Q4 2022 RPM International Inc Earnings Call
Okay.
Okay.
Yes.
Okay.
Thanks.
Okay.
Okay.
Okay.
Okay.
Ladies and gentlemen, please standby your conference call will begin in approximately one minute. We thank you for your patience and please continue to hold.
Okay.
Sure.
Okay.
Yes.
Okay.
Okay.
Thanks.
Thank you.
Thank you.
Okay.
Thanks.
Thank you.
Thank you.
Okay.
Okay.
Thank you.
Yes.
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
Thank you.
Okay.
Okay.
Thank you.
Yes.
Okay.
Okay.
Okay.
Got it.
Okay.
Welcome to the RPM Internationals conference call for the fiscal 2022 fourth quarter and year end.
Today's call is being recorded.
This call is also being brought back sorry webcast.
And can be accessed live or replay it on the RPM website at Www Dot RPM I N C dot com.
Comments made on this call may include forward looking statements based on current expectations and involve risks and uncertainties.
Which could cause actual results to be materially different for.
For information on these risks and uncertainties. Please review the Rpms reports filed with the SEC.
During this conference call references maybe made to non-GAAP financial measures to assist you in understanding these non-GAAP terms.
RPM has posted reconciliations to the most direct 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.
You wish to ask a question you will need to press Star then one on your telephone.
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.
Thank you Michele good morning, and welcome to the RPM International Inc. Investor call for our fiscal 2022 fourth quarter and year end.
Joining me on today's call are Rusty Gordon Rpm's, Vice President and Chief Financial Officer, and Mike <unk>, Vice President Controller, and Chief Accounting Officer.
I'll share broad commentary on our consolidated performance for the quarter and the year then Mike will provide details on our financial results and Rusty will conclude our prepared remarks with our outlook for the first quarter of fiscal 2023.
Please note that our comments will be on an as adjusted basis and all comparisons are to the fourth quarter of fiscal 2021, unless otherwise indicated.
We provided a supplemental slide presentation to support our comments on this call. It can be accessed in the presentations and webcast section of the RPM website at Www Dot RPM, Inc. Dot com.
After our remarks, we'll be pleased to take your questions.
We generated record fourth quarter performance, which reflected accelerating momentum across RPM throughout fiscal 2022.
As we progress through the year, our nimble businesses responded quickly to address ever changing supply chain constraints inflationary challenges and foreign exchange headwinds.
I'd like to share a few examples across RPM.
In response to the scarcity of some raw materials, we purchased a manufacturing facility in Texas last September the dedicated team quickly ramped up production of Alkyd resins, which we're in very short supply doing to us due to a supplier explosion at one of our primary suppliers in the industry and <unk>.
<unk>, our R&D professionals have been working around the clock to reformulate literally thousands of products to qualified different materials, all while maintaining high performance.
Another example is our disaster restoration equipment business, which was hampered by the semiconductor chip shortage is found alternative supply and reconfigured its products to accommodate these challenges and deliver for its customers.
As you can see on slide three.
This chart reflects the quarter by quarter.
The actions that we took to steadily generate momentum across our businesses throughout the year.
Also having an impact with the investments we've been making to accelerate growth in the fastest growing areas of our business, particularly our high performance buildings construction coating systems.
Our associates' efforts, along with solid construction and industrial maintenance activity as well as a rebound in energy markets culminated in the fourth quarter that produced consolidated record sales and record adjusted EBIT.
And the next slide you will note driven by pricing adjustments and operational efficiencies. We achieved record results in all four segments and sales and record EBIT and three of our segments.
The loan outlier was our consumer group, which began to narrow the year over year GAAP and adjusted EBIT results as price increases started to catch up with inflation and access to raw materials improved.
Better materials availability was largely due to the production facility. We acquired last fall. We also benefited from $17 million in incremental savings during the quarter from our ongoing operating improvement program efforts.
On that subject driving operating efficiency remains a top priority at RPM and our teams have made significant progress in developing the follow up plan to a highly successful map to growth operating improvement program, which concluded at the end of fiscal 'twenty. One we're calling the new program map 2025.
And we will share details about it with you at an investor day to be scheduled in October around the time of our first quarter earnings release and annual meeting of shareholders.
We are confident that map 2025 will contribute to the momentum we are building for a successful fiscal 2023 and beyond.
I'll now turn the call over to Mike <unk> to discuss our consolidated and segment financial results in more detail.
Yes.
Thanks, Brian and good morning, everyone for.
For the fourth quarter, we generated record consolidated net sales totaled $1 $98 billion, an increase of 13, 7% compared to the $1 $74 billion.
Reported in the same quarter of fiscal 2021.
Organic sales growth of 15% or $261 9 billion million.
<unk> contributed <unk>, 9% sales or $16 $3 million, while foreign currency exchange was a headwind with decreased sales by two 2% for.
Were $38 6 million.
Adjusted diluted earnings per share were a record $1 42, which was an increase of 10, 9% compared to the $1 28 reported in the year ago quarter.
Our consolidated adjusted EBIT was up 11, 7% to a record $263 7 million compared to $236 2 million reported in the fiscal 2021 fourth quarter.
Our construction products group generated fourth quarter record net sales of $745 9 million up 18, 5% compared to the fiscal 2021 and fourth quarter.
Organic sales growth was 19, 9% and acquisitions contributed one 6%.
Foreign currency translation headwinds reduced sales by 3%.
Despite comparisons to a strong prior year when sales and earnings were at record levels CPG continued to generate high growth propelled by its differentiated service model.
As well as its unique building envelope and restoration solutions.
The segment's businesses producing the strongest sales growth with those providing roofing systems insulated concrete forms as well as add mixtures and repair products for concrete.
Results in international markets were mix with Europe being challenged by macroeconomic headwinds, while Latin America experienced significant double digit sales gains.
CPG fiscal 2022 fourth quarter, adjusted EBIT increased 10, 9% to a record $122 4 million.
The segment was able to offset significant raw material inflationary pressures with selling price increases and operational improvements.
Our performance coatings group fiscal 2022 fourth quarter net sales were a record $329 4 million an increase of 16, 3% over the year ago period.
Organic sales increased 17, 4% and acquisitions contributed one 8%, which were partially offset by a foreign currency translation headwind of two 9%.
Pseg's businesses, providing flooring systems protective coatings and FRP grading all generated double digit sales growth.
A rebound in international markets as well as ongoing success, the company's vertical end markets, including energy technology and food Fridge helped drive <unk> results in.
In addition, improved sales management systems that price increases were major factors in this segments excellent top line results adjusted.
Adjusted EBIT increased 37, 3% to a record $42 6 million in the fourth quarter of fiscal 2022, driven by volume growth selling price increases revenue growth leveraging good product mix and operational improvements.
The specialty products group reported record net sales of $225 8 million for the fourth quarter of fiscal 2022 and.
An increase of 11, 4% compared to the fiscal 2021 fourth quarter.
Organic sales increased 12, 2% and acquisitions added, 0.5%, which were offset by unfavorable foreign currency translation of one 3%.
The majority of Spg's businesses experienced double digit sales growth, leading the way, where it's OEM coatings companies as well as its food coatings and additives business, which was improved performance under new management.
It's disaster restoration equipment business continued to rebound as it cleared backlogs caused by semiconductor chip shortages and grew sales in the teens. Despite a difficult comparison to a strong prior year that had high demand for its products driven by winter storm area.
SPG as adjusted EBIT was a record $44 $2 million in the fiscal 2022 fourth quarter, an increase of 21, 8% compared to adjusted EBIT of $36 3 million in last year's quarter.
This segment's increase in adjusted EBIT was bolstered by the favorable impact of higher sales, which were leverage to the bottom line due to selling price increases that began catching up with prior cost inflation.
Our consumer group achieved record net sales of $682 $8 million for the fourth quarter of fiscal 2022, an increase of eight 6% compared to the fourth quarter of fiscal 2021.
Organic sales increased 10%, which was partially offset by unfavorable foreign currency translation of one 4%.
The consumer groups topline growth was driven by improved supply of key alkyd resins produced by the manufacturing plant, we acquired last September as well as price increases.
And high growth and product lines with professional remodelers, including cost and sealants.
While North American markets grew European markets remained challenged due to macroeconomic headwinds in the region.
Fiscal 2022 fourth quarter adjusted EBIT was $80 3 million an increase a decrease of 14, 2% compared to adjusted EBIT.
$93 $6 million reported for the prior year period adjusted.
Adjusted EBIT was impacted by continued raw material cost inflation and higher costs from ongoing shipping challenges and industry labor shortages in response to consumer group has been instituting price increases to catch up with inflation building resilience and its supply chain and investing in capacity and process improvements to better respond to.
Customer demand.
To wrap up I have a few comments on capital allocation.
Our significant liquidity enables us to fund internal growth initiatives make acquisitions.
And reward our investors with cash dividend payments and repurchases of our shares.
Since our last earnings release in April we repurchased $50 million of our common stock. This is in addition to earlier share repurchases and early redemption of our convertible notes in November 2018, with roughly $200 million of cash.
Combined this puts us at $668 million towards our $1 billion repurchase goal that was established at the onset of our map to growth program in 2018.
Now I will turn the call over to Rusty to discuss our outlook.
Thanks, Mike.
Looking ahead to the first quarter of fiscal 2023, we will continue to focus on navigating a number of challenges.
The strengthening U S. Dollar is expected to be a headwind impacting the translation of our international results.
We expect significant cost increases to continue for certain raw materials labor and packaging. We also anticipate continued higher costs from unreliable bulk transportation, which creates production.
Energy prices that have been exacerbated by the conflict in Ukraine. These.
These cost pressures are expected to disproportionately affect our consumer segment.
Despite these channels.
We took over the course of fiscal 2022 enabled RPM to accelerate momentum in the business and it is expected to carry over into <unk>.
We expect to continue implementing price increases as needed and continue improving operational efficiency in order to minimize.
And cost pressures and restore margins closer to historical levels.
Okay.
While there is a recessionary undercurrent in the economy, we anticipate that demand for our products and services will remain strong, particularly meet those that improve energy efficiency and extend the useful life of our customers assets through protection and <unk>.
Restaurant <unk>.
In addition, we are making strategic investments on market opportunities and industry trends, including the future.
Shoring of industries responsible for pharmaceutical food technology.
Based on these factors, we expect to generate fiscal 2023 first quarter.
Quarter consolidated sales growth in the mid teens over last year's record.
Play that the consumer group.
We will generate the highest growth.
Two number one selling price increases that should allow it to catch up with inflation number two.
Improved alkyd resins supply and number three investments made in mute.
Inventory and operational planning.
And the initiatives.
First quarter consolidated adjusted EBIT is anticipated to increase 20%.
Versus the same period last year.
Lastly, I'd like to announce.
Our senior director of Investor Relations.
<unk> health Investor relations positions with lottery Dot Com Mettler, Toledo, and fair amount central we're pleased to have him joining RPM and look forward to having him raise our investor relations function to a new level.
Matt will be George.
Joining us on our equity analyst calls this week and youll be working more closely with him as we near the announcement of our first quarter results and the Investor event that will provide details on our map 2025 initiative.
This concludes our prepared remarks, and we will now be pleased to take your questions.
Yeah.
Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press the star followed by the <unk>.
The one on your Touchtone phone.
You will hear a three ton prompt acknowledging your request and your questions will be pulled in the order of the RBC.
You are using a speaker phone please lift the handset before pressing.
One moment. Please for your first question.
Your first question comes from John Roberts.
Please go ahead.
Good morning, Jonathan.
Alright.
Nice quarter.
Does the outcome resin capacity get you to the integration that you want.
Okay.
Sure.
Okay.
Of course I cannot plan is relatively unique we have.
Another.
Business as well.
Our stone stone hard group and I believe we have.
The backward integration that we desire at this point in time, we do plan to spend.
Probably close to 100 million Bucks over the next few years of course, a cana to backward integrate into a few other categories as well as use that site.
For expansion of our new direct product line.
We do investments in backward integration at this time other than internal investments on that site.
Recessionary undertones to the economy.
<unk> markets.
Or you think are most at risk here for RPM.
But for US, we're doing quite well in North America.
Latin America is relatively strong compared to last year the areas that we see the biggest challenges shouldnt be a surprise its.
It's principally Europe .
And it's a function of some of the inflation hitting Europe later.
Slowing growth and most of which I would attribute to the Russian war on Ukraine and its impact.
Both on.
Okay.
Okay.
Thank you.
Thank you the next.
Harrison Seaport Research partners. Please go ahead.
Hi, good morning.
Okay.
I was wondering if you can.
Can you talk a little bit about the construction business and I guess.
Specifically can you breakdown, how much of that organic growth, 20% organic growth was pricing and how much was volume.
Since youre looking forward.
How much macro impact would you expect to see in that construction business. If we slip into a recession or do you feel like trends around infrastructure spend and some of the onshoring of Richard that you referenced might be enough to keep that under a bar and grill.
It's looking pretty solid.
Sure. So we had particularly in North America for our construction products group and our performance coatings group in both cases.
Unit volume growth was in the mid to high single digit <unk> in our construction products group, but we continue to face shortages.
Be it chemicals that we purchase and others of those shortages related to fasteners.
Other types of components on our construction products.
Project that were not directly.
On projects so.
That organic growth could have been better in the quarter.
I will tell you that the demand continues to be strong.
And we feel pretty good about the literally hundreds of ability.
The American rescue.
For 'twenty, one and the one.
<unk> nine trillion dollar infrastructure Bill at least 802 real hardcore infrastructure, both of which bodes well for the dynamics in the markets that our construction products group.
And performance coatings group serve and again those.
Okay.
Maybe a question for Mike.
Pretty unusual situation as it relates.
It's to working capital.
Free cash flow negative for Q4 as well as for all of fiscal 'twenty two.
Can you give us some initial thoughts on working capital.
And Capex for fiscal 'twenty, three I think we're all just trying to cash flow might look like for <unk>.
This coming year.
Sure.
Yes, yes.
We had a rough year for cash flow in fiscal 'twenty two when you combine.
Decreasing margins and.
Inflation, that's usually a bad sign for cash flow and as a result.
Result of unreliable supply, we had to build up inventory, where we could because supply with settle unreliable as was transportation.
As a result of that our inventories need to get there.
I don't have enough finished goods even though.
Inventory did increase.
To really supply and service our customers like we'd like so thats getting better as.
Expired over the year.
We still face a few supply challenges, but not nearly as bad as last year.
So now that.
As we can.
<unk> said in our guidance, we're going to be back expanding margins again, the EBIT margins, we would anticipate a much better year for cash flow as it relates to capital expenditures.
Looking to play offense and invest more in our businesses, we have a lot of high growth areas, including high performance buildings, that's been a real growth area for us and as a result, we're going to push up our capital spending.
Probably closer to the $300 million range in fiscal 'twenty three.
Acquisitions on the other hand have continued to be at high multiples and as you know about.
RPM, we're very disciplined and don't pay those crazy multiples. So we would anticipate acquisition activity to continue to be solutions.
Doug Thank you very much.
Youre welcome.
Thank you.
The next question comes from John Mcnulty BMO capital markets. Please go ahead. Thanks for thanks for taking my question. So I guess, maybe the first one high level can you give us some color as to how to think about price versus volume in the quarter and overall if there are any segments that kind of stood out as the leaders or the laggards and how that may change.
Yeah.
Sure so.
So I provided.
The unit volume by by group mid to high single.
Unit volume was relatively flat across the different business.
This is in.
In our specialty products segment, and we were down.
Great quarter.
Delivery.
For the guidance that we provided.
In the fourth quarter, we are ahead of cost price mix.
In three of our four segments.
In Q1, we should be ahead of the cost price mix dynamics in all four of our segments, our EBIT growth than earnings than sales growth and you will see EBIT margins improving.
James will be at or near <unk>.
Time records and in consumer.
We've got a lot of catch up to do but youll see.
So we feel really good about.
The quarter that just ended.
And three.
III as we.
Build momentum principally around the cost price mix dynamic that impacts.
And we think even better in Q.
Q2.
Got it that's helpful color and then I guess maybe to that.
What.
Yeah.
After the envelope when I kind of look at <unk>. It looks like you're you're kind of assuming year over year. The margins improved by whatever 50 to 100 basis points to think about how that progresses through the year. I mean is that kind of a decent run rate to continue to catch up with either more.
The pricing or the where the raw materials, maybe even giving way a little bit I guess, how are you thinking about that.
Potential for margin improvement throughout the year.
Sure the price mix and also the operating.
But we're undertaking there in relationship to a very channel now.
<unk> fiscal 'twenty two.
So you will see significant improvement there and.
With reasonable leverage to the bottom line and our other three segments.
Rusty indicated that in Q1, we see earnings growth in the 20%.
The 25% range.
Q2 should be better than that.
<unk>.
And boy, we are hesitant to go beyond any further comments because depending.
Hang on what week. It is in one headline you read where either heading for more inflation or a recession.
What's happening in Europe relative to energy market, so it's difficult to.
Predict.
Three the next two months will be rock solid in terms of sales growth.
Earnings growth and EBIT improvement.
And every one of our segments.
Got it thanks very much for the color.
Thanks, John .
Yes.
Okay.
Thank you. The next question comes from Vincent Andrews of Morgan Stanley . Please go ahead.
Thank you and good morning, everyone.
Wondering if you can.
Supply perspective for natural gas and electricity.
Could you talk about.
Your exposure and what mitigation plans you have in place and sort of what if there was a disruption.
What that would mean not just for your European business, but would there be any sort of cleared so the.
European business on a consolidated basis is about $1 billion I think it's high.
And with the floor.
Foreign exchange translation and the strength of it.
Lessen or.
Our negatively impact.
Translated results back into U S dollars.
It's really a slower demand.
Throughout Europe .
Significantly higher.
Energy costs.
And what we're seeing in the U S.
Again part of it is the oil and gas.
Our natural gas.
Natural gas is the primary.
Feedstock to all of our big.
European Rush.
Russian counts.
Chemical suppliers in terms of energy and in some cases.
In our facility some of our construction product facilities. It's a primary driver of energy as well. So that's something we'll be paying attention to and those are the dynamics in fact that they're not being able to look out very far he can certainly paint a geopolitical economic picture, where things get better nicely.
Things move in a positive more peaceful direction, and if things persist and the threat of Russian turning off natural gas to Germany in particular, but western Europe happens, then youre going to have a very quick and negative dynamic.
And a shift I think in all manufacturing in Europe .
And just as a follow up.
TCG, you mentioned sort of the sales management systems and I guess two questions about that one would be just sort of how much runway is left in that in that improvement process and is there anything that you can take from your learnings in that segment and apply to your other segments or is this just a question of PPG and catching up with wherever but elsewhere.
A couple of things number one PSEG is benefiting particularly in our carbon line unit from and certainly that cyclical and it's on a cyclical upturn as I indicated earlier the huge chunks of money.
The particularly United States and the infrastructure Bill and the American Rescue Recovery Act.
Serving our performance coatings business pretty well.
The dynamics of.
Some of the pricing.
Benefits and commercial excellence that we've experienced.
Experience and are on a more consolidated.
More detailed basis in all of our businesses.
In some cases that might be RPM catching.
And it does.
Those practices are particularly.
<unk> and sales forces and approaches to the market and compensation structures between.
And our construction products group.
Thanks very much.
Thank you.
The next question comes from Josh Spector UBS. Please go ahead.
Good morning.
Hey, good morning, Thanks for taking my question.
Just to follow up from the earlier question around construction and specifically margins in the quarter. I think typically you have relatively similar margins fourth quarter first quarter and construction margins within generally and outperform in the past couple of years. So curious if you can give some more comments about what drove the lower margins in construction and.
Where you see those heading over the next year.
Sure there is two elements.
That I would call out.
File that drove the construction products group challenges.
One is they are the owner of our Corsicana plant.
Even though the primary beneficiary eight or $10 million negative hit.
For the year.
We're through nine months that we owned it.
Our construction products group from that that should get better as we further utilize that plant.
And the second area is silicones silicones have been the primary largest year over year up 100 couple hundred percent.
In terms of R. R.
Our construction products group.
The.
Largest purchaser of silicones silicon related products.
A lot of their sealants, the other area, where we buy silicones is in our DAP business.
And so those are the primary drivers of it.
Excluding those and to certainly those are that's the world we work in.
Actors.
What.
Impeded the construction products from otherwise generating record.
EBIT and as Youll note through the map to growth program their EBIT results.
100 basis points.
We anticipate that continuing to expand on a sustainable basis.
Thanks, that's helpful and just.
Construction, but related with Europe .
Volumes in that segment.
In Europe relative to the rest of the world.
Yes.
It's flat to slightly down and it's true across all of our businesses and in the construction products group in particular.
Have a really nice manufacturing facility in Poland and.
And <unk>.
Poland is good very challenged.
We have Ukrainian workforce, who have left to fight.
We have.
Families in their homes, and so theres a lot of challenging things going on there and thats, particularly.
Unique to our construction products group, it's got a significant manufacturing base in Poland.
Us across Europe , U K and across all of them.
Got it thank you.
Okay.
Thank you.
Thank you the next.
Next question comes from Kevin Mccarthy vertical. Please go ahead.
Good morning, Kevin Good morning, how are you Frank.
Good. Thank you bottom of slide three you reference product re formulations and in your prepared remarks, I think you used the word thousands of products. So I imagine that was quite an undertaking can you help us frame it.
In terms of what percentage of your sales would have been reformulated and whether that had any material cost impact either positive or negative as you executed through that process.
Sure I don't have a good number we can work on that but I can tell you across our businesses, we reformulated over the over fiscal 'twenty to literally thousands of products. So you had to reformulate them recertified them.
Due to the quality control checks and.
It's it's literally in the face of initially some primary right.
<unk>.
Sure.
More modest inner.
Intermediate chemicals.
So in Ukraine, and so on.
Our construction products group in particular.
As we formulated a lot of coatings into more bio based.
<unk> verbal environmental footprint.
In a few places we've had to reformulate back into more solvent based resins justice.
As an example, and so you've got to go through the re formulation process the recertification process.
With your customers.
Or with codes and then make sure youre doing the QC checks such that this re formulation isn't impacting performance.
And the and this is not unique to RPM and our industry. The real Theres lots of heroes I think frontline workers during this COVID-19 period.
And certainly in the last year, our folks in our labs have worked overtime too.
We could get a better sense of that for you.
And that's in light.
What across the board in terms of materials quarter over quarters, it's up about 35%.
In terms of material inflation in the quarter last year versus this quarter, but it was really.
On intermediate chemical raw material.
<unk>.
Okay, and then just to follow up on that latter comment how do you expect.
That 35% inflation level to trend in the first quarter.
And then.
Related to that you commented on silicones and oil or other sort of problem children in the family and then also are you starting to see relief.
We're among the raw material basket at this point.
So the biggest challenges for us in the fourth quarter year over year were areas like metal packaging, particularly impacting consumer.
We're up 50%.
Alkyd resins quarter over quarter year over year or up 114%.
Mentioned silicon.
But are critical in MDI is up seven.
Freight costs and fuel.
Well costs and surcharges, so its Ben again not unique to us.
Incredibly challenging.
Our budgeting anticipates additional inflation over fiscal 'twenty three of about 15%.
And Thats, what we have anticipated.
Most of the pricing action that we needed to cover that.
<unk> had occurred in fiscal 'twenty, two and ore is occurring theres additional price increases in the number of RPM companies occurring in the first quarter of 'twenty three.
And then we will stay tuned to both availability issues in inflation really judge we are seeing.
The base chemicals that we don't purchase directly impact our <unk>.
Climbing.
Certainly.
Seeing oil prices move in the right direction.
That has not made its way into the things, we buy yet and the volatility is such it's really hard.
Hard to tell other than we are in a period of time, where the core underlying chemicals and oil prices are certainly moving in the right direction.
Perfect. Thanks very much.
Thank you.
Thank you. The next question comes from Frank Mitsch Fermium Research. Please go ahead.
Morning, Frank Hey, good morning, Shirley answers, highlighting rock solid well done and well played.
I was trying to give you a headline.
Yes.
It's under consideration.
You mentioned three of the four segments should see all 23 comment or.
How should we think about that.
Thanks.
Okay.
I would tell you that our performance coatings group is at all time record EBIT margins a direction.
Our construction.
Akshay products group, just missed and adjust mist is inner plant impact whereabouts.
Equal to record margins.
The big Bogey, there I mentioned before is silicon, we're a big buyer silicones and.
Yes.
Had been a real challenge.
Absolutely products group.
Had a rep.
A record EBIT percent in the fourth quarter as well.
Back to them to build upon that and get back to record EBIT margins for.
Yes.
Coming quarters, so in Q1.
You should see year over year.
<unk> EBIT margin improvement in every one of our segments, including consumer.
I think the consumer orders will look impressive, but you have to keep in mind that in light of some pretty weak comparisons.
But we're pretty excited we thought we had a really good fourth quarter and as I said earlier, we met to the challenges we're facing in.
And I think our industry broadly.
In terms of the cost base.
Mix dynamic we're ahead of the curve in three places and we'll be ahead of the curve in all four in the first quarter.
Very helpful. Thank you and.
And if I could just follow up on.
On the inventory question earlier, obviously.
<unk> had to increase your inventories.
And I am curious when do you expect that to normalize and how do you see your customers because you would assume that your customers are also seeing some of the same issues and that they may be building more inventory how should we think about the inventory throughout the chain.
Sure.
I think as everybody knows the inventories and working capital has been a challenge for business in general.
Thankfully, we're not in fast fashion, but you've got a lot of fashion retailers that had a have a lot of what people don't want and very little of it.
What they do and so that's the dynamic.
Playing out in certain industries.
In our case.
We suspended our working capital goals, which will be in some detail talked about in our map 2025.
About and our annual report that goes out in mid August and in detail.
Sales in October .
But this year was challenging so we were doing our best to accumulate raw materials in certain areas, we're accumulating as much raw material as we could.
And so we have a higher.
Sure level.
Irrelevant.
Raw material.
Inventory than we've ever had.
And then in certain other places.
The other thing that strange is and again not unique to RPM.
We would have the largest.
This chunk of something we have relatively little of which is with and so you could add products like in our legend brands business or in some in our construction products group. Our consumer group that are partially finished and in the case of legend brands.
<unk> literally waiting for a ship.
Or batches that are.
Partially completed but waiting for a key element and so.
With inventory.
We're a something we have little of anywhere and something that we and other people probably had a lot more of than they ever realized relative to the dynamics of raw material availability.
And.
We agree I don't believe we will get back to record cash flows, but we will get back to the positive.
The first year in migraine and for the year.
We will get back to generating a few hundred million dollars of free cash flow and then some in fiscal 'twenty three.
Very helpful. Thanks, so much.
Question comes from Jeff.
The catherines of Jpmorgan. Please go ahead.
Good morning, Thank you hi, good morning, Thanks very much.
You guys have FIFO inventory.
Costs have been rising.
<unk> client top Cros are your FIFO cost and your LIFO costs about caught up or is there still a meaningful gap and because of that gap may be.
Raw materials.
Those will peak in the second quarter of next year.
Is that fair at the base case.
Yes, Jeff this is rusty here.
Alright.
FIFO goes you're correct.
And that.
We're going to continue to see increases.
Go through the P&L from the last three months.
Average, we hold about 90 days of inventory so.
Latest quarters.
Okay.
Purchase order in inflation that.
That we're seeing on <unk>.
Actual.
<unk> will come through 90 days later in the first quarter.
I'd say, our fourth quarter two was.
Penalized somewhat again because of FIFO by some of the omicron disruption in the wintertime.
So you might remember December January a lot of people out of work out sick at our suppliers freight carriers and in our facilities to so we had a lot of production inefficiencies around new year that hit us in the fourth quarter. So on the.
The good news front, you can see coming through our cost of sales.
From that standpoint in Q1.
Okay, Okay got that.
Got it.
For my follow up in fiscal 'twenty, two we're consolidated volumes down low single digits.
For our consolidated fiscal 'twenty, two our volume it was pretty flat for the year up a tad but.
Yes, it was not down and it was.
Very marginally.
Okay, great. Thank you so much.
Youre welcome.
Thank you. The next question comes from Steve Byrne of.
Bank of America. Please go ahead.
Yes. Thank you so Frankie mentioned.
Your raws for alkyd resins, so effectively doubled.
Is it fair to say that one of the key drivers of that are the.
The vegetable oil materials that go into those resins, which surged during really pulled back or are you looking for.
In the fiscal first quarter or maybe in the fiscal second.
Is that a fair expectation.
Yes, Steve this is rusty here.
As far as Alkyd resins go you are correct that a lot of the plant based oils.
Nation of Ukraine.
And the alkyd resins have gone up more so because of the explosion and a year ago that took out 30% of North America now.
Hello up here as we speak.
So.
Buying alkyd resins externally is going to continue to be more expensive every day and you are correct. We are.
<unk>.
Ramping up our Corsicana, Texas plant.
And.
<unk>.
Continuing so we continue to make more different varieties of alkyd resins and.
Should continue too.
Get more.
As in sourcing done in house.
And Rusty this plant was acquired.
Not why is it.
On the coal plant not RPM plant.
When you indicated.
Consumers with consumer businesses getting residents from this plan, so I guess I'm, not sure who who drive.
Sourcing at a plant that was acquired by <unk> co oddly.
How do you incentivize that.
Similarly businesses for.
We're production.
And in sales.
Sure Steve.
This is Frank.
So we don't have any RPM plants, RPM International Inc. Doesn't own plants, our plants are owned and operated by our four segments or their operating companies.
They have the expertise.
And I think we have a very strong.
Manufacturing operations team and our construction products group.
The Cana plant.
We're broader than just alkyd resins.
They had they were not producing alkyd resins, when we acquired them.
And so.
The primary driver of our focus.
So the investment with them.
In fiscal 'twenty, two we expect to wait is a significant issue.
Spansion site for new Dura, which.
She is also a construction products group lastly, I'd say that the <unk>.
Cooperation and communication across our.
Our businesses post map to growth in a center led approach across many functions, but particularly in manufacturing operations.
Makes it.
Possible.
It's working and I would say possible because 10 years ago, really Washington, and its working exceptionally well to be sharing manufacturing assets and so that is definitely a shared manufacturing.
Three.
<unk>.
Across multiple RPM businesses, and it's gathering RPM, because we don't have the menu.
Factoring expertise in our shop.
Thanks Frank.
<unk>.
Thank you.
Question comes from Iran, Viswanathan RBC capital markets. Please go ahead.
Okay.
Great. Thanks for taking my question I Hope Youre well Frank.
So yes, just wanted to get back to the inventory issue I guess I was just curious within your consumer group.
How would you characterize inventory levels at the big box.
Obviously, we incurred.
Elevated levels.
Okay.
Fill rates and consumer across.
Paul.
Where they need.
And so a year.
Sure.
In terms of customers and suppliers that are operating with fill rates in the high nineties and today.
They are probably in the sub true across multiple product categories.
Okay.
So there are still down.
Dynamics of.
Core inventory fill.
That needs to be fixed and will be fixed as we in our case as we roll into.
Fiscal 'twenty three and so the inventory situation in consumer is not where it should be and.
And that has been true for the last two years.
Okay. Thanks.
If I could just ask.
And in that group.
Is it possible that you actually see.
Maybe some outsized performance or increased demand in the small project category, if we do.
Go into a more material recession have you seen that in prior cycles.
And we have.
In prior recessions, we've actually seen an uptick in.
We will have completed.
What's a multi year $70 million expansion of capacity.
In our consumer business by the end of this summer.
And so as we work through the supply constraints.
We're through raw material availability ability issues and how these freight issues.
We will find ourselves at a very good position cost wise capacity wise and hopefully cost price mix as we work into the year.
Relative to consumer so we're in pretty good shape, there and in all past recessions, that's been somewhat counter cyclical black aspect of RPM.
Great and then if I could just one more quick one on.
The next map program I guess would the focus be a little bit more on capital allocation and cash flow.
I know.
And so we will get into the details as Rusty indicated in October .
But I do think in most areas we have.
The address to SG&A.
The new map program will.
We will be benefiting from.
Improved cash flow, a particular focus on working capital gross margin improvement.
Along with some revenue growth expectations.
Thanks.
Good morning, Mike.
Hey, guys just one quick one.
Adjusted EBITDA for 2025% sounds like <unk> could even be better.
How much of that growth.
Simply come from pricing, maybe catching up at Robinson and.
That makes sense.
Cost savings and such.
Sure.
I don't see our underlying.
Pretty good strength.
Growth in Latin America Asia is relatively small.
The.
The largest.
Ship very much.
<unk>.
And our concern about demand and weakness in Europe , and so as I commented earlier by segment I would expect us to see mid to high.
Raw material availability challenges.
So which might pop up again.
Both for our products <unk> components that are on projects construction projects that were.
We're part of that might hold things up.
I think youre going to see some improved unit volume growth in our specialty products group, which has been relatively flat for most of fiscal 'twenty two and I would next couple of quarters will be a combination of price.
Finally, catching up with costs.
Efforts that we've been pursuing for the last.
Volume relatively flat, although again, we'll see quarter by quarter.
Alright, so maybe the way to think about it is.
If you get that.
Unit volume growth of mid single digits.
Leverage is at about half the growth of the other half could be the price raws.
Okay.
Again, it's really a segment by segment story, that's why I went through that Michael and.
We will provide detail on how it plays out when we report first quarter was price will be comparable.
Got it thank you.
Okay.
Thank you.
Thank you.
Our life.
Okay W. Baird. Please go ahead.
Good morning Ghansham.
Hi, Good morning, everyone. This is actually Matt Krueger sitting in for Ghansham.
So first off.
Okay.
Versus your pre Covid baseline can you talk about where we're at across each of your businesses from a volume and margin.
Demand perspective, however, you want to.
Portray that.
Yes.
Sure.
So in our specialty.
Our especially our products group.
We are moving.
From pre Covid.
In terms of sales growth, both obviously price but also.
The units.
And we effected a lot of efficiency, we are slightly below.
The high teens EBIT margin record that they had I believe their EBIT margin record is north of 70 year hopefully in fiscal 'twenty three.
In our.
Construction products group.
<unk> for the silicone issue and of course, the Cana plant, we would be at all time EBIT margins and we expect to build upon that in fiscal 'twenty three.
Margins throughout.
22, and we will continue to build on that.
It's really our consumer groups that is the most dynamic.
As Youll recall.
Our fiscal 'twenty, one with huge.
We had organic.
Growth in some quarters as high as 30%, particularly in the summer.
As the world was dealing with the stay at home orders and it really drove a higher level of DIY activity than anybody had ever seen before.
And then some operating inefficiencies at supply chain challenges that hit our consumer group worst than our other segments.
So we are ahead of our pre COVID-19.
In terms of revenue.
In terms of unit volume.
<unk> had obviously in price.
But.
We lost significant.
Profitability in margin in fiscal 'twenty, two versus the peak of fiscal 'twenty one.
And as I said earlier, we would expect to regain a lot of that in fiscal <unk>.
Including by segment.
And it will take US a couple of years to regain the record level of profitability that we had pre COVID-19 in our consumer group.
Got it that makes sense, that's very helpful. And then just to round things out I guess.
Quite a bit about.
Raw material challenges and supply chain constraints.
But I wanted to switch over to interest rates. So how do you expect higher interest rates to impact demand across your various business units and have you seen any impact from higher rates across any of your end markets already whether it be housing affordability or other regions.
I'll address that two ways number one from an RPM perspective.
At an average fixed rate of about three 5%.
<unk> and its maturity is over average maturities over 10 years.
So.
We're in really good shape relative to a rising interest rate environment, specifically on our balance sheet in our P&L.
As it relates to the broader markets.
We read all the headlines, but we're not seeing any impact in the United States yet.
There is a funny dynamics for instance in new home construction, there is still a shortage relative to demand.
The housing.
And yet you've got you've got rents going up you've got mortgage rates going up so.
Seeing how all those dynamics play out over time, it will be interesting in the near term.
And the pros and into new homes.
Construction.
The pro business that we have is.
Yes.
Solid.
High single digit in terms of unit volume and outperforming DIY meaningfully.
The construction products group, our new girl business goes into light commercial and residential.
It is component.
Problems that are slowing down the completion of some of the housing and light commercial activities not demand.
It hasnt been our business not reflect some of the risks cessionary headline that youre reading about.
Bob.
Got it that's that's very helpful. That's it for me. Thank you.
Thank you.
Thank you there are no further questions at this.
At this time please continue.
This year is one of the milestones across RPM.
RPM is now in its 75th year in business. When my grandfather, founded Republic powdered metals of $19 47, It had one product of heavy duty aluminum roof coating called elimination.
To be in business for seven and a half decades to generate $6 $7 billion of revenue this fiscal year.
Our <unk> business, a leading manufacturer of industrial corrosion control and fireproofing coatings also is celebrating its 70 <unk> anniversary this year.
<unk>, both as Archstone hard business, a producer of high performance flooring system, which is.
Celebrating its 100th anniversary in calendar 2022 <unk>.
Achieving these milestones is especially impressive when you consider the average life span of an S&P 500 companies 15 years, according to our hardware.
Okay put in every day to drive our growth and success, which was.
Particularly challenging.
In this fiscal 2022 year just ended.
Thank you Brian .
For all you do to move the business forward and to build a better world. Our people combined with positive market trends innovative products and a strong balance sheet gives us confidence that we have a bright future ahead of us.
I would also like to thank our shareholders for their continued investment in RPM, we remain focused on generating long term value for you and.
We look forward to updating you on our fiscal 2023 first quarter results and to providing the details of our map 2025 program.
Ladies and gentlemen, this concludes your conference call for today, we thank you for your participation and ask that you. Please disconnect your lines.
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.