Q1 2024 RPM International Inc Earnings Call

Good morning, and welcome to the RPM International fiscal first quarter 'twenty 'twenty four earnings conference call.

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I would now like to turn the conference over to Matt Schlarb Senior director of Investor Relations. Please go ahead.

Thank you Andrea and welcome to RPM Internationals conference call for the fiscal 2024 first quarter today's call is being recorded.

Joining today's call are Frank Sullivan, Rpms, Chairman and CEO , Rusty Gordon Vice President and Chief Financial Officer, and Michael Erodes, Vice President Controller, and Chief Accounting Officer. This call is also being webcast and can be accessed live or replay it on the RPM website at www Dot RPM dotcom.

Comments made on this call may include forward looking statements based 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 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 directly comparable GAAP financial measures on the RPM website.

Also please note that our comments will be on an as adjusted basis and all comparisons are to the first quarter of fiscal 2023, unless otherwise indicated you've provided a supplemental slide presentation to support our comments on this call. It can be accessed in the presentation and webcast section of the RPM website at Www Dot RPM.

Dot com.

Additionally, as we discussed in our most recent earnings call certain businesses in Asia Pacific that were previously part of the construction products group are now being managed and reported under the portfolio performance coatings group effective June one 2023 as a result, all references to CPG and PCB today reflect the updated structure.

The recast businesses generated approximately $100 million in annual sales and this change has no impact on consolidated results at this time I would like to turn the call over to Frank.

Thank you, Matt and thank you to everyone for joining us on our call today.

I'll begin today's call with an overview of our first quarter performance and then I'll turn the call over to Michael Roche to discuss financials in more detail.

Then Matt Schlarb will provide an update on one of our businesses and then Rusty Gordon our CFO will cover our outlook for the next quarter and the balance of fiscal 'twenty four.

At the conclusion of the prepared remarks, we'll be pleased to answer your questions.

Beginning on slide three of our Investor deck.

Our associates are to put it simply executing at a very high level.

We generated four 1% sales growth and what can be best described as a mixed economic environment, resulting in record first quarter sales driven.

Driven by the continued execution of our map 2025 initiatives, we expanded margins and grew adjusted EBIT by 12, 3% to an all time quarterly records. These results represent the seventh consecutive quarter of record sales and adjusted EBIT.

Importantly, we remain focused on converting this profitability.

And the cash flow and this focus resulted in $359 $2 million of cash generated by operating activities during the quarter, which is an all time record.

Moving to slide four sales were driven by pricing mainly from the wrap around effect.

The increase was implemented in fiscal 2023, and strong unit volume growth in our construction products group.

Our CPG was our fastest growing segment as the team there leverages strategic focus on repair and maintenance differentiated turnkey service model.

As we've highlighted in the past several of our businesses in our performance coatings group and construction products group and position themselves to benefit from spending on infrastructure and reassuring capital projects, which continued during the quarter.

The successful execution of our map 2025 initiatives led to margin expansion during the quarter, particularly in businesses, where volumes grew as we were able to more fully leverage the structural efficiency improvements that we put into place.

Map 2025 is a key driver in growing adjusted EBIT to an all time record of $309 million as.

As I mentioned this growth is in addition to strong results in the prior year and our two year stacked sales and adjusted EBIT growth rates were 22% and 49% respectively.

Map 2025 initiatives are also contributing to structural improvements in working capital.

Through improved coordination between sales operations procurement and R&D as well as being a more data driven decision, making organization, we have become more agile with more efficient inventory processes. This contributed to strong cash flow conversion during the quarter, while we still have significant work to do in improving.

In this area I am proud of the progress we are making a sustainable basis.

Looking at sales by geography on slide five sales growth was strongest in Africa, the middle East and Latin America, driven by continued spending on it infrastructure.

Trucks are projects in these emerging markets.

This growth is in addition to a strong prior year results when sales in these regions were up double digits.

Europe is expanding for the first time in over a year, while economic growth in the region remains subdued our teams capture growth opportunities and are leveraging map 2025 initiatives to expand margins.

While on the surface sales growth in North America may appear moderate it is important to keep in mind that in the prior year revenues increased in North America and nearly 23%.

The two year stacked growth rate in North America is 26, 1%.

Overall rpms has begun our fiscal year with positive momentum and our teams are executing at a high level on the <unk>.

Things that we can control.

We remain focused on executing our map 2025 program, leveraging our competitive strengths to capture growth opportunities and bringing new products to market to continue growing throughout the fiscal year.

I'd now like to turn the call over to Michael Roche to cover our financial results in more detail.

Thanks, Brian starting on slide six consolidated sales increased four 1% to a first quarter record 2.01 billion driven by pricing with modest volume growth.

Organic sales increased three 9% with foreign currency translation and acquisitions less divestitures, both contributing 0.1% sales.

Adjusted EBIT grew by 12, 3% to an all time record of $309 million during the quarter.

Gross margin expansion was the driver of this growth led by map 2025 initiatives and improved fixed cost utilization, particularly in businesses with growing volumes.

All segments, except consumer generated commodity cycle benefits because of consumers raw material basket and in particular T. I O. Two in metal packaging. This segments raw material inflation has been larger and continued longer than the other segments.

SG&A as a percentage of sales increased during the quarter driven by growth investments and higher variable compensation expenses due to the improved financial performance.

Expense reduction actions were implemented in the fourth quarter helped to offset the SG&A increase.

Adjusted EPS grew 11, 6% to $1.64 and was driven by adjusted EBIT growth.

Turning to the segment results on slide seven our construction products group achieved all time record sales of $783 million, an increase of 10, 8% from the prior year period organic sales growth was nine 5% with acquisitions contributing 0.6% and foreign currency translation.

0.7% of sales sale.

Sales growth was led by strength in our restoration systems for roofing facades and parking structures would have benefited from this segments strategic focus on repair and maintenance as well as its differentiated turnkey service model.

Concrete admixtures and repair products also helps drive sales growth.

After several quarters of sales declines Europe returned to growth as.

As expected new office construction was weak, but stronger demand in other end markets and our strategic focus on repair and maintenance more than offset this softness.

Adjusted EBIT increased 33% to an all time record $145 million led by improved fixed cost leverage and map 2025 benefits, including commodity cycle benefits.

As a result of improved financial performance variable compensation increased.

And it was partially offset by expense reduction actions put in place at the end of fiscal 2023.

Additionally, as we recently announced in the second quarter of fiscal 2020 for CPG acquired a wall system fabricator to expand its offering offsite panelized construction.

The acquired business has annual sales of approximately approximately $20 million.

On slide eight the performance coatings group achieved record net sales and adjusted EBIT revenue increased four 1% to a record $379 million organic sales grew 4.0% acquisitions added 0.8% and foreign currency translation was a 0.7% headwind.

Sales were driven by strong demand for the segments flooring systems and other engineered solutions for infrastructure and re shoring capital projects demand was strong internationally and increased pricing also contributed to growth.

Adjusted EBIT increased 17, 4% to an all time record of $59 million.

Growth was driven by strong sales and map 2025 benefits led by commercial excellence programs in Europe .

And included commodity cycle benefits. These results are on top of a strong prior year increase.

Part of our map twenty-five focus on improving profitability in Europe P. C. G divested of noncore service business there.

<unk> incurred $14 $6 million of charges related to this divested business, which are excluded from adjusted EBIT.

Moving to the next slide specialty products group sales declined 10, 7% to $181 million organic sales declined 9.0% divestitures net of acquisitions reduced sales by two 2% and foreign currency translation was a tailwind of <unk>, 5%.

Oems OEM demand was weak during the quarter, particularly in businesses that serve the residential sector, including coatings for furniture doors windows and cabinets.

Additionally, SPG sales were negatively impacted by customers holding inventory levels below historical averages, which is pressuring volumes.

The divestiture of the noncore furniture warranty business last fiscal year also reduced sales.

<unk> helped to partially offset some of this weakness.

<unk> adjusted EBIT declined 39, 6% to $18 million.

The sales decline.

Product mix and unfavorable fixed cost leverage drove the decline.

The divestiture of the non core furniture warranty business also contributed to the adjusted EBIT decline.

SG&A as a percentage of sales increased driven by investments in growth initiatives and unfavorable impact of deleveraging lower revenue.

Expense reduction actions implemented at SPG in Q4 helped to offset this.

Moving to slide 10, the consumer group sales increased one 5% to a first quarter record $670 million.

<unk> sales increased one 7% foreign currency translation was a headwind of 0.2% and there was no impact from acquisitions.

The sales growth was driven by increased pricing primarily due to the large increase instituted during the first quarter of 2023 in response to inflation.

Inflation, although less of a headwind still persisted for the consumer segment in the first quarter.

As a reminder, consumer faced a challenging prior year comparison as sales surged 22 to 22, 5% in the first quarter of 2023, when it began restocking retailers after raw material raw material availability improved.

Volumes declined moderately driven by reduced customer takeaway and certain customers holding inventory levels below historical averages share.

Share gains helped to partially offset these volume pressures.

Adjusted EBIT increased three 5% to $121 million driven by map 2025 benefits and the sales increase.

Cost inflation continued in the quarter and was a headwind to adjusted EBIT.

It was lower fixed cost utilization as we slow production to normalize inventories.

We also received a $10 3 million dollar business interruption insurance reimbursement during the first quarter and the gain associated with this reimbursement has been excluded from adjusted EBIT.

Now I'd like to turn the call over to Matt to go over the balance sheet and cash flow and provide a business update.

Thank you Mike.

Moving to slide 11, the progress you've made improving working capital during the fourth quarter continued in the first quarter driven by our inventory normalization actions and map 2025 initiatives to structurally improve working capital inventories declined by $223 million compared to the first quarter of 2023.

Working capital management and strong profitability growth resulted in an all time record cash flow from operating activities of $359 million compared to $24 million in the prior year.

This enabled us to returned $54 million to shareholders through dividends in the first quarter. We have continued our share repurchase program and have bought back $25 million of shares from the beginning of the fiscal year to the end of September we also reduced debt by $178 million during the quarter.

Now turning to slide 12, we'd like to provide an update on pure air indoor quality in HVAC service business at CPG acquired in fiscal 2022.

<unk> provides turnkey solutions to address indoor air quality and HVAC performance issues. These include environmental consulting building diagnostics <unk> system cleaning and restoration.

Commercial H H Vacs systems age they can become dirty and worn down resulting in reduced performance efficiency and air quality.

These issues negatively impact all buildings that can become critical problems in places like hospitals and schools, which are key end markets for CPG peers.

<unk> turnkey solutions solutions address these challenges and off road building owners the possibility of restoring their HVAC equipment, instead of replacing it resulting in significant savings and reduce disruption to the building's occupants.

There are expanded cpg's role as a partner to building owners offering built offering products and services focused on the repair maintenance and restoration of all six sides of the building, which drives increased efficiency extended asset life and lower costs sales over the last 12 months or more than double what they were when purion joined RPM we are optimistic.

Take about its future.

Now I'd like to turn the call over to Rusty to cover the outlook. Thanks Man.

Yeah.

Our outlook for the second quarter is on slide 13.

Many of the trends we experienced in the first quarter are expected to continue in the second quarter.

On the positive side the tail wins include map 2025, including the commodity cycle.

Infrastructure and re shoring demand.

Reduced destocking.

And resilient demand for repair and maintenance costs.

As a reminder, some of our map 20 twenty-five benefits are more dependent on volumes to be fully realized so they will naturally be lower in our seasonally lower volume quarters of Q2, and Q3 and higher and stronger volume quarters.

Q4 in Q1.

Some of the challenges we expect to face in the second quarter, our continued weakness in the OEM demand.

Softness in some new construction end markets and a reduced benefit from pricing, although pricing is still expected to be positive.

We also faced challenging comparisons to the prior year when sales grew 9% and adjusted EBIT increased by 36%.

Taking all of this into account we are forecasting sales to increase in the low single digit range on a consolidated basis.

Led by CPG, and TCG with specialty still showing declines.

We expect adjusted EBIT margins to expand and to generate consolidated adjusted EBIT growth of high single digits to low double digits.

Moving to slide 14.

Turning to our full year outlook, we still expect modest economic growth does.

Despite the soft macro backdrop, we are focused on leveraging the growth drivers, we control, including number one map 2025 number two our strong position serving interest structure and reassuring demand with our engine.

<unk> solutions.

And number three our strategic focus on repair and maintenance.

We also continue to expect to benefit from reduced inflation reduced destocking and easier comparison in the second half of the year.

As was the case last quarter, we anticipate weakness in certain new construction market throughout the year and weakness in OEM demand at least in the first half of the year.

Our current outlook for 'twenty 'twenty four on a consolidated basis remains unchanged.

Unknown Executive: Good morning and welcome to the RPM International School First Quarter 2024 earnings conference fall. All participants will be in listen only mode. Did you need assistance? Please signify a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. Please press star then two.

Sales are expected to increase in the mid single digit range with adjusted EBIT growing in the low double digit to mid teen range.

This concludes our prepared remarks, we are now pleased to answer your questions.

We will now begin the question and answer session.

Ask a question you May press Star then one on your telephone keypad.

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Unknown Executive: Please note, this event is being recorded.

To withdraw your question. Please press Star then two.

Matthew Schlarb: I would now like to turn the conference over to Matt Schlarb, being a director of investor relations. Please go ahead. Thank you, Andrea.

Once again that with Star then one to ask a question at this time, we will pause momentarily to assemble the roster.

Matthew Schlarb: Welcome to RPM International's conference call for the fiscal 2024 first quarter. Today's call is being recorded. During today's call, our Frank Sullivan, RPM's Chairman, CEO, Rusty Gordon, Vice President and Chief Financial Officer, and Michael Laroche, Vice President and Controller and Chief Accounting Officer. 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 risks and uncertainties, which could cause actual results to be materially different.

And our first question comes from Mike Harrison of Seaport Research Partners. Please go ahead.

Good morning, Mike.

Hi, good morning, Congrats on a nice start to the year.

Thank you.

It seems like the construction business was pretty strong across the board just curious where.

Are you expecting to see momentum continue where could we potentially see some choppiness and can you break down the nine 5% organic growth between volume and pricing.

Matthew Schlarb: For more information on these risks and uncertainties, please review RPM's reports filed with the SEC. During this conference call, references may be made to non-GAAP financial measures. To assist you in understanding these non-GAAP terms, RPM has posted reconciliation to the most directly comparable GAAP financial measures on the RPM website. Also, please note that our comments will be on an as-adjusted basis and all comparisons are to the first order of fiscal 2023 unless otherwise indicated. We have provided a supplemental slide presentation to support our comments on this call. It can be accessed in the presentation webcast section of the RPM website at www.rpminc.com.

Sure.

So boy two thirds to three quarters of their growth in the quarter was unit volume growth and it was pretty strong.

And the <unk> roofing W Ti business.

At our <unk> sealant business.

Good.

And then broadly and this is mostly our construction products group and our performance coatings group.

In the southern hemisphere, developing countries and so real good strength there.

In many instances, we're bucking trends as we talked about in the past we've had a real focused effort on investing in growth initiatives and.

Matthew Schlarb: Additionally, as we discussed on our most recent earnings call, certain businesses in Asia-Pacific that were previously part of the construction products group are now being managed and reported under the performance coding group effective June 1, 2023. As a result, all references to CPG and PCG today reflect the updated structure. The recast businesses generate approximately $100 million in annual sales and this change has no impact on consolidated results.

One of the real stars. This year is something that in this quarter that Matt talked about which is.

Pure air which is finally, gaining some traction after its first year, which we got off to a slow start.

<unk> integrated into <unk> and into our roofing.

Sales force and it's going very well so that's one.

Frank Sullivan: At this time, I would like to turn the call over to Frank. Thank you, Mack, and thank you to everyone for joining us on our call today. I'll begin today's call with an overview of our first quarter performance and then I'll turn the call over to Michael Roach to discuss financials in more detail. The match will provide an update on one of our businesses and then Rusty Gordon RCFO will cover our outlook for the next quarter and the balance of fiscal 24.

One example of some of the <unk>.

Very specific initiatives that we're investing in and it's starting to pay off as I think allowing us to buck some of the <unk>.

Trends in the construction markets.

Alright, and then over on the specialty business you mentioned that you see.

Seeing weak demand from OEM customers and it seems like thats going to continue into the November quarter.

But any thoughts on what that business looks like once it stabilizes maybe talk a little bit about your longer term growth and margin expectations for that specialty segment.

Frank Sullivan: As the conclusion of the prepared remarks will be pleased to answer your questions. Beginning on slide three of our investor deck, our associates are to put it simply executing at a very high level. We've generated 4.1% sales growth and what can be best described as a mix economic environment resulting in record first quarter sales, by the continued execution of our MAP 2025 initiatives. We expanded margins and grew adjusted EBIT by 12.3% to an all time quarterly records.

Sure.

So the biggest impact there is housing.

We do a lot of wood stains and finishes into furniture into windows and doors kitchen cabinets and so notwithstanding the inventory mismatch for demand, particularly in this higher interest rate environment.

The North American housing market U S housing market is weak and continues to be weak and that has hurt us. Some other categories that they had been strong in including manufactured.

Frank Sullivan: These results represent the seventh consecutive quarter of record sales and adjusted EBIT. Importantly, we remained focused on converting this profitability into cash flow. And this focus resulted in $359.2 million of cash generated from operating activities during the quarter, which is an all time record. Moving to slides for sales were driven by pricing mainly from the wraparound effect of increases implemented in fiscal 2023 and strong unit volume growth in our construction products group.

Housing and door Rvs.

Those are a week after the post COVID-19.

<unk>.

All that notwithstanding we have some very targeted initiatives in our cap code adjuvant business. There is some patented products there that allow for a significant reduction in the use of herbicides and pesticides. We believe in the long term benefit in that business and we're investing in that.

Frank Sullivan: Our CPG was our fastest growing segment as the team there leveraged its strategic focus on repair maintenance and differentiated turnkey service model. As we highlighted in the past, several of our businesses in our performance coatings group and construction products group have positioned themselves to benefit from spending on infrastructure and reshoring capital projects, which continued during the quarter. The successful execution of our MAP 2025 initiatives led to margin expansion during the quarter, particularly in businesses where volumes grew as we were able to more fully leverage the structural efficiency improvements that we put into place.

We're investing in and expanding MRO channel for our legend brands business that should take out some of the storm related cyclicality. Those are just a few examples.

And the one thing that the lower volume as hygiene is some significant map 2025 improvements in our specialty products group.

But as Rusty highlighted.

Most of these improvements are on the manufacturing floor and ore cost price mix.

Items.

And with improved conversion cost better handle on mix.

Benefits only show up when we sell something and so the lower volume is hiding I think the good efforts in our specialty products group folks have made along with the rest of RPM and executing on the map 25 initiatives.

Frank Sullivan: MAP 2025 is a key driver in growing adjusted EBIT to an all time record of 309 million. As I mentioned, this growth is an addition to strong results in the prior year. In our two year stack sales and adjusted EBIT growth rates were 22% and 49% respectively. MAP 2025 initiatives are also contributing to structural improvements in working capital. Through a group coordination between sales operations procurement and R&D, as well as being a more data driven decision making organization, we have become more agile with more efficient inventory processes.

Alright, Thank you very much.

Thanks, Mike.

The next question comes from Ghansham Panjabi of Baird. Please go ahead.

Good morning Ghansham.

Good morning, Frank Good morning, everybody. Thanks for fitting me in I guess as a follow up to the last question on construction and the margin improvement that you saw there Frank you highlighted several factors fixed cost improvement.

Raw materials map savings et cetera, how would you have us think about those dynamics from a stack rank standpoint in terms of the margin bridge year over year.

Frank Sullivan: This contributed a strong cash flow conversion during the quarter. While we still have significant work to do in improving in this area, I'm proud of the progress we were making on a sustainable basis. Looking at sales by geography on slide 5, sales growth was strongest in Africa, the Middle East and Latin America driven by continued spending on infrastructure projects in these emerging markets. This growth is an addition to strong prior year results when sales in these regions were up double digits.

Could you repeat that I'm not sure I understand the question <unk>, yes.

So the margin improvement in CPG I think it was up a 100 at 310 basis points year over year, just the main drivers as it relates to that.

So I think the main drivers are.

25 initiatives, where we're seeing improvement in conversion costs.

I mentioned this what we call the <unk> initiative in RPM at standard driven decision, making so we are much better today at driving mix on a going forward basis.

Frank Sullivan: Europe is expanding for the first time in over a year. While economic growth in the region remains subdued, our teams captured growth opportunities and are leveraging MAP 2025 initiatives to expand margins. While in the service sales growth in North America may appear moderate, it is important to keep in mind that in the prior year revenues increased in North America nearly 23 percent, the two-year stack growth rate in North America is 26.1 percent.

That's helping us we.

We are benefiting in the quarter from the commodity cycle.

Disinflation that we're starting to benefit in a few places construction products is certainly one of those.

And then it really is.

<unk> focused efforts and strategic initiatives around repair and maintenance. So we're seeing real strong results in our core roofing business all of that is where 95% re roofing and repair on existing routes that new construction.

Frank Sullivan: Overall, our EM has begun our fiscal year with positive momentum and our teams are executing in a high level on the things that we can control. We remain focused on executing our Math 2025 program, leveraging our competitive strengths to catch your growth opportunities and bringing new products to market to continue growing throughout the fiscal year.

<unk> been very strong and we expect that to continue we will see tens of millions of dollars of new volume from that initiative panelist.

Panelization is something we've been working on for the last three or four years. We just added a significant piece of that with this Texas acquisition, we announced.

Michael Laroche: I now like to turn the call over to Michael Laroche to cover our financial results in more detail. Thanks, Frank. Starting on slide six, consolidated sales increased 4.1% to a first quarter record, $2.01 billion, driven by pricing with modest volume growth. Organic sales increased 3.9% with foreign currency translation and acquisitions less by vestitures, both contributing 0.1% to sales. Adjusted EBITG grew by 12.3% to an all-time record of $309 million during the quarter.

And this past week.

So it's really focusing on the things that we can control that tend to be in the large repair and maintenance areas. The last comment I'll make is that hospitals have been a significant market for us.

And we had some booming business there during and coming out of Covid last year was not a good spending year for that sector and so that weighed on our performance in fiscal 'twenty, three and we're seeing some pick up on a relative basis, there and also some pickup on new Dura, which had a challenge 'twenty three because of.

Michael Laroche: Gross margin expansion was a driver of this growth led by map 2025 initiatives and improved fixed cost utilization, particularly at businesses with growing volumes. All segments except consumer generated commodity cycle benefits. Because of consumers raw material basket and in particular TIO2 and metal packaging, this segment's raw material inflation has been larger and continued longer than the other segments. SGNA is a percentage of sales increased during the quarter, driven by growth investments and higher variable compensation expenses due to the improved financial performance.

What's happening in the residential market, but again, a very focused effort on expanding.

The understanding and the specifications for the new Dura ICF system.

So again, it's a lot of self help and a lot of very deliberate spending and two specific initiatives across RPM and youre seeing the results of that spending.

Best.

Impacting our construction products group as we sit here today.

Okay perfect. Thank you for that Frank and then just in terms of the balance sheet.

Michael Laroche: Expense reduction actions were implemented in the fourth quarter helped to offset the SGNA increase. Adjusted EPS grew 11.6% to $1.64 and was driven by adjusted EBITG growth. Turning to the segment results on slide 7, our construction products group achieved all-time record sales of $783 million, an increase of 10.8% from the prior year period. Organic sale growth was 9.5% with acquisitions contributing 0.6% and foreign currency translation adding 0.7% to sales. Sales growth was led by strength in our restoration systems for roofing facades and parking structures, which benefited from the segments strategic focus on repair and maintenance, as well as its differentiated turnkey service model.

Where do you expect the balance sheet to sort of end up at the end of the fiscal year 'twenty, four and a net debt to EBITDA basis.

Just related to that how.

How are we thinking about capital allocation in terms of the context of where interest rates are and all the macroeconomic uncertainty and I guess I'm, referring specifically to your appetite for incremental acquisitions.

Sure Great question, and so let me step back Big picture in tonnage just address simply what are we trying to do with the snap program.

And it's really two things, we're trying to significantly improve our cash conversion cycle and it's working.

And we're trying to.

Be more data driven in our decision, making with a real focus on investing in specific organic growth initiatives and youre seeing that work.

Michael Laroche: Concrete admixtures and repair products also helped strive sales growth. After several quarters of sales declines, Europe returned a growth. As expected, new office construction was weak, but stronger demand in other end markets and our strategic focus on repair and maintenance more than offset this stopness. Adjusted EBITG increased 33% to an all-time record $145 million, led by improved fixed cost leverage and MAP 2025 benefits, including commodity cycle benefits. As a result of improved financial performance, variable compensation increased and was partially offset by expense reduction actions put in place at the end of fiscal 2023.

Particularly in our construction products group.

So what that looks like us.

Record first record fourth quarter cash from operations, followed by record first quarter cash from operations, notwithstanding a handful of acquisitions and maybe $25 million or so.

What did we acquired Rusty last year.

Share repurchases I assure we did 50, maybe $50 million in share repurchases year over a year, we reduced debt by $332 million.

And so that focus on cash conversion is really working we expect those improvements to continue and so that's big picture, what we're trying to do.

Michael Laroche: Additionally, as we recently announced in the second quarter of fiscal 2024, CPG acquired a wall system fabricator to expand its offering in an off-site, panellized construction. The acquired business has annual sales of approximately $20 million, on slide eight, the performance coding group achieved record net sales and adjusted EBIT, revenue increased 4.1% to a record $379 million. Organic sales grew 4.0%, acquisitions added 0.8% and foreign currency translation was a 0.7% headwind. Sales were driven by strong demand for the segment's flooring systems and other engineered solutions for infrastructure and reshoring capital projects.

Yes.

The volatility that we've all experienced over the last few years is continuing and so as we are.

Work with our board I think we'll have a better answer in the coming quarters scansion about how we think about.

Capital allocation.

But.

As we sit here today.

M&A markets relatively slow we will continue to execute on good strategic small to medium size deals.

But the days of huge multiples in my opinion are over if not forever at least temporarily we went through a period of time, where incremental cost of capital was almost zero that is not true today.

And so given the choppiness in the markets and the map initiatives that are benefiting our conversion cost and our efficiency. We are focusing a lot of time and attention on driving organic growth, where we can.

Michael Laroche: Demand was strong internationally and increased pricing also contributed to growth. A adjusted EBIT increased 17.4% to an all-time record of $59 million. The growth was driven by strong sales and MAP 2025 benefits led by commercial excellence programs in Europe and included commodity cycle benefits. These results are on top of a strong prior year increase. Part of our MAP 2025 focus on improving profitability in Europe, PCG divested a non-core service business there, PCG incurred $14.6 million of charges related to this divested business which are excluded from adjusted EBIT.

You said to Don in the economic environment.

As rusty likes to say it feels like a rolling recession, both geographically and across sectors.

Understood. Thank you.

Thank you.

The next question comes from John Mcnulty of BMO capital markets. Please go ahead.

Good morning, Brian .

Good morning, Thanks for thanks for taking my question.

So I guess the first one would just be on raw materials you previous destocking over the last few quarters that you guys were implementing in FIFO makes it a little bit complicated to kind of think about how raws are really trending for you. So I guess can you help us to think about it looks like you've got some improvement in in the first quarter, how should we think about.

Michael Laroche: Moving to the next slide, especially products group sales declined 10.7% to $181 million. Organic sales declined 9.0% that bestiatures net of acquisitions reduced sales by 2.2% and foreign currency translation was a tailwind of 0.5%. OEM demand was weak during the quarter, particularly in businesses that serve the residential sector including coatings for furniture, doors, windows and cabinets. Additionally, SPG sales were negatively impacted by customers holding inventory levels below historical averages, which is pressuring volumes.

That continuing to flow through in terms of deflation throughout the rest of us.

And has the move in oil recently has that had any impact upward on some of the raw material trends that you pay attention to how should we be thinking about that.

Sure.

I'll address your last portion of your question first the only place where we're seeing the move in oil prices impact us immediately as an acetone.

Michael Laroche: The divestiture of the non-core furniture warranty business last fiscal year also reduced sales. Pricing health to partially offset some of this weakness. SPG adjusted EBIT declined 39.6% to $18 million. The sales decline, product mix and unfavorable fixed cost leverage drove the decline. The divestiture of the non-core furniture warranty business also contributed to the adjusted EBIT decline. SGNA is a percentage of sales increased driven by investments in growth initiatives and unfavorable impact of the leveraging a lower revenue.

That's a prime impacts a number of our.

Coatings businesses, but in particular rust oleum.

So in general.

<unk> as you followed RPM for many years.

We and our industry follow the commodity cycle.

Increases up with lagging price increases and so you see some margin compression and then as the commodity cycles cycles down we typically pick up.

The loss margin, we are now experiencing that in Q1.

Michael Laroche: Expense reduction actions implemented at SPG and Q4 helped to offset this. Moving to slide 10, the consumer group sales increased 1.5% to a first quarter record $670 million. GANIC sales increased 1.7%, foreign currency translation was a headwind of 0.2%, and there was no impact from acquisitions. The sales growth was driven by increased pricing primarily due to the large increase instituted during the first quarter of 2023 in response to inflation. Inflation, although less of a headwind, they'll persisted for the consumer segment in the first quarter.

In most of our businesses segments, except consumer we would expect to begin to see that in consumer in Q2.

We're rounding metal packaging increases that were pretty extreme.

We're paying attention to some tariff activity relative to tin plate, which is the primary.

Raw material for metal packaging and spray cans things like debt Tio too was up modestly year over year and asset tones, the only raw material that we see.

Reacting to current price increases so the commodity cycle benefited us, particularly in our.

Michael Laroche: As a reminder, consumer faced a challenging prior year comparison as sales surge 22.5% in the first quarter of 2023 when it began restocking retailers after raw material at the end of the fall of the year. Board. Volumes decline moderately driven by reduced customer takeaway and certain customers holding inventory levels below historical averages. Sharegames helped to partially offset these volume pressures. Adjusted EBIT increased 3.5% to $121 million driven by MAP 2025 benefits and the sales increase.

Construction products and performance coatings segment in Q1, and we would expect it to continue to be.

Benefit to margin expansion.

In Q2 as well again, that's another one of those things that is volume driven and you get the benefit when you sell something.

Got it Okay, No fair enough and then maybe just on the consumer segment. So you spoke to.

It sounds like some of your customers are drawing down inventory kind of below below normal levels. I guess can you help us to think about if that's largely played out at this point or if there's still a disconnect in terms of the point of sales and what you're seeing in terms of pull and then I guess, maybe as an add on to that you mentioned some share gains I guess can you speak to those as well.

Michael Laroche: Cost situation continued in the quarter and was lower fixed cost utilization as we slow production to normalize inventories. We also received a $10.3 million business interrupt and insurance reimbursement during the first quarter and the gain associated with this reimbursement has been excluded from adjusted EBIT.

<unk>.

Sure.

So our.

Our consumer segment is continuing to perform I think at a good level I think most of the inventory adjustments are behind us they were certainly significantly last year.

Russell Gordon: Now would like to turn the call over to MAP to go over the balance sheet and cash flow and provide a business update. Thank you, Mike. Moving to slide 11, the progress we made improving work in capital during the fourth quarter continued in the first quarter driven by our inventory normalization actions and MAP 2025 initiatives to structurally improve working capital. Inventories declined by $223 million compared to the first quarter of 2023.

I will tell you in terms of consumer takeaway, while it is improved meaning less negative it's still trends.

Across different product categories in different channels and the kind of.

Low to mid negative range, which is a slight improvement from what we experienced in the second half of last year, which was kind of solidly.

Russell Gordon: Working capital management and strong profitability growth result in an all-time record cash flow from operating activities of $359 million compared to $24 million in the prior year. This enabled us to return $54 million to shareholders through dividends in the first quarter. We have continued our share repurchase program and have bought back $25 million of shares for the beginning of the fiscal year through the end of September. We also reduced debt by $178 million during the quarter.

Mid to upper single digit negative consumer takeaway.

Some of that's hangover from.

The Covid bump.

As we have communicated in the past we had lost some share in a major big box account.

Some of that was related to our own supply challenges are.

Our supply challenges are over our fill rates are.

Russell Gordon: Now turning to slide 12, we'd like to provide an update on pure air, the indoor quality and HVAC service business that CPG acquired in fiscal 2022. Pure air provides turnkey solutions to address indoor air quality and HVAC performance issues. These include environmental consulting, building diagnostics, and HVAC system cleaning and restoration. As commercial HVAC systems age, they can become dirty and worn down, solving a reduced performance, efficiency and air quality. These issues negatively impact all buildings but can become critical problems in places like hospitals and schools, which are key and markets for CPG.

Our back to solid numbers.

Through the map initiative.

<unk> created through efficiencies.

40 or $50 million.

Russell Gordon: Pure air turnkey solutions to address these challenges and off-road building owners the possibility of restoring their HVAC equipment instead of replacing it, resulting in significant savings and reduced disruption to the building's occupants. Pure air expands CPG's role as a partner to building owners, offering product and services focused on the repair, maintenance and restoration of all six sides of a building, which drives increased efficiency, extended asset life, and lower cost. Sales over the last 12 months are more than double what they were when pure air joined our PM.

Units of volume and so.

We're in really good shape today there.

And.

Product gains have been.

With our universal we're picking up share and new accounts.

And that's going really well the rust oleum.

And one spray is showing some incremental gains and I say incremental any positive numbers in the face of.

Slightly negative consumer takeaway I look good.

We've got some new product introductions at DAP.

Two components spray foam and one Kansas being introduced really well.

As well as a.

Textured spray.

Being well received so new product introductions are going well and we actually experienced because of the new product introductions.

Some positive unit volume growth in the quarter and DAP and so that's kind of a broad overview of what's happening in consumer.

Got it thanks very much for the color.

Russell Gordon: We are optimistic about its future.

Sure. Thanks, John .

Russell Gordon: Now I'd like to turn the call over to Rusty to cover the outlook. Thanks, ma'am. Our outlook for the second quarter is on slide 13. Many of the trends we experienced in the first quarter are expected to continue in the second quarter. On the positive side, the tailwinds include map 2025, including the commodity cycle. Infrastructure and reshoring demand, reduced destocking, and resilient demand for repair and maintenance. As a reminder, some of our MAP 2025 benefits are more dependent on volumes to be fully realized, so they will naturally be lower in our seasonally lower volume quarters of Q2 and Q3.

The next question comes from Stephen Byrne of Bank of America Securities. Please go ahead.

Good morning, Steve.

Martin Frank Oh, I've got a question for you on.

On CPG.

Do you have a view as to how much of the revenue in that segment is is generated from service versus selling material.

And that could be a complicated.

Question, given your some turnkey projects, but.

I ask you about this service component because it seems as if it's something that you're expanding into this pure air.

Model seems to be service and your restoration and maintenance on roofing seems to be.

Russell Gordon: And higher in stronger volume quarters, Q4 and Q1. Some of the challenges we expect to face in the second quarter are continued weakness and OEM demand, softness in some new construction and markets, and to reduce benefit from pricing, although pricing is still expected to be positive. We also face challenging comparisons to the prior year when sales grew 9%, and adjusted EBIT increased by 36%. Taking all of this into account, we are forecasting sales to increase in the low single-digit range on a consolidated basis, led by CPG and PCG, with specialty still showing declines. We expect adjusted EBIT margins to expand and to generate consolidated adjusted EBIT growth of high single digits to low double digits, moving to slide 14.

There was a service revenue component.

Just wondering if you had an ethanol.

Maybe more importantly.

Would you see that model potentially expanding into other areas of service such as cleaning.

Or water treatment.

Something beyond.

The air quality inside the building.

Sure.

So great question and in general our construction products group revenues are about 30%, maybe slightly higher 30% service revenues.

With roughly 70% driven by product sales.

It's a little bit.

And Theres, a little ambiguity there because.

In most instances, we're not selling in some cases, we sell only repair services or other services, but in many instances those services go hand in glove with the material sales for a re roofing project for instance, I would expect that over time to expand.

Russell Gordon: Turning to our full year outlook, we still expect modest economic growth. Despite the soft macro backdrop, we are focused on leveraging the growth drivers we control, including number 1, MAP 2025. Number 2, our strong position serving infrastructure and reshoring demand with our engineered solutions. And number 3, our strategic focus on repair and maintenance. We also continue to expect to benefit from reduced inflation, reduced destockings, and easier comparison in the second half of the year.

And we talked about carrier that is a good example.

That addresses right had indoor air quality.

And.

We have been asked for many many years as.

We're on the roof with our WTS services group.

And addressing issues and the routes and not just roofing materials, but rooftop safety in terms of the work that Transco does wood fiber great in terms of railings and walkways.

We've been asked for many years can we address hvac's.

Issues and repair and the answer for too long with no.

Two years ago, we acquired pure air.

And there is a key element of this it took us a while to fix.

Russell Gordon: As was the case last quarter, we anticipate weakness in certain new construction markets throughout the year, and weakness in OEM demand, at least in the first half of the year. Our current outlook for 2024 on a consolidated basis remains unchanged. Sales are expected to increase in the mid single-digit range with adjusted EBIT growing in the low double digit to mid-teen range.

And that is a service business, whereby we do an assessment of existing HVAC systems, and then have really good capabilities to clean and disinfect.

And repair components and it was a $20 million business. When we acquired it we expect a few tens of millions of dollars.

Revenue growth this year and the potential for that.

Meaningfully higher and so as that grows as a share of our business that will grow that 30% services business.

Frank Sullivan: This concludes our prepared remarks.

Matthew Schlarb: We are now pleased to answer your questions. We will now begin the question and answer session. To ask a question, you may press star then one on your telephones heat pad. If you are using a speaker phone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. 2002. Once again, that was star than one to ask a question, and at this time, we will pause momentarily to assemble the roster.

Higher.

Bids are basically about a one third cost versus total replacement.

The immediate benefits are significant improvement.

Inefficiency of an old system, that's getting one down because of blades or motors or other things and there is a measurable benefit immediately and indoor air quality and so for the hospitals and school system customers that our construction products group serves.

Pretty exciting market for us.

Okay.

Okay, and Frank any thoughts about expanding some of that service to go into other issues such as cleaning services for example, or water.

Michael Harrison: And our first question comes from Mike Harrison of Seaport Research Partners. Please go ahead. Good morning, Mike. Hi, good morning. Congrats on a nice start to the year. Thank you. It seems like the construction business was pretty strong across the board. Just curious, where are you expecting to see momentum continue? Where could we potentially see some choppiness? And can you break down the nine and a half percent organic growth between volume and pricing?

Yeah.

I think the expansion will come from our continued market share gains broadly roofing.

But.

The areas that will expand like a pure air or where we can add value. So we can add significant value versus replacement.

And so we will look for other opportunities, but there'll be limited to areas, where we can truly add value as opposed to areas that are more.

Michael Harrison: Sure. So, boy, two thirds, the three quarters of their growth in the quarter was univium growth, and it was pretty strong at the Tremco roofings WTI business at our Tremco sealant business, Euclid, and then broadly, and this is mostly our construction products group and our performance coatings group. And the Southern hemisphere developing countries. And so real good strength there. In many instances, we're bucking trends as we talked about in the past, we've had a real focused effort on investing in growth initiatives.

Commodity like in services and I think it's critical and it's back to that component of it is not just the service, but it's adding.

The material element or the cleaning and disinfecting or blade repair components that go along with it one other factor, which is also true for our stone hard flooring business and the reason that we got off to a rough start in the first year pure air with staffing I think anybody that is doing any work in residential or commercial.

Industrial constructions.

Workforce issues are significant.

Have solved that issue with pure air with R. W. UTI roofing workforce.

Michael Harrison: And one of the real stars this year is something that in this quarter that Matt talked about, which is pure air, which is finally gaining some traction after its first year, which we got off to a slow start. Had to integrate it into WTI and into our roofing sales force, and it's going very well.

A great collection of installers with our stone hard business.

So.

That certainty of having our people on the job on time staying on the job to get it done in this environment is also giving us a competitive advantage in the roofing and the HVAC restoration and in the industrial flooring markets.

Frank Sullivan: So that's one example of some of the very specific initiatives that we're investing in that started to pay off that's, I think, allowing us to buck some of the trends in the construction markets.

Okay. Thank you Frank and one quick one on Madura do you see the value proposition of that of that product to be more in.

Frank Sullivan: All right, and then over on the specialty business, you mentioned that you're seeing week demand from OEM customers, and it seems like that's going to continue into the November quarter, but any thoughts on what that business looks like once it stabilizes, maybe talk a little bit about your longer term growth and margin expectations for that specialty segment. Sure. So the biggest impact there is housing, we do a lot of wood stains and finishes into furniture and to windows and doors, kitchen cabinets.

It's insulation value, thus, either cold or hot climates or more for its hurricane.

Our needle protective value in and how are you marketing that product based on those two.

Those two value propositions.

So the simple answer to that is yes.

It's one of the most energy efficient.

Building systems for residential and commercial structures in the market today.

Got its unique characteristics that we continue to have to educate people on but.

Frank Sullivan: And so notwithstanding the inventory mismatch for demand, particularly in this higher interest rate environment, the North American housing market, US housing market is weak and continues to be weak. And that's hurt us from other categories that they have been strong in, including manufactured housing and or RVs. And those are weak after the post COVID bomb. All that notwithstanding, we have some very targeted initiatives in our cop code, management, business, there's some patented products there that allow for a significant reduction in the use of herbicides and pesticides.

It's also.

One of the most durable residential and commercial structures today. So for instance.

Got.

Approval for new <unk>.

Specifications for schools in Kentucky.

And that was in part a direct result of a terrible experience they had with a tornado a few years ago.

The durability of new dirt and Hurricanes.

Also becoming well known and so it's a combination of the energy efficiency for people that are looking for net zero buildings, we completed the first net zero.

Frank Sullivan: We believe in the long term benefit of that business and we're investing in that. We're investing in an expanding MRO channel for our alleged brands business that should take out some of the storm related cyclicality. Those are just a few examples. And the one thing that the lower volume is hiding is some significant map 2025 improvements in our specialty products group, but as Rusty highlighted. Most of these improvements are on the manufacturing floor and or cost price mix items and with improved conversion cost, better handle on mix.

School in Kentucky, a year ago, it's not just the new Nerf <unk> other building components, but.

So we can deliver that.

The durability in the face.

Frank Sullivan: Those benefits only show up when we sell something. And so the lower volume is hiding. I think the good efforts in our specialty products group folks have made along with the rest of our PM and executing on the map 25 initiative.

Expectations for more climate driven.

Weather events.

Thank you.

The next question comes from Josh Spector of UBS. Please go ahead.

Good morning, Josh.

Hey, good morning, Frank Thanks for taking my question.

I wanted to ask on group pricing overall, and maybe if you could drill into the segments a little bit more beyond construction I guess based on what you've given I mean, it seems like price was up three and a half ish percent or our math at least is on a stack versus a few years ago second half last year, you were tracking about 30% pricing multiyear.

Frank Sullivan: All right, thank you very much. Thanks, Mike.

Jack.

This quarter implies maybe about mid twenties.

Ghansham Panjabi: The next question comes from Ghansham Panjabi of Byrne. Please go ahead. Good morning, Gensham. Good morning, Frank. Good morning, everybody. Thanks for fitting me in. I guess as a follow up to the last question on construction and the margin improvement that you saw there. You know, a practicality, several factors, fixed cause improvement, raw materials, map savings, settings, etc. How would you have us think about those dynamics from a stack rank standpoint in terms of the margin bridge year-of-year?

I'm not sure if those numbers are right with your thinking that there has been a step down sequentially or not and just curious how you think pricing would trend in the various segments based on that information through the rest of the year.

Sure and we don't provide that.

That detail by segment, but on a consolidated basis.

<unk>.

We're in the three 5% range, so across our businesses Youre seeing.

Price impact in the quarter that.

It might be as low as one 5% it might be as high as five dependent and that's really not by segment by product line and really driven by raw material issues, but on a consolidated basis, we were about three 5% price in the quarter.

Ghansham Panjabi: I'm, could you repeat that? I'm not sure I understand the question, Gensham. Yeah, so the margin improvement in CPG, I think it was up 310 basis points year-of-year. Just the main drivers as it relates to that. So I think the main drivers are map 25 initiatives where, you know, we're seeing improvement in conversion costs. I mentioned this what we call D3 initiative at RPM. It's data-driven decision making. So we are much better today at thriving mix on a going forward basis and that's helping us.

Okay. Thanks, I mean, I guess the crux of my question more is there any sequential.

Down in pricing.

And any of the segments or is that math may be incorrect.

No I think Thats correct, I mean again we.

We've been fighting and it's not unique to us are all industry for that matter most manufacturing.

Ghansham Panjabi: We are benefiting in the quarter from the commodity cycle disinflation that we're starting to benefit in a few places. Construction products is certainly one of those. And then it really is a very focused efforts in strategic initiatives around repair and maintenance. So we're seeing real strong results in our core roofing business. All of that is we're 95% re-roofing and repair on existing roofs, not new construction. Pure air has been very strong and we expect that to continue.

Commodity cycle, that's bigger than any of us have ever seen.

Over a two year period, we saw more than $500 million of raw material price impacts in our consumer business and so it took us a long time to get on top of that.

And I can tell you the other aspect of it and this is something that I said in the spring of 'twenty two and we were early we were starting to see inflation throughout our P&L.

And so.

We've seen inflation, which continues while while raw material inflation is abating and our related price increases are stepping down and you can see that with the data I just gave you this quarter.

Ghansham Panjabi: We'll see tens of millions of dollars of new volume from that initiative. We've been working on for the last three or four years. We just added a significant piece of that with the Texas acquisition we announced in this past week. So it's really focusing on the things that we can control that tend to be in the large repair and maintenance areas. The last comment I'll make is that hospitals have been a significant market for us.

Labor is still an issue.

Items like insurance.

Or a meaningful issue in terms of higher inflation and so inflation still exists in a number of factors that inflation still exists.

Because of interest rates and the housing market and I think thats part of the challenges that we're seeing particularly in our specialty products group.

Ghansham Panjabi: And we had some booming business there during and coming out of COVID. Last year was not a good spending year for that sector. And so that weighed in our performance in fiscal 23 and we're seeing some pickup on a relative basis there. And also some pickup on New Dura, which had a challenge 23 because of what's happening in the residential market. But again, a very focused effort on expanding the understanding and the specifications for the new Dura ICF system.

So I guess, sorry to clarify what more time, so it's a sequentially when you're talking about inflation still persisting or your pricing moving up sequentially down sequentially or holding sequentially in terms of how youre thinking about this quarter and your outlook.

No.

In the quarter year over year were up 1%.

And which quarter this quarter.

Second quarter, yes, we're going to lap some anniversaries of selling price increases Josh. So yeah, we would expect marginal decrease in that three 5% price effect, but it's okay.

Ghansham Panjabi: So again, it's a lot of self health and a lot of very deliberate spending into specific initiatives across our PM. And you're seeing the results of that spending. We're seeing best impacting our construction products group as we sit here today. Okay, perfect. Thank you for that, Frank. And then you know, just in terms of the balance sheet.

Ken.

There's a few areas, where we've had price increases where it was just necessary to get them there.

Or a little outside of cycle.

Frank Sullivan: What do you expect the balance sheet to sort of end up at the end of the fiscal year 24 and net? at Deep Adabases and just related to that, you know, how are you thinking about capital allocation in terms of in context of where interest rates are and all the macroeconomic uncertainty and I guess I'm referring specifically to your appetite for incremental acquisitions. Sure, great question. And so let me set back big picture and kind of just address simply what are we trying to do with this math program and it's really two things.

But we are seeing the impact of price sequentially stepped down and so.

I can't give you the numbers for future quarters other than in this quarter.

Price increases accounted for about three 5% and we would expect that to sequentially slowly bleed out the next couple of quarters.

And things that we're paying attention to our odd off once again relative to oil prices and their impact in other areas.

In play relative to tariff activity that's being.

Frank Sullivan: We're trying to significantly improve our cash conversion cycle and it's working and we're trying to be more data driven in our decision making with a real focus on investing in specific organic growth initiatives and you're seeing that work, particularly in our construction products group. And so what that looks like is a record record quarter cash operations followed by record first quarter cash from operations, notwithstanding a handful of acquisitions and maybe 25 million or so of what did we acquire Rusty last year and Sherry purchases.

Pushed in Congress. So there are a couple of areas that we're paying attention to but.

Nothing that's impacting additional price increases today.

Okay. Thank you.

Yeah.

The next question comes from Alexi <unk> of Keybanc. Please go ahead.

Good morning. Good morning. This is a this is ryan on for Alexia.

So I guess my first question I understand there's a number of different pockets of non res, but can you walk us through how demand is kind of trending in each of those markets and have you seen any signs of slowdown in backlogs in any of those markets. Thank you.

Frank Sullivan: Why so we did 50 million if you know any cherry purchases year over year we reduced that by $332 million and so that focus on cash conversion that's really working we expect that those improvements to continue. And so that's big picture what we're trying to do. The volatility that we've all experienced over the last few years is continuing and so as we were with our board, I think we'll have a better answer in the coming quarters.

Sure so.

There's not too many in the construction markets theres not too many good statistics to point to.

Residential construction has taken it on the Chin in North America, which is where we have our primary exposure.

<unk> structured construction is not very strong.

You look at the office glut and what's happening there.

The build out of the Amazon distribution centers things like that have run their course in terms of the big growth. So there's not a lot of good signs to point to.

Frank Sullivan: We'll have a better answer in the coming quarters, Gansham about how we think about capital allocation. But as we sit here today, the M&A markets are relatively slow. We will continue to execute on good strategic small, the medium sized deals. But the days of huge multiples in my opinion are over if if not forever at least temporarily, you know we went through a period of time where incremental cost of capital was almost zero.

The areas of strength for us.

Are the things that we talked about very deliberate initiatives around maintenance and repair in the sectors that we have strengthened and so I think our performance is.

Backing the underlying trends in our <unk>.

Big part of that is.

In our construction products group.

I would say, we have maybe 30 or 35% exposure to new construction between residential and commercial.

Frank Sullivan: That is not true today. And so given the sharpiness of the markets and the map initiatives that are benefiting our conversion costs and our efficiency, we are focusing a lot of time and attention on driving organic growth where we can. It's easier said than done in an economic environment that is as Rusty likes to say feels like a rolling recession both geographically and across sectors. Understood. Thank you.

Which means we are in the 65% to 70%.

Less cyclical renovation repair.

Construction and re roofing markets.

And I think those markets are stable and we're picking up share given some of the new initiatives we have.

The other area. The only area. That's showing continued strength is related to industrial construction and capital spending driven by the onshore and movement and a substantial amount of government subsidies in that area and that is impacting construction products group a little bit in our perform.

Russell Gordon: The next question comes from John McNulty of BMO capital markets. Please go ahead. Morning. Thanks for taking my question. So I guess the first one would just be on raw materials. You know your previous de-stocking over the last few quarters that you guys were implementing and FIPO makes it a little bit complicated to kind of think about. How raw is a really trending for you. So I guess can you help us to think about it looks like you got some improvement in in the first quarter.

Russell Gordon: How should we think about that continuing to flow through in terms of deflation throughout the rest of, and has the move in oil recently? Has that had any impact upward on some of the raw material trends that you pay attention to? How should we be thinking about that?

<unk> coatings group more.

Got you. Okay. That's helpful. Thank you and then just I have a question on your comment in the deck here and the specialty products group. So you mentioned.

No customers held inventories below historical levels I mean does this mean destocking. This business is over and there's been no uptick from from restocking can you.

Try and parse that out for us. Thank you.

Russell Gordon: Sure, I'll address your last portion of your question first. The only place where we're seeing the move in oil prices impact us immediately is an acetone. That's a prime, it impacts a number of our coatings businesses, but in particular Rustolium So in general, as you followed our VM for many years, we in our industry follow the commodity cycle increases up with landing price increases and so you see some margin compression and then as the commodity cycle cycles down, we typically pick up the lost margin.

Sure.

It's over I don't know that it would have a much of a big impact going forward, but a good.

A good example is because of the supply chain challenges.

<unk>.

Into.

RV and.

What remaining furniture or.

Cabinet, making has done it was very common for those businesses pre COVID-19.

To shut down.

For instance, in the month of January for maintenance and other things and during the Covid period and in the post Covid period with supply chain challenges so shutdowns disappeared.

They showed back up.

And.

In calendar 'twenty, three and and so.

They got back to normal shutdowns there was inventory.

Adjustments the other thing that I don't think we've emphasized enough gear.

Russell Gordon: We are now experiencing that in Q1 in most of our businesses and segments, except consumer. We would expect to begin to see that and consumer in Q2. We're rounding metal packaging increases that we're pretty extreme and are paying attention to some care of activity relative to pin plate, which is the primary raw material for metal packaging and spray cans, things like that. TIO2 is a modest lear over year and acetone is the only raw material that we see reacting to current price increases.

Most of this is done but not all of it but starting in December of last year really driven by better data in our map 25 initiatives.

Very deliberately shut our own production in a number of areas to make some permanent inventory adjustments and so on the second half of 'twenty. Three we had tens of millions of dollars unabsorbed overhead both from lower volumes from a market perspective, but also lower volumes from deliberate decision.

<unk> to shut down production and some of our specialty products companies and our consumer group in other areas to really address some permanent inventory left.

Russell Gordon: So the commodity cycle benefited us particularly in our construction products and performance coating segment in Q1 and we would expect it to continue to be a benefit to margin expansion in Q2 as well. Again, that's another one of those things that is volume driven. You get to benefit when you sell something. Got it. Okay. No fair enough.

Level issues across RPM, most of that is behind us as well.

The next question comes from David Wong of Deutsche Bank. Please go ahead.

Hi, Good morning, David.

Frank Sullivan: And then maybe just on the consumer segment. So you spoke to it sounds like some of your customers are drawing down inventory kind of below below normal levels. I guess can you help us to think about if that's largely played out at this point or if you're still a disconnect in terms of the point of sales and what you're seeing in terms of pull. And then I guess maybe as an add on to that, you mentioned some share gains.

I think I had and deflation cycle, you historically generate 100 to 200 million price cost tailwind.

Can you talk about how much was it price cost tailwind down dollar basis seeing F Q1, and then with the higher oil prices now and some lingering inflation and consumer maybe help us understand.

Your expectation on price cost realization.

Frank Sullivan: I guess can you speak to those as well? Sure. So our consumer segment is continuing to perform. I think at a good level. I think most of the inventory adjustments are behind us. They were certainly significant last year. I will tell you in terms of consumer takeaway while it is improved meaning less negative. It still trends across different product categories and different channels and the kind of low to mid negative range, which is a slight improvement from what we experienced second half of last year, which was kind of solidly mid upper single digit negative consumer takeaway.

The cycle versus that historical <unk> T 200, mainly rich.

Sure. So I could give you a big picture I don't know that we would disclose that by quarter.

So big picture in our map initiatives, we laid out a goal and it was actually a year ago that we went public with the.

Matt.

Goals.

Achieving $465 million worth of savings.

And about $115 million of that was our expectation of commodity.

Cycle recovery, so non map driven initiatives just the <unk>.

Commodity cycle recovery.

Our target this year and map savings.

Is $160 million.

Frank Sullivan: Some of that's hangover from the COVID bump. As we communicated in the past, we had lost some share to major big box account. Some of that was related to our own supply challenges. Our supply challenges are over our fill rates are back to solid numbers through the map initiative. We have created through efficiencies 40 or 50 million units of volume. And so we're in really good shape today there. And you know, product gains have been with our universal.

I would venture that half of that is going to be commodity rate cycle recovery.

Depending on.

Our.

<unk> and looking at the past.

It's possible that we would exceed that $115 million, but again time will tell as the quarter's results.

It happened.

Got it and then SG&A.

Thanks.

First can you talk about the investments you're making.

And if demand gets worse from here how much can you pare back from those Spendings and then can you also quantify the year over year headwind on incentive comp on a full year basis.

Frank Sullivan: We're picking up share in new accounts and that's going really well. The restolium five and one spray is showing some incremental gains and I think incremental any positive numbers in the face of slightly negative consumer takeaway. I look good. We've got some new product introductions at dab a two component spray foam and one cans it's being introduced really well. As well as a textured spray that's being well received. So new product introductions are going well and we actually experience because of the new product introductions. Some positive unified growth is the quarter of dab. And so that's kind of the broad overview of what's happening in consumer.

Sure I'll, let rusty address the incentive comp issue.

Some of it is.

A truly incentive cash, which is hydro based on higher <unk> and better mix some of it.

Continued inflation in wages and salaries sure yeah in terms of.

The SG&A for the quarter David.

There is a few areas of compensation. One obviously is commissions go up when we sell more especially of higher margin products, which.

We're pushing and you saw that on the gross margin line.

Another area would be.

Frank Sullivan: Thank you very much for the caller. Sure, thanks, John.

Performance related bonus accruals were up a few million dollars during the quarter and then on.

Steven Byrne: The next question comes from Steven Byrne of Bank of America Security. Please go ahead. Morning, Steve.

Basic.

Salary and wage inflation and SG&A.

Unknown Executive: Maureen Frank, I've got a question for you on CPG. Do you have a view as to how much of the revenue in that segment is generated from service versus selling materials. And that could be a complicated question given some turnkey projects. But I ask about this service component because it seems as if it's something that you're expanding into this pureer model seems to be service in your restoration and maintenance on roofing seems to be, you know, there's a service revenue component.

Typically those have run over the long term about 3% or up more in the four to five.

5% range right now so as a result of the pay increases were probably.

Six or $7 million range impacting SG&A.

And to your the.

The first part of your question.

Roughly 25% or 30% of the SG&A increase in Q1 was driven by.

<unk> focused.

We simply call a big ideas for growth.

<unk>.

At our businesses. So I could give you a broadly some of the things these are.

Just a directional.

Unknown Executive: And just just wondering if you had an estimate on that and maybe more importantly, would you see that model potentially expanding into other areas of service such as cleaning or water treatment, something beyond, you know, the air quality inside the building. Sure. So a great question. And in general, our construction products group revenues are about 30% maybe slightly higher 30% service revenues with roughly 70% driven by product sales. It's a little bit, there's a little ambiguity there because in most instances when I selling in some cases, we sell only repair services or other services.

But in our construction products group pure air Panelization, New <unk> are getting a lot of attention and extra investment.

One example in our performance coatings segment is a project that we're in our second year called <unk>, which is <unk>, two 1 billion and.

There are specific initiatives in Canada, Europe , and non oil and gas segments.

In our specialty products group we.

We are focused on a turnaround of our day-glo resin and fluorescent color business I mentioned previously the specific investments in the copco patented adjuvant.

As well as the channel MRO channel focus for legend brands, which is a new market for them.

In consumer we're very focused on increasing advertising and promotion around some of the new product introductions at DAP and rust oleum for.

The balance of the year.

If we follow through with our plans.

<unk> anywhere from 30% to 40% of SG&A increases would be associated with these specific initiatives with the intent of driving organic growth.

Unknown Executive: But in many instances, those services go hand in glove with the material sale for a regrouping project. For instance, I would expect that over time to expand. And we talked about pure air. That's a good example that addresses right at indoor air quality. And it we have been asked for many, many years as we're on the roof with our WTI services group and addressing issues on the roof. And not just roofing materials, but rooftop safety and terms of the work that Tramco does with fiber grade in terms of railings and walkways.

All of these are easy to cut back and I don't see that Cavalierly.

In some instances hiring more salespeople or tech service people in other areas, it's truly advertising and promotion in our digital advertising.

But as we sit here today.

We think thats pennywise and pound foolish and it is our specific intent.

To focus some of the map savings.

On these.

Unknown Executive: We've been asked for many years. Can we address HVAC issues and repair and the answer for too long was no. Two years ago, we acquired pure air. And there's a key element of this that took us a while to fix. And that is a service business whereby we do an assessment of existing HVAC systems and then have really good capabilities to clean this in fact and repair components. And it was a $20 million business when we acquired it to be expect a few tens of millions of dollars of revenue growth this year.

Specific growth investments and if we're successful you'll see in the coming year.

Some more stories like what we're talking about in our construction products group today, we expect that to continue in CPG for the balance of year. They got good momentum in these new initiatives.

And on the flip side, if we bump into the.

The deep recession that some economists fear.

There are tens of millions of dollars of SG&A that can be cut pretty quickly.

Got it thank you.

Thank you.

Yes.

The next question comes from Mike Sison of Wells Fargo. Please go ahead.

Unknown Executive: And the potential for that is meaningfully higher. And so as that grows as a share of our business that will grow that 30% services business higher. The benefits are basically about a one third cost versus total replacement. The immediate benefits are significant improvement in efficiency of an old system that's getting one down because of blades or motors or other things. And there is a measurable benefit immediately and indoor air quality. And so for the hospitals and school system customers that our construction products group serve, it's a really exciting market for us.

Good morning, Mike.

Hi, This is Richard on for Mike.

Okay.

Hi.

Yes first question you saw strong growth in Europe over 9% year over year growth you did divest one noncore.

Business.

Performance coatings. So can you give me.

Some color on.

What end markets are driving the strong growth this quarter in Europe , and should we expect margins to improve.

What from the divested business.

Yes so.

I think part of the European story as Europe really was negatively impacted by.

Unknown Executive: And Frank, any thoughts about expanding some of that service to go into other issues such as cleaning services, for example, or water? Yeah, I think the expansion will come from our continued market share games, broadly, roofing. But the areas that we'll expand like a pure air are where we can add value. So we can add significant value versus replacement. And so we'll look for other opportunities, but they'll be limited to areas where we can truly add value as opposed to areas that are more commodity-like in services.

Recessionary elements and then the Russian more on Ukraine, and so we experienced a very challenging.

Performance in Europe in calendar 'twenty, two and most of fiscal <unk>.

23, and so some of it is we're rounding easy easier comparisons. The other area is that we are having a more for <unk>.

Focused.

Effort in the map 25 initiatives in Europe for instance, our EMS 168 initiative, which is really driving lean manufacturing and continuous improvement disciplines across our plants are very in plant hands on utilizing outside consultants process. It takes weeks followed up by.

Unknown Executive: And I think it's critical and it's back to that component of it's not just the service, but it's adding the material element or the cleaning or disinfecting or blade repair components that go along with it. One other factor, which is also true for our Stoneheart flooring business, and a reason that we got off to a rough start and the first year of pure air was staffing. I think anybody that is doing any work in residential or commercial and industrial construction, workforce issues are significant.

Performance audits on a 90 day cycle that got interrupted by Covid.

So our efforts.

Were halted a little bit the lion's share of it was initially focused on our larger plants in North America, we're seeing those benefits now happen in Europe , we positioned Dave <unk> Who's our performance coatings group President <unk>.

We also had a big presence in Europe , he and his family moved this summer to Europe , and he has a senior leader oversight to help accelerate.

Unknown Executive: We have solved that issue with pure air with our WTI roofing workforce. We have a great collection of installers with our Stoneheart business. And so that certainty of having our people on the job on time staying on the job to get it done in this environment is also getting us a competitive advantage in the roofing and the HVAC restoration and in the industrial flooring markets.

Frank Sullivan: Okay, thank you, Frank.

Some of the opportunities to drive efficiencies more aggressively in Europe .

The decision to divest a business in the UK and close some underperforming operations were part of that and so all of that should bode favorably for growth and margin expansion in Europe quarter by quarter and over the next couple of years.

Great. Thanks, and then just a follow up.

Frank Sullivan: And one quick one on Madura, do you see the value proposition of that product to be more in, you know, its insulation value, thus either cold or hot climates, or more for its hurricane tornado protective value, and how are you marketing that product based on those two, those two value propositions. So the simple answer to that is yes, it's one of the most energy efficient building systems for residential and commercial structures on the market today.

Strong EBIT margin growth on.

CPG as well.

Is there a limit to how much additional margin improvement you can see there obviously, if you go on page 18 and 5%.

Maybe talk about some of the.

Specific to CPG benefits from map and.

And pricing as well.

Sure.

I don't know that I would talk specifically about limits too.

EBIT margin growth in any of our businesses, we still have room to grow.

But not surprising from my earlier comments.

There is a trade off in the near term between expanding margins and investing in organic growth and back to the big picture thing.

Frank Sullivan: It's got its unique characteristics that we continue to have to educate people on, but it's also one of the most durable residential and commercial structures today. So for instance, we got approval for New Dura specifications for schools in Kampucky, and that was in part a direct result of a terrible experience they had with a tornado a few years ago. The durability of New Dura in hurricanes is also becoming well known, and so it's a combination of the energy efficiency for people that are looking for net zero buildings.

If we simplify across RPM internally to what our investors what we're trying to do here is <unk>.

Significantly improve our cash conversion cycle and ramp up organic growth initiatives and we think the economic circumstances that we're in call for that and we're having really good progress in the cash conversion cycle.

Movement and Theres more to come.

We are having.

Really good improvement on the organic growth piece in construction products and we're hopeful that.

Frank Sullivan: We completed the first net zero school in Kampucky a year ago, it's not just the new new Dura piece and other building components, but so we can deliver that. And the durability in the face of expectations for more climate driven weather events. Thank you.

We'll see more benefits across more RPM companies coming here.

The next question comes from Frank Mitsch Fermium Research. Please go ahead good morning, Frank.

Good morning, Frank to you as well.

Nice start to the year when it come back to the map 2025, I believe you mentioned before that.

Are you expecting a benefit of $160 million in fiscal 2024, but my understanding is that that's the run rate right that you are expecting to end. This year and you guys are actually expecting about 100 million to impact.

Joshua Spector: The next question comes from Josh Spector of UBS. Please go ahead. Good morning, Josh. Hey, good morning, Frank. So thanks for taking my question. I wanted to ask on group pricing overall. And maybe if you can build the segments a little bit more beyond construction. I guess based on what you've given, I mean, it seems like price was up 3.5%. Our math, at least, is on a stack versus a few years ago.

Joshua Spector: Second half last year, you're attracting about 30% pricing multi-year stack. This quarter implies maybe about mid 20s. I'm not sure if those numbers are right with your thinking that there has been a step down sequentially or not. And just curious how you think pricing would trend in the various segments based on that information through the rest of the year. Sure. And we don't provide that detail by segment, but on a consolidated basis, we're in a 3.5% range.

Joshua Spector: So, you know, across our businesses, you're seeing a price impact in the quarter that might be as low as 1.5% and might be as high as 5. Depending, it's really not by segment. It's by product line and really driven by raw material issues, but on a consolidated basis, we're about 3.5% price in the quarter. Okay. Thanks. I mean, I guess the crux of my question more, is there any sequential step down in pricing and any of the segments, or is that math maybe incorrect?

The 2024 P&L is my understanding correct.

That is a 100% correct and I appreciate your clarifying that.

Alright, great and what was the actual benefit that you saw in the first quarter from from F 2025.

Of the 309 EBIT.

We ran at about the run rate you'd expect so it was about a quarter of that year's benefit maybe a touch ahead.

So 25% or $30 million.

We communicated in July we had $120 million goal in fiscal 'twenty, three we exceeded that.

And.

We have $160 million run rate call and Youre right. We would you expect $100 million of it does flow through our P&L. Some of that has benefits that will begin to be realized in the second half of the year in terms of run rate. Some of that is the impact of FIFO.

Accounting both in terms of conversion costs in the commodity cycle benefit that shows up in our case, maybe 60 or 90 days later than where we on LIFO.

And so that's what's happening there, but we are.

On or slightly ahead of target.

For that $160 million run rate for the year and as I said earlier I.

I would expect about half of that or slightly less than half of that to be associated with the commodity cycle benefits as well that this should be the year, unless we get surprised by oil prices or some other spikes and as we look at in the past where the lion's share of the commodity cycle benefits should show up.

Joshua Spector: No, I think that's correct. I mean, again, we, we've been fighting and it's not unique to us, our whole industry, for that matter, most manufacturing, a commodity cycle that's bigger than any of us have ever seen. You know, over a two year period, we saw more than $500 million of raw material pricing packs in our consumer business. And so, it took us a long time to get on top of that. And I can tell you the other aspect of it, and this is something that I said in the spring of 22.

Got you well we are we are we are seeing oil.

Starting to pick up since the beginning of July but.

I wanted to also ask a bigger picture macro question.

Given that the guide for the year assumes no recession, and you've been indicating that you've been seeing.

Joshua Spector: And we were early, we were starting to see inflation throughout our whole P&L. And so, we've seen inflation, which continues. While raw material inflation is abating, and our related price increases are stepping down, and you can see that with the data I just gave you this quarter, labor is still an issue. I know some slight insurance are a meaningful issue in terms of higher inflation. And so, inflation still exists in a number of factors, and inflation still exists because of interest rates in the housing market.

Red turn to yellow turn to Green I believe you mentioned last quarter and reading through the release.

Joshua Spector: And I think that's part of the challenges that we're seeing particularly in our specialty products group. So, I guess sorry to clarify it one more time. So, sequentially, when you're talking about inflation still persisting, are your pricing moving up sequentially, down sequentially, or holding sequentially in terms of how you're thinking about this quarter and your outlook? So, in the quarter, year over year, we're up 1% in which quarter? This quarter? Oh, the second quarter?

It sounded fairly promising so I'm just curious as to where do you stand on the hold hard landing soft landing no landing for the U S economy.

Hi.

For your for your fiscal year.

Yes, I think.

Maybe Rusty commented this rusty Gordon is captured.

Sentiment of this better than any economist Dino and maybe it's a combination of his reading and seeing our numbers, but it feels like we're going through a rolling recession.

In the housing market has taken it on the Chin you can see it in our specialty products group results you can see it in companies that serve.

Essential.

Construction and <unk>.

The components that go into that furniture and other things.

Retail.

Take away has not been very strong across many categories and as we commented in the <unk>.

Half of last year, Pos in our categories tended to be.

Mid to high negative single digits, we're seeing that improve which means it's less bad.

Joshua Spector: Yeah, we're going to lap some anniversaries of selling price increases, Josh. So, yeah, we would expect marginal decrease in that 3.5% price effect. But it's, you know, again, There's a few areas where we've had a price increases, where it was just necessary to get them that are a little outside of cycle. But we are seeing the impact of price sequentially step down. And so I can't give you the numbers for future quarters other than in this quarter price increases account of about three and a half percent.

And so.

I am hopeful that there'll be somewhat of a soft landing in the sense that.

This is a rolling recession again Europe when an early we're seeing better performance in Europe , I think there is more stability around the impact of the Russia, Ukraine, we're rounding easier comps quite candidly there is some reasonable growth in the UK for instance in the U K seems.

To be performing better in continental Europe , as we sit here and for US that's a good thing because a little less than half of our revenues in Europe come out of the U K.

Joshua Spector: And we would expect that to sequentially slowly bleed out the next couple of quarters. Pay attention to our odd off ones again, relative to oil prices and their impact in other areas, tindly relative to tariff activity that's being pushed in Congress. So there are a couple of areas that we're paying attention to, but nothing that's impacting additional price increases today. Okay, thank you.

And so.

That's the best shot at have a dad, Frank and other than to say a lot of our performance in this quarter and what we expect in the second quarter is as much self help as it is counting on any economic.

Green shoots are pickups.

Very helpful. Thank you so much.

The next question comes from Kevin Mccarthy of vertical research partners. Please.

Unknown Executive: The next question comes from Alexi Yifimov of T bank, please go ahead. Good morning. This is Ryan on for Alexi.

Please go ahead.

Good morning, Kevin.

Good morning.

Frank I wanted to ask about the impact of fiscal stimulus. It seems like the infrastructure and re shoring project contributions of really gain some traction over the last couple of quarters can you speak to that kind of a magnitude and duration of that tailwind do you think it will.

Unknown Executive: So I guess my first question, I understand there's a number of different pockets of non res, but can you walk us through how demand is kind of trending in each of those markets? And have you seen any signs of slowdown in backlogs in any of those markets? Thank you. Sure. So, you know, there's not too many in the construction markets, there's not too many good statistics to point to, you know, residential constructions taken on the chin in North America, which is where we have our primary exposure.

Continue to accelerate as the year progresses or flatten out and when do you see the peak in that phenomenon.

Yes, I still think that there is a significant amount of fiscal stimulus.

Unknown Executive: Commercial constructions, not very strong. You know, you look at the office glut and what's happening there. The build out of the Amazon distribution centers, things like that have run their course in terms of the big growth. So there's not a lot of good signs to point to the areas of strength for us are the things that we talked about, very deliberate initiatives around maintenance and repair in the sectors that we have strengthened.

Coming.

The infrastructure Bill that was passed on a bipartisan basis.

One two trillion I think the analysis of that kind of although its infrastructure, but.

If half of the mid five or $600 billion was infrastructure.

That's still coming up you can see that in highway construction you can see that in the onshoring of manufacturing.

Can see Dan and some expansions in airports so.

I think as we sit here today, we see that having a pretty good runway for the next.

Unknown Executive: And so I think our performance is kind of buffing the underlying trends. And a big part of that is in our construction products group. I would say we have maybe a 30 or 35% exposure to new construction between residential and commercial, which means we're in the 65 to 70% less cyclical renovation repair. Re-construction, re-roofing markets. And I think those markets are stable. And we're picking up share given some of the new initiatives we have.

Year, and a half or two.

And Thats, our best guess, it's not having any impact.

Pact on residential construction and the housing market.

And I think.

That in commercial construction as well, there's two big macro trends that are fighting each other on is massive amounts trillions of dollars.

Federal subsidies and stimulus.

Fighting the fastest interest rate increase at this country has ever seen and you look at bond rates today.

The cost of mortgage the cost of rent.

Unknown Executive: The other area that the only area that's showing continued strength is related to industrial construction and capital spending driven by the iron shoring movement and a substantial amount of government subsidies in that area. And that is impacting construction products group a little bit in our performance coding group more. Gotcha. Okay, that's helpful. Thank you.

Cost of a lot of things that are that driven are continuing to go up. So those are the two macro trends I think that are fighting each other relative debt I'll be staying in these things impact the.

Economy to your question and impact us but.

Portions of our construction products group in portions of our performance coatings group, we think they are still pretty good tailwind there.

That's a great segue to my second question you spoke earlier on the call Frank about how higher interest rates render acquisitions, a bit less appealing relative to the ear of free money. The flipside of the coin is maybe divestitures become less punitive or less dilutive.

Unknown Executive: And then just I have a question on your comment in the deck here in the specialty products groups. So you mentioned, you know, customers held. [inaudible] Inventories Below Historical Levels. I mean, does this mean destocking this business is over and there's been no uptick from restocking? Can you kind of try and parse that out for us? Thank you. Sure. I think it's over. I don't know that it would have a much of a big impact going forward, but, you know, good example is because the supply chain challenges, you know, into RVs and what remaining furniture or[inaudible] You know, depending on our dynamics and looking at the past, it's possible that we would exceed that 115 million, but again, time will tell, as the headquarters results happen. Got it.

And in the case of low margin businesses, we're starting to see a couple of examples where divestitures can actually be accretive and so I'm tempted to ask you as you kind of look across the portfolio do you think the next year or two could be an interesting window for what I would call portfolio cleanup dive.

Divestitures, perhaps some candidates and specialty products or elsewhere in the portfolio to follow the trend that you started with Guardian.

Sure.

We're continuing to look as part of our map 2025 initiatives.

At <unk>.

<unk> to improve margins, where we have.

Low margin no growth businesses. The latest example of that was in this quarter were in the U K.

We were able to sell off a P. A service element of our USL business.

And then also restructure a piece.

The higher margin product lines and putting in different parts of RPM.

Paid off nicely.

<unk> piece.

It's gone to a group that we will retain all the employees there and continue to drive that business in a manner that works for them, but was not a margin positive for RPM. So.

Part of the self help and what we expect to be a quarter by quarter and meaningful improvement in European margins.

As not only.

The broader dynamics, we're talking about but divesting or closing our restructuring lower margin no growth businesses there.

There is more of that to come over the next year in our map initiative in different segments and it tends to be either product line or specific facility related and when they are executed will provide details.

Perfect. Thanks very much.

Thank you.

The next question comes from Jeff Zekauskas of Jpmorgan. Please go ahead.

Good morning, Jeff Hi, good morning, Thanks very much.

I think on an adjusted basis your SG&A costs were up about 12% in the quarter.

Isn't that way too high and in general.

Your SG&A costs grow.

Above the rate of sales growth below the rate of sales growth at the rate of sales growth over a longer period of time or do not have a target.

Sure.

So in general the SG&A in the quarter was up 10.

10, 9% and so I'm not sure.

Yep Yep Yep.

And it really goes back to my earlier comments.

A couple of things are driving higher SG&A. Some of it is continued inflation in wages and salaries.

That we're beginning to annualize those.

We're not seeing that so much today.

We were seeing it throughout fiscal 'twenty, three and so in the first half of fiscal 'twenty to the higher wages and salaries insurance costs, all the things that impact us and all our peers are there.

The other element is really twofold, one is being much more deliberate about driving mix.

You are talking to a CFO and CEO on a company, who maybe five or seven years ago wasn't very good at analyzing mix with great accuracy in hindsight and today with the data initiatives we have in place.

On the ground at the operating level, we are much better at driving mix going forward, where do we want to incentivize our sales forces to focus their time with higher mix comes higher commissions, particularly in our construction products and performance coatings group, but we still have a fair amount of commission based sales.

Russell Gordon: And then SGNA, first can you talk about the investments you're making and if demand gets worse from here, how much can you pair back from those spendings. And then K also quantified the year-over-year headwind on incentive comp for your business. Sure, I'll let Russly address the incentive cap issue and now some of it's a truly incentive cap which is higher based on higher results and better mix and some of it's continued inflation in wages and sales.

And then lastly are the very targeted initiatives that I've been talking about we fully intend as part of map 25 to take some of these margin savings and reinvest them in our P&L and growth initiatives.

Paying off in a big way in construction products today, and I think as long as we can generate solid sales growth and.

And earnings growth and again I would remind you.

Russell Gordon: Sure. Yeah, in terms of the SGNA for the quarter day that there is a few areas of compensation, one obviously is commissions go up when we sell more especially of higher margin products, which we're pushing and you saw that on the gross margin line. Another area would be performance-related bonus, a cruel drop of a few million dollars during the quarter. And then on, you know, basic salary and wage inflation and SGNA, you know, typically those have run over the long term, about 3% are up more in the 4 to 5% range right now.

We are generating positive results as RPM and in most of our segments other than SPG on top of Big Mountains last year.

Consumer sales were up 22, 5% RPM had a all time record Q1.

I think our EBIT last year in Q2 was a all time record and it was up 36% we.

<unk> stopped at.

And so as long as we have forward momentum on the sales line and were experiencing both the improved cash conversion cycle and the margin enhancements that we expect we will continue to reinvest in these growth initiatives and then we have to have the discipline. When after a couple two or three years of investing we're not seeing.

Russell Gordon: So as a result of that, pay increases were probably, you know, in the 6 or a 7 million dollar range impacting SGNA. And the first part of your question, roughly 25 or 30% of the SGNA increase in Q1 was driven by focused, we found big ideas for growth, BIG, at our business business. So I can give you broadly some of the things. These are just a directional, but in our contract and products group, pure air, panelization, new Dura are getting a lot of attention and extra investment.

The expected results.

To cut back in those areas.

As I mentioned earlier, Jeff as well.

Our targeting very specifically, what we call bij big ideas for growth investments separately in an SG&A sheep.

And.

If the economy turns sour quickly we.

We have already lined up.

Specific SG&A cuts that we could make.

Okay, and then maybe just one.

Yes, I would just comment on that as long as we continue to outperform quarter by quarter versus some big year Big Mountains last year I would expect for the balance of the year for you to see SG&A rise at a level higher than sales.

Russell Gordon: One example in our performance coding segment is a project that we're in our second year called C2B, which is their specific initiatives in Canada, Europe, and in non-oil and gas segments. In our especially products group, we are focused on a turnaround of our day-glow resin and fluorescent color business. I mentioned previously the specific investments in the cop code patented adjuvants, as well as the channel, MRO channel focus for ledger brands, which is a new market for them.

While at the same time, Youll see gross margin and EBIT margin expansion for.

For the year in the long run SG&A should grow at or below.

The level of sales growth fits that's correct.

Okay, Great Alright.

For my follow up.

Sort of a two part follow up.

Should inventory levels changed very much this year.

You're kind of flat sequentially, but raw materials are down and demand sort of soft.

Russell Gordon: In consumer, we're very focused on increasing advertising and promotion around some of the new product introductions at the App and Restoleum. For the balance of the year, if we follow through with our plans, probably anywhere from 30 to 40% of SGNA increases would be associated with these specific initiatives with the intent of driving organic growth. All of these are easy to cut back, and I don't say that happily. In some instances, tiring more sales, people are tech service people in other areas.

And then in construction I think you talk about mid single digit growth for the second quarter, but you grow organically around 10 in the first quarter and I get that.

Comparisons will be a little bit harder.

But.

Okay.

What accounts for the step down in construction growth.

Inventories changed very much from where we are.

Yeah on the inventory side, Jeff as you know, we have map objectives to reduce working capital and inventories a major piece of that you are seeing progress this year I think.

Russell Gordon: It's truly advertising a promotion or digital advertising. But as we sit here today, we think that's Pennywise and Pound Flushed, and it is our specific intent to focus some of the map savings on these specific growth investments. And if we're successful, you'll see in the coming year some more stories like what we're talking about. In our construction products group today, we expect that to continue and CPG for the balance of year.

What might be a bit different as we go forward for RPM has traditionally.

In the late winter time, we would build up safety stocks for the Big Spring orders and I think thanks to a lot of our map improvements you will not see that as pronounced.

Pronounced.

Going forward for RPM, because we'll be able to respond better to typical higher seasonal demand. So that's.

Russell Gordon: They got good momentum in these new and on the flip side, if we bump into the DB session in some economist sphere, there are tens of millions of dollars of SGN and it could be cut pretty quickly.

Your answer on inventory and in general this year I would expect a.

300 <unk>.

<unk> point maybe.

May be more improvement in working capital as a percent of sales.

Frank Mitsch: Thank you. The next question comes from Mike Sison of Wells Fargo. Please go ahead. Hi, this is Richard on for Mike. Hi. So yeah, it's first question. You saw strong growth in Europe, over 9% year of your growth. You did divest one non-core business in this performance coating. So can you give me some color on what end markets were driving the strong growth is quarter in Europe and should we expect margins to improve it somewhat from the vested business?

And Youre seeing that we had an all time record cash flow in Q4, all time record cash flow in Q1.

And.

Inventory improvement has been a meaningful part in working capital improvement has been a meaningful part.

That record cash flow generation, along with margin expansion.

Okay.

Thank you. The next question comes from Vincent Andrews with Morgan Stanley . Please go ahead.

Good morning, Vince.

Actually Steve Haynes on for Vincent Thanks for squeezing me in here question on the guidance.

First quarter was a bit better than expected it looks like <unk> also.

Frank Mitsch: Yes, so I think part of the European story is Europe really was negatively impacted by recessionary elements and then the Russian war on Ukraine and so we experienced a very challenging performance in Europe in calendar 22 and most of fiscal 23. And so some of it is around the easier comparisons. The other area is that we are having a more focused effort in the math 25 initiatives in Europe. For instance, our MS-168 initiative, which is really driving lean manufacturing and continuous improvement disciplines across our plants.

Kind of a bit better than expected in your macro views don't sound.

That much worse at the margin versus kind of where we were last quarter. So I guess kind of what's keeping you from being more biased.

Towards the high end of your guidance range.

Yes, great question.

And the volatility we've experienced over the last two or three years is what's keeping us from.

Being more bullish.

We have seen.

<unk> turns in.

Economic conditions that we didn't expect we've seen trends that look great for a while and then reversed and.

And there is nothing about all the headlines.

Frank Mitsch: It's a very implant hands on utilizing outside consultants process. It takes weeks. It's followed up by performance audits on a 90 day cycle. That got interrupted by COVID. And so our efforts were halted a little bit. The line share of it was initially focused on our larger plants in North America. We're seeing those benefits now happen in Europe. We positioned Dave Densstedt, who is our performance coating group president. We also had a big presence in Europe.

Not to get too big picture, but whether it's government shutdowns or.

<unk> things might get a little dicier as we get into an election year.

And as bond rates actually start to rise maybe we'll see a.

Our normal.

Bond cycle in terms of the.

Reversing the current interest rate and version.

There is nothing that would suggest that the economy is getting better and so.

We're focused on delivering what we can control.

Frank Mitsch: He and his family moved this summer to Europe and he has a senior leader oversight to help accelerate some of the opportunities to drive efficiencies more aggressively in Europe. So the decision to divest a business in the UK and close some underperforming operations were part of that. And so all of that should both favorably for growth and margin expansion in Europe quarter by quarter and over the next couple of years.

Anticipating.

That.

We're going to see challenges.

Boy, if we hit a soft landing and this the start of calendar 'twenty four is peaches and cream with our map initiatives and positive unit volume growth across our organization with easy comparisons will have a blowout second half.

Most of our reading of the economy as people are anticipating that if we're going to have a recession. It is going to start the beginning of next year.

Frank Sullivan: Great. Thanks. And just to follow up, you know, strong EBIT margin growth on the CPG as well. You know, is there a limit to how much additional margin improvement you can see there. Obviously, you got 18 and a half percent. Maybe talk about some of the specific to CPG benefits from MAP and price, of the wealth. Sure, I don't know that I would talk specifically about limits to even margin growth in any of our businesses.

And so.

We don't have any confidence that the.

The economy is getting better we just know the things that we can positively impact our continuing to happen.

So we're pretty confident in Q2 and beyond that we'll give you our level of confidence or lack thereof for the second half of the year. When we have a chance to talk to investors in January .

Okay. Thank you helpful context, thank you.

Frank Sullivan: We still have room to grow, but not surprising from my earlier comments. There is a trade off in the near term between expanding margins and investing in organic growth. And back to the big picture thing, you know, if we see simplify for us, our end internally into where our investors, what we're trying to do here is significantly improve our cash conversion cycle and ramp up organic growth initiatives. And we think the economic circumstances that we're in call for that.

The next question comes from Arun Viswanathan of RBC capital markets. Please go ahead. Good morning, Yes, good morning Arun.

Good morning, Frank how are you.

Good. Thank you wanted to go along those lines I had kind of the same question as to potentially why youre not raising guidance for the full year, but also wanted to add on there.

Frank Sullivan: And we're having really good progress in the cash conversion cycle improvement and there's more to come. And we're having really good improvement on the organic growth piece and construction. Products, and we're hopeful that we'll see more benefits across nor RPM companies come here.

Lot of folks that we speak to are speaking about destocking and inventory coming down you mentioned 300 basis points.

Hum.

But you're again, you're a little less or a little bit more cautious on the rest of the year from a volume standpoint, no confidence that things are getting better is that is that what your customers are saying to I mean shouldn't shouldn't they.

That they are more of a coiled spring kind of situation, where as soon as somebody bites, maybe they all start buying when we see a little bit better performance. What do you think is really holding them back as far as making greater commitments and if you think that raised.

Restocking is not going to be as pronounced as in the past.

Frank Mitsch: The next question comes from Frank Mitch of Birmingham Research, please go ahead. Good morning, Frank. Good morning, Frank, to you as well.

Why is that the case.

Sure.

A couple of comments number one.

Frank Sullivan: Nice start to the year. Want to come back to the map 2025. I believe you mentioned before that you're expecting a benefit of $160 million in fiscal 2024, but my understanding is that that's the run rate that you're expecting to end this year. And you guys are actually expecting about $100 million to impact the 2024 PNL is my understanding correct? That is 100% correct, and I appreciate you're clarifying that. All right, great.

We're hesitant to really comment much beyond what we've done, particularly in the second half I would point out again.

I think Matt 25, and our growth initiatives are delivering because we anticipate a.

A record level of sales and earnings in Q2, albeit somewhat modest on top of a quarter last year, where sales were up 9% and earnings were up 36. So unlike some peers were not rounding easier comps or modest comps were rounding and all time record second quarter, and we're going to beat it.

Frank Sullivan: And what was the actual benefit that you saw in the first quarter from from at 2025 of the 309? Leave it. Yeah, we ran at about the run rate you'd expect. So it was about a quarter of that year's benefit, maybe a touch ahead. So 25 or 30 million. And you know, we communicated in July, we had $120 million goal in fiscal 23. We exceeded that. And we have $160 million run rate goal and you're right, we would expect 100 million of it to flow through our PNL.

As it relates to the broader question I really think the interest rates are biting more people in more parts of the economy.

It was the fastest rate increase in the history of the United States and there is a lag.

Effect of when the fed raises rates and how it filters into you name it.

Car loans.

Housing rent.

<unk> rates et cetera.

Now on playing an economist and I am not very good at that.

Frank Sullivan: Some of that is, you know, benefits that will begin to be realized in the second half of the year in terms of run rate. Some of that is the impact of FIFO accounting both in terms of conversion costs and the commodity cycle benefit that shows up in our case, maybe 60 or 90 days later than where we are in life folks. And so that's what's happening there. But we are on or slightly ahead of target for that $160 million run rate for the year.

But youre going to have student loans that are going to begin to have to be paid starting this month. So there's a lot of different elements out there that I think make people.

The last comment I will say and I think we're doing a pretty good job of this.

<unk>.

And so I look at RPM, sometimes to think what are trends.

So our capital spending is really solid and so I think most of our.

Frank Sullivan: And as I said earlier, I would expect about half of that or slightly less than half of that to be associated with the commodity cycle benefits as well. This should be the year unless we get surprised by oil prices or some other spikes. And as we look in the past where the line share of the commodity cycle benefits should show up. Gotcha.

Manufacturing customers.

We're doing capital spending that's really solid and we see that in the results of our <unk>.

And.

In our construction products group to a lesser extent.

On the other hand, RPM is meaningfully and sustainably improving our working capital ratios, which means we're bringing down levels of inventory.

Frank Sullivan: Well, we are, we are, we are seeing oil starting to pick up since the beginning of July, but I wanted to also ask a bigger picture macro question, you know, given that the guy for the year assumes no recession and, you know, you've been indicating that you've been seeing, you know, red turned to yellow turned to green, I believe you mentioned last quarter and reading through the release, you know, it sounded fairly promising. So I'm just curious as to where do you stand on the whole hard landing, soft landing, no landing for the US economy for your fiscal year?

So are most of our customers. So are most of our competitors. So those trends are continuing.

And so I hopefully that answers your question.

Thanks, Greg.

One quick follow up how much of the map savings are volume dependent.

You mentioned.

Yeah, a portion there.

Or would you quantify that.

I would say in year, 90% of them.

They are very targeted at efficiencies in our plants, so lower conversion costs.

Frank Sullivan: Yeah, I think, and maybe Rusty can comment on this, Rusty Gordon has captured the sentiment of this better than any economist I know, and maybe it's a combination of his reading and seeing our numbers, but it feels like we're going through a rolling recession. And the housing market is taking it on the chin. You can see it in our special products group results. You can see it in companies that serve residential construction and or the components that go into that furniture and other things.

A better cash conversion cycle. So that's all about how you get Ross of the door, what you pay for that and how quickly you add value and how quickly you get it out the door and and then even a lot of the data decision, making is helping us drive.

A positive mix.

But thats about what we sell and so that's why I do think youll see a nice rebound into the mid or upper teens in terms of the EBIT margins in our specialty products group.

When the volume returns Theyre doing the work and it's having a real impact in their operations, but Dave.

Frank Sullivan: Retail takeaway has not been very strong of across many categories, and as we commented in this second half of last year, POS in our categories tended to be mid to high negative single digits. We're seeing that improve, which means it's less bad. And so I'm hopeful that there'll be somewhat of a soft landing in the sense that this is a rolling recession. Again, Europe went in early. We're seeing better performance in Europe.

Been through now seven months or so of negative unit volume growth should the benefits of the work there are going to show up until we start seeing.

Positive volume growth, so very volume dependent it's why you're seeing the nice leverage in our construction products group.

We have positive.

Unit volume in the map savings are real Youll see really nice leverage to our bottom line.

Thanks.

Thank you.

Okay.

Frank Sullivan: I think there's more stability around the impact of the Russia war on Ukraine. We're rounding easier times and quite candidly. There's some reasonable growth in the UK, for instance, and the UK seems to be performing better than continental Europe as we sit here. And for us, that's a good thing, because a little less than half of our revenues in Europe come out of the UK.

This concludes our question and answer session I would like to turn the conference back over to Frank Sullivan for any closing remarks.

Andrea Thank you very much.

2024, it started out with positive momentum and we look forward to leveraging our strengths to build on this strong start for the rest of the fiscal year.

Frank Sullivan: And so that's the best shot I have a dad Frank and other than to say a lot of our performance in this quarter and what we expect in the second quarter is as much self help as it is counting on any economic green shoots or pickups. Very helpful. Thank you so much.

We appreciate your joining us today and hope you will join our annual meeting of stockholders online tomorrow. It will be done virtually it's at one PM eastern time and it can be accessed through the RPM website, Www Dot RPM, Inc. Dot com.

Tomorrow's Board meeting and our annual meeting we will be announcing our 58th consecutive increase in cash dividends to our shareholders.

Kevin Mccarthy: Thank you.

Unknown Executive: The next question comes from Kevin McCarthy of Vertical Research Partners.

And our board will be deliberating tomorrow about what that will be.

Kevin Mccarthy: Please go ahead. Morning, Kevin. Good morning.

I'd like to put that in perspective, if you like the power of compounding interest Youll love the power of an annually growing cash dividend.

Frank Sullivan: Frank wanted to ask about the impact of fiscal stimulus. It seems like the infrastructure and restoring project contributions have really gained some traction over the last couple of quarters. Can you speak to the kind of magnitude and duration of that tailwind? Do you think it will continue to accelerate as the year progresses or flatten out and when do you see the peak in that phenomenon? Yeah, I still think that there is a significant amount of fiscal stimulus coming, you know, the infrastructure bill that was passed on a bipartisan basis and was a 1.2 trillion.

Father time started our consistent consecutive growth and cash dividends 50 years ago. In 1973. Since then we've had a compounded annual growth rate over 15 years to our shareholders, including reinvested dividends of 15, 1%.

To put that in further perspective, if you invested $1000 in the S&P 500 in August of $19 73 today, you would have $178000.

Frank Sullivan: I think the analysis of that not all that was infrastructure, but you know if half of it 5 or 600 billion was infrastructure that's still coming. I can you can see that in highway construction. You can see that in the ensuring of manufacturing. You can see that in some expansions and airports. So I think as we sit here today, we see that having a pretty good runway for the next year and a half or two. And that's our best guess.

That same thousand dollars invested and RPM stock in August of 1973 with reinvested dividends.

Deliver a 1.150 million dollar value today and as far as I can tell about a third of that value creation was driven by our annually growing dividend. It's a track record that we're very proud of it speaks to the stability of rpms strategy in businesses.

And we're excited about the outcome of our 2025 map to growth initiatives, where we are focused on significantly improving our cash conversion cycle and on reigniting organic growth in most of our businesses.

Frank Sullivan: It's not having any impact on residential construction and the housing market. And I think That and commercial construction as well. There's two big macro trends that are fighting each other. One is massive amounts, trillions of dollars of federal subsidies and stimulus, fighting the fastest interest rate increase that this country's ever seen. And, you know, you look at bond rates today, the cost of mortgage, the cost of rent, the cost of a lot of things that are that driven are continuing to go up.

Thank you for your participation in our Investor call today, and we hope to hear from you.

Frank Sullivan: So those are the two macro trends I think that are fighting each other relative to the obvious thing in these things impact the economy to your question and impact us. But for portions of our instruction products group, portions of our performance coding group, we think they're still pretty good tailwinds there.

And to have you join us for our annual meeting of shareholders Tomorrow. Thank you and have a great day.

The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.

[music].

Frank Sullivan: That's a great segue to my second question. You spoke earlier on the call, Frank, about how higher interest rates, you know, render acquisitions a bit less appealing relative to the year of free money. The flip side of the coin is, you know, maybe divestitures become less punitive or less dilutive. And in the case of low margin businesses, we're starting to see a couple of examples where divestitures can actually be accretive. And so I'm tempted to ask you as you kind of look across the portfolio, do you think the next year or two could be an interesting window for what I would call portfolio cleanup.

Frank Sullivan: Divestitures, you know, perhaps some candidates and specialty products or elsewhere in the portfolio to follow the trend that you started with guardian. Sure, we're continuing to look as part of our map 2025 initiative at opportunities to improve margins where we have low margin, no growth businesses. The latest example of that was in this quarter, where in the UK we were able to sell off a service element of our USL business, and then also restructure a piece, you know, taking the high margin product lines of putting in different parts of our PM paid off nicely.

Frank Sullivan: The divested piece has gone to a group that will retain all the employees there and continue to drive that business in a manner that works for them, but was not a margin positive for our PM. So part of the self helping and what we expect to be a quarter by quarter and meaningful improvement in European margins is not only the broader dynamics we're talking about, but the vesting or closing or restructuring lower margin, no growth businesses.

Frank Sullivan: There is more of that to come over the next year in our MAP initiative in different segments and it tends to be either product line or specific facility related and when they're executed will provide details. Perfect, thanks very much. Thank you.

Jeffrey Zekauskas: The next question comes from Jeff the caucus of JP Morgan, please go ahead. Good morning, Jeff. Hi, good morning. Thanks very much. I think on an adjusted basis, your SGNA costs were up about 12%, on the quarter. Isn't that way too high? And in general, should your SGNA costs grow above the rate of sales growth, below the rate of sales growth at the rate of sales growth over a longer period of time, or do you not have a target?

Jeffrey Zekauskas: Sure. So in general, the SGNA in the quarter was up 10.9% and so I'm not sure where are the judges are going from. Yep. And you know, really goes back to my earlier comments. A couple of things are driving higher SGNAs. Some of it is continued inflation and wages and salaries that were beginning to annualize those. We're not seeing that so much today, as we were seeing it throughout fiscal 23. And so in the first task of fiscal 22, the higher wages and salaries insurance costs, all the things that impact us and all our peers are there.

Jeffrey Zekauskas: The other element is really twofold. One is being much more deliberate about driving mix. I mean, you're talking to a CFO and a CEO and a company who maybe five or seven years ago wasn't very good at analyzing mix with great accuracy in hindsight. And today with the data initiatives we have in place on the ground at the operating level, we're much better at driving mix going forward. Where do we want to incentivize our sales forces to focus their time with higher mix comes higher commissions, particularly in our construction products and performance coding group, where we still have a fair amount of commission based sales.

Jeffrey Zekauskas: And then lastly are the very targeted initiatives that I've been talking about. We fully intend as part of map 25 to take some of these margins, savings and reinvest them in our ENL and growth initiatives. It's paying off in a big way in construction products today. And I think as long as we can generate valid sales growth and earnings growth. And again, I would remind you, we're generating positive results as RPM and in most of our segments, other than SPG on top of big mountains.

Jeffrey Zekauskas: You know, last year, consumer sales were up 22 and a half percent. You know, RPM had a all-time record Q1. I think our EBIT last year and Q2 was a all-time record and it was up 36 percent. We expect to top that. And so as long as we have forward momentum on the sales line and we're experiencing both the improved cash conversion cycle and the margin enhancements that we expect, we will continue to reinvest in these growth initiatives.

Jeffrey Zekauskas: And then we have to have the discipline when after a couple of two or three years of investing, we're not seeing the expected results to cut back in those areas. As I mentioned earlier, Jeff, as well, we are targeting very specifically what we call BIG, big ideas for growth investments separately in an SGNA sheet. And if the economy turns sour quickly, we've already lined up the specific SGNA cuts that we could make.

Jeffrey Zekauskas: Yeah, I would just comment on that. As long as we continue to outperform quarter by quarter versus some big year, you know, big pounds last year, I would expect for the balance of the year for you to see SGNA rise at a level higher than sales. While at the same time, you'll see gross margin and EBIT margin expansion for the year.

Russell Gordon: In the long run, SGNA should grow at or below the level of sales growth, that's correct. Okay, good.

Russell Gordon: Then for my follow-up, sort of a two-part follow-up, should inventory levels change very much this year? You know, you're kind of flat sequentially, but raw materials are down and demand the sort of soft. And then in construction, I think you talk about mid-single digit growth for the second quarter, but you grew organically around 10 in the first quarter. And I get it that, you know, the price comparisons will be a little bit harder.

Russell Gordon: But, you know, what accounts for the step down in construction growth and, you know, will inventories change very much from where we are? Yeah, on the inventory side, Jeff, as you know, we have map objectives to reduce working capital and inventory is a major piece of that. You've seen progress this year. I think what might be a bit different as we go forward for RPM is traditionally, you know, in the late winter time, we would build up safety stocks for the big spring orders.

Russell Gordon: And I think thanks to a lot of our map improvements, you will not see that as pronounced going forward for RPM because we'll be able to respond better to typical higher seasonal demand. So that's your answer on inventory. Yeah. And in general, this year, I would expect a 300 basis point, maybe more improvement at working capital as a percent of sales. And you're seeing that, you know, we had an all-time record cash flow in Q4, all-time record cash flow in Q1. And inventory improvement has been a meaningful part in working capital improvement has been a meaningful part of that record cash flow generation along with margin expansion. Thank you.

Arun Viswanathan: The next question comes from Vincent Andrews of Morgan Stanley. Please go ahead. Morning, Vince. Hey, this is his actually Steve Haynes for Vincent. Thanks for squeezing me in here. Question on the guidance. You know, first quarter was a bit better than expected. Looks like two cues also kind of a bit better than expected. And your macro views don't sound, you know, that much worse at the margin versus kind of where we were last quarter.

Arun Viswanathan: So I guess kind of what was keeping you from being more biased towards towards the high end of your. Yeah, great question. The volatile ability we've experienced over the last two or three years is what's keeping us from being more bullish. You know, we have seen sharp turns in economic conditions that we didn't expect. We've seen trends that look great for a while and then reversed and there's nothing about, you know, all the headlines.

Arun Viswanathan: And not to get too big picture, but, you know, whether it's government shutdowns or, you know, anticipating things might get a little dice years. We get into an election year. And as bond rates actually start to rise, maybe we'll see a normal bond cycle in terms of the reverse of the current interest rate inversion. And there's nothing that suggests that the economy is getting better. And so we're focused on delivering what we can control, anticipating that we're going to see challenges.

Arun Viswanathan: Boy, if, you know, we hit a soft landing and this, you know, the start of a calendar 24 is peaches and cream with our map initiatives and positive unit volume growth across our organization with easy comparisons will have a blowout second half. Most of our reading of the economy is people are anticipating that if we're going to have recession, it's going to start the beginning next year. And so we don't have any confidence that the economy is getting better.

Arun Viswanathan: We just know the things that we can positively impact are continuing to happen. So we're pretty confident in Q2 and beyond that, we'll, we'll give you our level of confidence or laughter of for the second half of the year when we have a chance to talk to investors in January. Okay.

Frank Sullivan: Thank you.

Arun Viswanathan: The next question comes from Arun, this monathon of RBC capital markets, please go ahead. Good morning. Yeah, good morning, Arun. Good morning, Frank, are you? Good, thank you. I just wanted to go along those lines. I had kind of the same question as to potentially why you're not raising guidance for the full year, but also wanted to add on there. You know, a lot of folks that we speak to are are speaking about destocking and inventory is coming down.

Arun Viswanathan: You mentioned 300 basis points. But you're, you're, again, you're a little less or a little bit more cautious on the rest of the year from a volume standpoint. No confidence that things are getting better. Is that, is that what your customers are saying to? I mean, shouldn't, shouldn't they be thinking that they're more of a, in a coil spring kind of situation where as soon as somebody bites, maybe they all start buying and you see a little bit better performance.

Arun Viswanathan: What do you think is really holding them back as far as making greater commitments? And if you think that recent, you know, restocking is not going to be as pronounced as in the past. Why is that the case? Thanks. Sure. So, a couple of comments. Number one, where hasn't it's a really common much beyond what we've done, particularly in the second half. I point out again, I think Matt 25 and our growth initiatives are delivering because we anticipate a record level of sales and earnings in Q2, albeit somewhat modest.

Arun Viswanathan: On top of a quarter last year, where sales were up 9% and earnings were up 36. So unlike some peers, we're not rounding easier counts or modest counts. We're rounding an all time record second quarter and we're going to beat it. As it relates to the broader question, I really think that interest rates are biting more people in more parts of the economy. It was the fastest rate increase in the history of the United States.

Arun Viswanathan: And there is a lag effect of when the Fed raises rates and how it filters into you name it, you know, car loans, housing rent, mortgage rates, et cetera. Now I'm playing economist and I'm not very good at debt. But, you know, you're going to have student loans that are going to begin to have to be paid starting this month. So there's a lot of different elements out there that I think make people hesitant.

Arun Viswanathan: The last comment I'll say and I think we're doing a pretty good job of this. And so I look at our EM sometimes to think what are trends. So our capital spending is really solid. And so I think most of our manufacturing customers who are doing capital spending, that's really solid. And we see that in the results of our PCG and in our construction products group to a lesser extent. On the other hand, our PM is meaningfully and sustainably improving our working capital ratios, which means we're bringing down levels of inventory. So are most of our customers and so are most of our competitors. So those trends are continuing and so I hopefully that answers your question. Thanks, Rick.

Frank Sullivan: And one quick follow up how much of the map savings are volume dependent. You mentioned, you know, a portion there. What would you quantify that as thanks. I would say in your 90% of them, they are very targeted at efficiency center plants. So lower conversion costs, a better cash conversion cycle. So that's all about how you get rid of the door, what you pay for them, how quickly you add value and how quickly you get it out the door.

Frank Sullivan: And then even a lot of the data decision making is helping us drive a positive mix. But that's about what we sell. And so that's why I do think you'll see a nice rebound into the mid or upper teens in terms of even margins in our specialty products group. When the volume returns, they're doing the work and it's having a real impact in their operations, but they've been through now seven months or so of negative unit volume growth.

Frank Sullivan: So the benefits of the work there aren't going to show up until we start seeing positive volume growth. So very volume dependent. It's why you're seeing the nice leverage in our construction products group. When you have positive unit volume and the map savings are real, you'll see really nice leverage to our bottom line. Thanks. Thank you.

Frank Sullivan: This concludes our question and answer session. I would like to turn the conference back over to Frank Sullivan for any closing remarks. Andrea, thank you very much. 2024 started out with positive momentum and we look forward to leveraging our strengths to build on this strong start for the rest of the fiscal year. We appreciate you're joining us today and hope you will join our annual meeting of stockholders online tomorrow. It will be done virtually.

Frank Sullivan: It's at 1 p.m. Eastern time and it can be accessed through the RPM website, www.rpminc.com. At tomorrow's board meeting and our annual meeting, we will be announcing our 50th consecutive increase in cash dividends to our shareholders and our board will be deliberating tomorrow about what that will be. I'd like to put that in perspective. If you like the power of compounding interest, you'll love the power of an annually growing cash dividend.

Frank Sullivan: My father Tom started our consistent consecutive growth in cash dividends 50 years ago in 1973. Since then, we have had a compounded annual growth rate over 15 years to our shareholders including reinvested dividends of 15.1%. To put that in further perspective, if you invested $1,000 in the S&P 500 in August of 1973, today you would have $178,000. That same $1,000 invested in our PM stock in August of 1973 with reinvested dividends would deliver a $1,150,000 value today.

Frank Sullivan: And as far as I can tell, about a third of that value creation was driven by our annually growing dividend. It's a track record that we're very proud of. It speaks to the stability of our PM strategy and businesses. And we're excited about the outcome of our 2025 MAMP to Growth Initiative where we are focused on significantly improving our cash conversion cycle and on re-igniting organic growth in most of our businesses. Thank you for your participation in our investor call today and we hope to hear from you. And they have you join us for our annual meeting of shareholders tomorrow. Thank you and have a great day.

Unknown Executive: The conference has now concluded. Thank you for attending today's presentation and you may now disconnect. Thank you very much.