints and coatings and especially chemical space. And Rosemarie, I want to say a heartfelt thank you on behalf of me, of course, my father, Tom, who you knew for many, many years, and all at RPM for your good work. And we wish you well in your retirement that was announced last year and wish you well as you continue Rosemarie Morelli's excellent adventure. And I'd like to thank everybody on the call for your participation today. Certainly, the environment that we've all operated in in the last 2 years has been extraordinary.

Frank Sullivan: Good. Thank you, Dee. And I think it was fitting that Rosemarie Morelli had the final question. After almost 30 years of covering RPM and being a champion for us in some periods and challenging us in others, she has had an extraordinary career of being an equity analyst and a research analyst in the paints and coatings and especially chemical space. And Rosemarie, I want to say a heartfelt thank you on behalf of me, of course, my father, Tom, who you knew for many, many years, and all at RPM for your good work. And we wish you well in your retirement that was announced last year and wish you well as you continue Rosemarie Morelli's excellent adventure. And I'd like to thank everybody on the call for your participation today. Certainly, the environment that we've all operated in in the last 2 years has been extraordinary.

Almost 30 years of covering RPM.

And.

Being a champion for us in some some periods and challenging us and others.

She has had an extraordinary career of being an equity analyst.

And a research analyst in the paints and coatings and specialty chemical space and Rosemarie I want to say a heartfelt. Thank you on behalf of me of course, My father, Tom who you knew for many many years and I'll, let RPM for your good work and we wish you well in your retirement that was announced.

Last year and wish you well as you continue Rosemarie more bellies excellent adventure.

And I'd like to thank everybody on the call.

For your participation today, certainly the environment that we've all operated in in the last two years has been extraordinary.

And as I mentioned earlier supply base analyst base shareholders I think the candid communication.

Frank C. Sullivan: As I mentioned earlier, supply base, analyst base, shareholders, I think the candid communication and goodwill that has been generated in this period of time has been extraordinary, and it's something we would hope to continue. I wish you all a happy and healthy New Year, and we look forward to updating you on our results and our progress when we meet again next at our April investor call. Thank you. Have a great day. Rosemarie, thank you very much, and Happy New Year to all.

Frank Sullivan: As I mentioned earlier, supply base, analyst base, shareholders, I think the candid communication and goodwill that has been generated in this period of time has been extraordinary, and it's something we would hope to continue. I wish you all a happy and healthy New Year, and we look forward to updating you on our results and our progress when we meet again next at our April investor call. Thank you. Have a great day. Rosemarie, thank you very much, and Happy New Year to all.

And goodwill that has been generated in this period of time has been extraordinary and Thats something we would hope to continue I wish you all a happy.

And healthy new year, and we look forward to updating you on our results and our progress when we meet again next at our April Investor call.

Thank you have a great day Rosemarie, Thank you very much and happy new year to all.

Thank you. This concludes today's conference call you may now disconnect.

Operator: Thank you. This concludes today's conference call. You may now disconnect.

Okay.

Q2 2022 RPM International Inc Earnings Call

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