Q2 2024 RPM International Inc Earnings Call
Okay.
Good morning, and welcome to the RPM International fiscal second quarter 'twenty 'twenty four earnings conference call all participants will be in listen only mode.
Good morning, and welcome to the RPM International Fiscal Second Quarter 2024 Earnings Conference call. All participants will be in
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Mark Ilarb: I would now like to turn the conference over to Matt Schlarb, Senior Director of Investor Relations. Please go ahead.
I would now like to turn the conference over to Matt Schlarb Senior director of Investor Relations. Please go ahead.
Thank you Gary and welcome to RPM Internationals conference call for the fiscal 2024 second quarter, joining today's call are Frank Sullivan, Rpm's, Chairman and CEO, Rusty Gordon Vice President and Chief Financial Officer, and Michael arose Vice President Controller, and Chief Accounting Officer. Colin is also being webcast and can be accessed.
Mark Ilarb: Thank you, Gary, and welcome to RPM International's conference call for the fiscal 2024 second quarter. Joining today's caller, Frank Sullivan, RPM's Chair and CEO , Rusty Gordon, Vice President and Chief Financial Officer, and Michael Aroche, Vice President and Controller and Chief Accounting Officer. The call is also being webcast to be accessed live or replayed on the RPM website at www.rpmkinc.com.
Lives or replayed on the RPM website at Www Dot RPM, Inc. Dot 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.
Mark Ilarb: 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.
Mark Ilarb: For more information on these risks and uncertainties, please review RPM's reports filed with the SEC.
For more information on these risks and uncertainties. Please review Rpm's reports filed with the SEC.
Mark Ilarb: During this conference call, references may be made to non- GAAP financial measures. To assist you in understanding these non-GAP terms, RPM is posted reconciliation to the most directly comparable GAAP financial measures on the RPM website.
During this conference call references maybe made to non-GAAP financial measures.
Just 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 second quarter of fiscal 2023, unless otherwise indicated we have provided a supplemental slide presentation to support our comments on the call can be accessed in the presentations and Webcasts section of the RPM website at Www Dot RPM a dot com.
Mark Ilarb: Also, please note that our comments will be on an as-adjusted basis, and all comparisons are to the second quarter of fiscal 2023 unless otherwise indicated. We have provided a supplemental slide presentation to support our comments on the call. It can be accessed in the presentations and webcast section of the RPM website at www.rpmank.com.
Mark Ilarb: Additionally, as a reminder, certain businesses in Asia-Pacific that were previously part of the Construction Products Group are now being managed and reporting under the Performance Codings 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. At this time, I'd like to turn the call over to Frank.
Additionally, as a reminder, certain businesses in Asia Pacific that were previously part of the construction products group are now being managed and reporting under the performance coatings group effective June one 2023 as a result, all references to CPG and PSEG 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 welcome to everybody joining us on our call today I'll start with an overview of our second quarter performance, then I'll turn the call over to Mike Laroche to discuss the financials in more detail.
Frank Sullivan: Thank you, Matt, and welcome to everybody joining us on our call today. I'll start with an overview of our second quarter performance, and I'll turn the call over to Mike LaRoche to discuss the financials in more detail.
Michael Roche: Matt will then provide an update on the balance sheet and the recent opening of an R&D facility, and Rusty will cover our outlook. At the end of the prepared remarks, we'll be pleased to answer your questions. Starting with our second quarter...
Matt will then provide an update on the balance sheet and the recent opening of an R&D facility and Rusty I'll cover our outlook at the end of the prepared remarks, we'll be pleased to answer your questions.
Starting with our second quarter results on slide three.
We generated our eighth consecutive quarter of record sales and adjusted EBIT was.
Matt: We generated our eighth consecutive quarter of record sales and adjusted even while revenue growth was slightly positive because of softness in certain end markets, we continued our trend of good margin expansion led by our MAP 2025 initiative.
While revenue growth was slightly positive because of softness in certain end markets. We continued our trend of good margin expansion led by our map 2025 initiatives.
Matt: This resulted in double digit adjusted EBIT growth, which is squarely in the guidance we provided, and in addition to the strong growth we generated in the prior year quarter.
This resulted in double digit adjusted EBIT growth, which is squarely in the guidance, we provided and in addition to the strong growth we generated in the prior year quarter.
Yeah.
Matt: The MAF 2025 initiatives were also a key reason we generated all-time record cash flow of $408.6 million from operating activities during the quarter.
The map 2025 initiatives were also a key reason we generated all time record cash flow of $408 6 million from operating activities during the quarter.
Matt: Enhanced collaboration between commercial and operational functions means we are now able to respond to customer demand more quickly without having to build large safety stocks as we have done in the past, and this is having a positive impact on working capital.
Enhanced collaboration between commercial and operational functions means we are now now able to respond to customer demand more quickly without having to build large safety stocks as we have done in the past and this is having a positive impact on working capital.
Matt: Through the first six months of fiscal 2024, we generated $767.8 million of cash flow from operating activities which surpassed our previous all-time fiscal year record.
Through the first six months of fiscal 2024, we generated 767 $8 million of cash flow from operating activities, which are Pratt surpassed our previous all time fiscal year record.
Turning to slide four sales were led by our construction products group would perform and performance coatings segment, which benefited from their focus on repair and maintenance as well as their positioning to serve strong demand for infrastructure re shoring and high performance buildings with their engineered solutions.
Matt: Turning to slide four, sales were led by our construction products group and performance coding segment, which benefited from their focus on repair and maintenance, as well as their positioning to serve strong demand for infrastructure, reshoring, and high-performance buildings with their engineered solutions.
Matt: Volumes decline in the consumer, especially products group segments, is demand in DIY, especially OEM and markets, particularly those with residential exposure remain soft.
Volumes declined in the consumer and specialty products group segments as demand in DIY, especially OEM end markets, particularly those with residential exposure remained soft.
Matt: Both of the segments have been pressured for the past year as individuals have focused their spending on travel and entertainment and existing home turnover has been at a multi-decade low.
Both of the segments had been pressured for the past year as individuals have focus their spending on travel and entertainment and existing home turnover has been at a multi decade low.
Matt: pricing was positive in all segments and helped offset lower overall volume
Pricing was positive in all segments to help offset lower overall volumes.
Matt: Despite these challenging end markets, we achieved another quarter of strong margin expansion led by our MAP 2025 initiatives. Margin expansion was strongest at the construction products group and the performance coatings group, which both generated positive volume during the quarter. This demonstrates the potential for our MAP 2025 enabled margin expansion and our businesses underperforming when volumes begin to grow again.
Spite these challenging end markets, we achieved another quarter of strong margin expansion led by our map 2025 initiatives margin expansion was strongest at the construction products group and the performance coatings group, which both generated positive volume during the quarter. This demonstrates the potential for our May of 2025 enabled margin expansion in our businesses.
Performing when volumes begin to grow again.
As a reminder, second quarter growth was in addition to a strong quarter in the prior year period, the two year stacked growth for sales and adjusted EBIT was nine 3% and 56% respectively.
Matt: As a reminder, second quarter growth was in addition to a strong quarter in the prior year period. The two-year stack growth for sales and adjusted EBIT was 9.3% and 50.6%, respectively.
Matt: Moving to slide five, I'm pleased to report that the changes we recently made to our management structure are showing good progress. In Europe , new management teams have focused their sales strategy and implemented map 2025 initiatives to grow sales and expand margins.
Moving to slide five I am pleased to report that the changes we recently made to our management structure are showing good progress in Europe, New management teams to focus their sales strategy and implemented map 2025 initiatives to grow sales and expand margins.
Matt: in Africa, Middle East, and Asia Pacific, which are now aligned under our performance coding group management, our businesses are realizing the potential of increased collaboration in our operations.
In Africa, Middle East and Asia Pacific, which are now aligned under our performance coatings group management, our businesses are realizing the potential of increased collaboration and our operations.
Matt: Sales in Africa, Middle East, Groot 13%, and Asia-Pacific increased 6.4%, and we're realizing operational synergies that are leading to even greater profitability growth.
Sales in Africa, Middle East grew 13% and Asia Pacific increased six 4% and we're realizing operational synergies that are leading to even greater profitability growth.
Matt: Overall, I'm proud of our associates' performance in the second quarter. We're executing exceedingly well the things that we can control. And the hard work we are doing on MAP 2025 initiatives is enabling collaboration efficiencies and cash flow to benefit us now. And I'm optimistic that we have even greater opportunities in the future.
Raul I'm proud of our associates performance in the second quarter, we're executing exceedingly well and the things that we can control and the hard work. We're doing on map 2025 initiatives is enabling collaboration efficiencies and cash flow the benefit us now and I'm optimistic that we have even greater opportunities in the future.
Mike: And now I'd like to turn the call over to Matt Schlarb to cover our financial, I'm sorry, Mike LaRoche, to cover our financial results in more detail. Mike? Thanks, Frank. Starting on slide six, consolidated sales increased slightly as positive volumes at the construction products group and performance coatings group. Higher pricing and favorable effects were offset by end market weakness in consumer and the specialty products group.
I'd now like to turn the call over to Matt Schlarb to cover our financial I'm, sorry, Mike Laroche to cover our financial results in more detail Mike.
Starting on slide six consolidated sales increased slightly as positive volumes at the construction products group and performance coatings group higher pricing and favorable FX were offset by end market weakness in consumer and the specialty products group.
Map 2025 benefits, including the commodity cycle drove 320 basis points of gross margin improvement.
Mike: MAP 2025 benefits, including the commodity cycle, drove 320 basis points of gross margin improvement. Improved fixed cost leverage at the construction products group and the performance codings group also contributed to gross margin expansion.
Through fixed cost leverage at the construction products group and the performance coatings group.
So contributed gross margin expansion.
Mike: SG&A is a percentage of sales increased during the quarter as we reinvest MAP savings and long-term growth initiatives and to incentivize the sale of higher margin products and services.
SG&A as a percentage of sales increased during the quarter as we reinvest map savings and long term growth initiatives and to incentivize the sale of heidrick higher margin products and services <unk>.
Inflation in areas like wages benefits and healthcare expenses added to the increase in SG&A.
Mike: Inflation in areas like wages, benefits, and healthcare expenses added to the increase in SG&A.
Mike: Expense reduction actions taken at the end of fiscal 2023 helped mitigate the increase. And we are taking additional actions to limit SG&A increases in the second half of 2024.
Expense reduction actions taken at the end of fiscal 2023 helped mitigate the increase and we are taking additional actions to limit SG&A increases in the second half of 2024.
Mike: Adjusted EBS grew 10.9% to $1.22, which is a second quarter record and was driven by adjusted EBS growth with an increase in interest rates being offset by debt paydown.
Adjusted EBIT grew.
Adjusted EPS grew 10, 9% to $1 22.
Which is a second quarter record and it was driven by adjusted EBIT growth with an increase in interest rates being offset by debt pay downs.
Mike: Turning to the construction products group results on slide 7, they achieved record Q2 sales led by concrete admixtures which continued to benefit from reshoring in infrastructure projects as well as market share games.
Turning to the construction products group results on slide seven.
<unk> had record Q2 sales led by concrete admixtures, which continued to benefit from re shoring and infrastructure projects as well as market share gains. The segment also benefited from increased demand for high performance buildings, both new and renovations with particular strength in ceilings and wall cladding.
Mike: The segment also benefited from increased demand for high-performance buildings, both new and renovations, with particular strength in sealants and wall cladding.
Speaker Change: As Frank mentioned, Europe is benefiting from a more focused sales strategy, and this includes CPG, which is our largest segment in Europe .
As Frank mentioned Europe is benefiting from a more focused sales strategy and this includes CPG, which is our largest segment in Europe.
Speaker Change: Adjust the EBIT increase to a second quarter record led by higher sales, improved fixed-cost leverage, and MAP 2025 benefits.
Adjusted EBIT increased to a second quarter record led by higher sales improved fixed cost leverage and map 2025 benefits as a result of the strong financial performance variable compensation increased and was partially offset by expense reduction actions put in place at the end of fiscal 2023.
Speaker Change: As a result of the strong financial performance, variable compensation increased and was partially offset by expense reduction actions put in place at the end of fiscal 2023.
Speaker Change: On slide 8, the performance coding group achieved record second quarter sales driven by strong demand for the segment's engineered term key flooring systems due to heavy activity in reshoring capital projects and market share gains. The businesses in Africa, Middle East,
On slide eight the performance coatings group achieved a record second quarter sales driven by strong demand for the segments engineered turnkey flooring systems due to heavy activity in reassuring capital projects and market share gains the businesses in Africa Middle East.
Speaker Change: In the Asia Pacific, we're all recently aligned under PCG management contributed to the segments growth.
In the Asia Pacific were all recently aligned under <unk> management contributed to the segment's growth.
Speaker Change: Its volume growth resulted in improved fixed cost leverage and along with MAP 2025 benefits, generated all time record adjusted EBIT during the quarter.
This volume growth resulted in improved fixed cost leverage along with map 2025 benefits generated all time record adjusted EBIT during the quarter.
Speaker Change: Moving to slide nine, specialty products group sales declined as specialty OEM demand remained weak, particularly in end markets that have exposure to residential housing, including furniture, doors, windows, and cabinets.
Moving to slide nine specialty products group sales declined as specialty OEM demand remained weak.
Particularly in end markets that have exposure to residential housing, including furniture doors windows and cabinets.
Speaker Change: The divestiture of the nine core furniture warranty business last fiscal year reduced sales and the segment also faced challenging comparisons to the prior year period when the disaster restoration business benefited from the response to Hurricane Ian in Florida, which did not repeat in fiscal 2024.
The divestiture of the non core furniture warranty business last fiscal year reduced sales in this segment also faced challenging comparisons to the prior year period, when the disaster restoration business benefited from the response to Hurricane Ian in Florida, which did not repeat in fiscal 2024.
Speaker Change: The reduced volumes resulted in unfavorable deleveraging and adjusted EBIT declines, which were partially offset by expense reduction actions implemented at the end of fiscal 2023.
The reduced volumes resulted in unfavorable deleveraging and adjusted EBIT declines, which were partially offset by expense reduction actions implemented at the end of fiscal 2023.
Speaker Change: SVG also continued strategic investments and long-term growth initiatives, which weighed on adjusted EBIT margins. Matt will talk about one of those growth investments shortly.
<unk> also continued strategic investments in long term growth initiatives, which weighed on adjusted EBIT margins, Matt will talk about one of those growth investments shortly.
Please note that adjusted EBIT excludes a $4 million expense related to an adverse legal ruling for a divested business.
Matt: Please note that adjusted EBIT excludes a $4 million expense related to an adverse legal ruling for a divested business.
Yeah.
Turning to slide 10, the consumer group was pressured by soft takeaway at retail stores from DIY customers as they focus their time and spending on travel and entertainment rather than projects around the house and as housing turnover hit multiyear lows.
Matt: Turning to slide 10, the consumer group was pressured by soft takeaway at retail stores from DIY customers as they focused their time and spending on travel and entertainment rather than projects around the house, and as housing turnover hit multi-year lows.
Matt: Certain retailers were also more cautious with inventory levels, which pressured volumes. Market share gains, strengthened international markets, and increased pricing to catch up with prior material and current labor inflation helped limit the volume decline.
Certain retailers were also more cautious with inventory levels, which pressured volumes market share gains strength in international markets and increased pricing to catch up with prior material and current labor inflation helped limit the volume declines.
Matt: As a reminder, consumer faced challenging comparisons as sales increased 15.3% in the prior year period.
As a reminder, consumer faced challenging comparisons as sales increased 15, 3% in the prior year period.
Matt: Despite challenging end markets, consumers still generated record second quarter adjusted EBIT. This was achieved primarily due to MAP 2025 benefits and strength in international markets and was in addition to strong growth in the prior year when adjusted EBIT increased over 180%. For more information visit www.FEMA.gov
Despite challenging end markets consumers still generated record second quarter adjusted EBIT.
This was achieved primarily due to map 20 to 25 benefits and strength in international markets and wasn't dish. In addition to strong growth in the prior year when adjusted EBIT increased over 180%.
Matt: Now I would like to turn the call over to Matt, who will cover the balance sheet, cash flow, and provide an investment update. Thank you, Mike. Moving to slide 11, we continue to make significant progress on improving working capital, primarily through lower inventories, which decreased $287 million from prior year levels.
Now I would like to turn the call over to Matt who will cover the balance sheet cash flow and provide an investment update.
Thank you Mike moving to slide 11, we continue to make significant progress on improving working capital primarily through lower inventories, which decreased $287 million from prior year levels.
Matt: This, combined with our improved profitability, result in an all-time record cash flow from operating activities of $408.6 million in the second quarter. As Frank mentioned, our cash flow in the first six months of the fiscal year has surpassed our previous 12-month fiscal year record.
This combined with our improved profitability resulted in all time record cash flow from operating activities of $408 $6 million in the second quarter as Frank mentioned, our cash flow in the first six months of the fiscal year has surpassed our previous 12 month fiscal year record.
Matt: Year-to-date, we have returned $113.3 million of cash to shareholders through dividends, and in October , we achieved our 50th consecutive year of increasing our dividend, an accomplishment only 41 other publicly traded companies can claim. This sustained dividend growth has been enabled by our strategic balance, our focus on repair and maintenance, and our entrepreneurial spirit, all of which help us grow throughout economics.
Year to date, we have returned $113 $3 million of cash to shareholders through dividends and in October we achieved our fifth consecutive year of increasing our dividend and accomplishment only 41 other publicly traded companies can claim this sustained dividend growth has been enabled by our strategic balance our focus on repair and maintenance now.
Entrepreneurial spirit, all of which help us growth throughout economic cycles. We have also returned additional cash to shareholders through share repurchases, which totaled $225 million today.
Matt: We have also returned additional cash to shareholders through share repurchases, which totaled $225 million today. Finally, we have continued to repay debt, and at the end of the second quarter of 2024, total debt is $592 million lower than the prior year. These debt repayments have helped mitigate the impact of rising rates on interest expense and provided flexibility to take advantage of future opportunities.
Finally, we have continued to repay debt and at the end of the second quarter of 2024 total debt is $592 million lower than the prior year.
These debt repayments have helped mitigate the impact of rising rates on interest expense and provided flexibility to take advantage of future opportunities.
Matt: Moving to slide 12, as Mike mentioned, our segments are making investments to accelerate long-term growth. We'd like to highlight one of those investments, the RPM Innovation Center of Excellence.
Moving to slide 12, as Mike mentioned, our segments are making investments to accelerate long term growth, we'd like to highlight one of those investments the RPM innovation center of excellence.
Matt: We recently celebrated the ribbon-cutting on this new state-of-the-art facility located in Greensboro, North Carolina. This facility is the first of its kind at RPM, where multiple businesses can collaborate and share resources to help drive innovation.
We recently celebrated a ribbon cutting on this new state of the art facility located in Greensboro, North Carolina. This facility is the first of its kind at RPM, where multiple businesses can collaborate and share resources to help drive innovation.
Matt: This is particularly important for some of our smaller businesses that do not have the scale or local talent to run a comprehensive R&D lab by themselves.
This is particularly important for some of our smaller businesses that do not have the scale or local talent to run a comprehensive R&D lab by themselves.
Matt: Additionally, the Innovation Center of Excellence serves as a showcase to customers where they can visit and see firsthand our ability to find solutions to their challenges. Also, by sharing resources, we are eliminating the need to have duplicative equipment in multiple labs, which will control long-term expenses.
Additionally, the innovation center of excellent service as a showcase to customers, but they can visit and see firsthand our ability to find solutions to their challenges also by sharing resources. We are eliminating the need to have duplicative equipment in multiple labs, which will control long term expenses. The facility is being overseen by specialty products.
Matt: The facility is being overseen by Specialty Products Group because many of their businesses are prime candidates to utilize it, and we are already have businesses from all four segments collaborating there today. Now, I'd like to turn the call.
Group because many of their businesses are prime candidates to utilize it and we are already have distances from all four segments collaborating there today.
Now I'd like to turn the call over to Rusty to cover the outlook.
Speaker Change: Thanks, Matt, and before we start, just to clarify, the year-to-date share of purchases are 25 million, just so that's clear. Now, I'll go on with.
Thanks, Matt before we start just to clarify the year to date share repurchase to meets our $25 million.
So thats clear now.
Now I'll go on with the outlook.
Speaker Change: On slide 13, you can see our third quarter outlook, which as a reminder, is our seasonally slowest quarter.
On.
Slide 13, you can see our third quarter outlook, which as a reminder, is our seasonally slowest quarter.
Speaker Change: Market trends in Q3 are expected to be similar to Q2 as strength in CPG and SPG, international markets, and market share gains are offset by weakness in DIY and specialty OEM markets. The expected result is flat sales to the record prior year period.
Market trends in Q3 are expected to be similar to Q2 as strength in CPG and SPG international markets and market share gains are offset by weakness in DIY and specialty OEM markets. The expected result is flat sales to the.
A record prior year period.
Speaker Change: On consolidated adjusted EBIT, or excuse me, our consolidated adjusted EBIT growth is expected to accelerate and increase 25 to 35% over the prior year record results driven by MAP 2025 benefits, including in Europe , which is an area of focus for us.
And consolidated adjusted EBIT or excuse me, our consolidated adjusted EBIT growth is expected to accelerate and increased 25% to 35% over the prior year record results driven by map 2025 benefits, including in Europe, which is an area of focus.
For us.
Speaker Change: and less challenging prior year comparison.
And less challenging prior year comparisons. This adjusted EBITDA outlook is inclusive of growth and efficiency investments, we are making in our businesses and at the corporate level, which will weigh on short term margins.
Speaker Change: This adjusted EBIT outlook is inclusive of growth and efficiency investments we are making in our businesses and at the corporate level, which will weigh on short-term margins.
Speaker Change: I'll add that we are also taking actions to limit SG&A growth in the second half of the year.
I'll add that we are also taking actions to limit SG&A growth in the second half of the year.
By segment CPG and <unk> are expected to continue to benefit from their focus on repair and maintenance and from continued spending on infrastructure high performance building and re shoring projects.
Speaker Change: CPG and PCG are expected to continue to benefit from their focus on repair and maintenance and from continued spending on infrastructure, high-performance building, and reshoring projects.
Speaker Change: Market share gains are also expected to contribute to sales growth. We are expecting sales in both segments to increase in the mid-single-digit range.
Market share gains are also expected to contribute to sales growth. We are expecting sales in both segments to increase in the mid single digit range.
Speaker Change: In SPG, we have not seen an inflection point in demand with housing turnover hovering near multi-year low levels.
And SPG, we have not seen an inflection point in demand with housing turnover hovering near multi year low levels.
Speaker Change: As a result, we expect sales to decline in the mid-teen percentage range.
As a result, we expect sales to decline in the mid teen percentage range.
Speaker Change: In consumer, we expect sales to decline by low single digits as soft DIY demand is expected to be partially offset by market share gains.
In consumer we expect sales to decline by low single digits as soft DIY demand is expected to be partially offset by market share gains.
Moving to our full year outlook on slide 14, we are lowering our sales expectations for the year due to lingering softness in the DIY and specialty OEM markets, our new outlook for the year as sales growth in the low single digit range versus the prior.
Speaker Change: Moving to our full year outlook on slide 14, we are lowering our sales expectations for the year due to lingering softness in the DIY and specialty OEM markets. Our new outlook for the year is sales growth and the low single digit range versus the prior expectation of mid single digit growth.
Expectation of mid single digit growth.
Yeah.
Speaker Change: Despite the reduction in the sales outlook, we continue to make good progress, achieving MAP 2025 benefits, and as a result, are affirming our adjusted EBIT outlook of growth in the low-double-digit to mid-teen range.
Despite the reduction in the sales outlook, we continue to make good progress achieving map 2025 benefits and as a result, our affirming our adjusted EBIT outlook of growth in the low double digit to mid teen range. This includes benefits we are capturing from the commodity cycle.
Speaker Change: This includes benefits we are capturing from the commodity cycle as overall raw material prices decline while we maintain pricing.
Overall raw material prices decline, while we maintain pricing.
Speaker Change: This concludes our prepared remarks. We will now be pleased to answer your questions. We will now.
This concludes our prepared remarks, we will now be pleased to answer your question.
Yes.
We will now begin the question and answer session to.
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To ask a question you May press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys.
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Our first question today comes from John Mcnulty with BMO capital markets. Please go ahead.
Speaker Change: Our first question today comes from John McNulty with BMO Capital Markets. Please go ahead.
John McMulti: Hey Frank, good morning.
Hi, good morning, Thanks for taking questions.
Frank Good morning.
So wanted to dig into consumer a little bit so it was down a little bit north of 5% your original expectation.
John McMulti: So I wanted to dig into consumer a little bit. So it was down a little bit north of five percent. Your original expectation for it in the quarter was was up low single digits. It doesn't look like it was priced because you've got pricing across all the businesses. So I guess can you help us peel back the onion a little bit on volumes? How much?
For Ford in the quarter was was up low single digits. It doesn't look like it was price because you've got pricing across all the businesses. So I guess can you help us peel back the young and a little bit on volumes how much how much was kind of was it down on just consumer takeaway versus versus some of the destocking that you're seeing and then also can you.
John McMulti: How much was kind of, was it down on just consumer takeaway versus some of the destocking that you're seeing? And then also, can you speak to some of the share gain offset that you had, maybe quantify that a little bit for us as well?
You speak to some of the share gain offset that you had maybe quantify that a little bit for us as well.
Sure.
Speaker Change: Here on a consolidated basis, price in the quarter was up slightly less than 2%. And so that should give you a sense, that's a little bit less than consumer. And it's just month after month of negative consumer takeaway, I would note that we are outperforming our directly comparable consumer paint pairs in terms of volume. But it's been a
Consolidated basis price in the quarter was up slightly less than 2% and.
So that should give you a sense, that's a little bit less in consumer.
It's just.
Month after month of negative consumer takeaway.
I would note that we are.
Outperforming are directly comparable our consumer paint peers in terms of volume.
But it's been a <unk>.
Speaker Change: consistently, you know, minus low single-digit, minus mid-single-digit consumer POS over the last eight to nine months.
Consistently minus low single digit minus mid single digit consumer Pos over the last eight.
Eight to nine months.
Speaker Change: And we don't see that changing until possibly this spring.
And we don't see that changing until possibly this spring.
Okay, and when you think about some of the Destocking that <unk> seen in the business because I think you highlighted at a couple of retailers that was that was an issue as far as as far as where inventories are or.
Speaker Change: Okay. And when you think about some of the destocking that you've seen in the business, because I think you highlighted at a couple of retailers that was an issue, as far as where inventories are or, you know, at some of these bigger retailers, I guess, would you say they're kind of about where they normally would be going into, you know, the beginning of the spring paint season? Are they below, I guess? I guess, how would you characterize?
At some of these bigger bigger retailers I guess would you say, they're kind of about where they normally would be going into the beginning of our spring paint season are they below I guess I guess, how would you characterize that.
I think they are back to normal.
Speaker Change: I think they're back to normal. You know, you've seen a significant readjustment in supply chains, both with our customers and also as we noted within RPM. You know, this time last year, we talked about our efforts to really focus on operating efficiency and cash flow, and that we would do so at the expense of profitability in terms of overhead absorption. And that's happened throughout the last 12 months, but...
<unk> seen a significant.
Readjustment in supply chains.
With our customers and also.
As we noted within RPM.
Last this time last year, we talked about our efforts to really focus on operating efficiency and cash flow and that we would do so at the expense of profitability in terms of overhead absorption and that has happened throughout the last 12 months, but.
The execution of the RPM people in this quarter is exceptional.
Speaker Change: The execution of the RPM people in this quarter is exceptional. We have reduced that by almost $600 million over the last 12 months.
We have reduced debt by almost 600 million Bucks over the last 12 months, we've generated record levels of cash flow on a six month period, our cash conversion cycle versus one year ago as almost improved by 30 days and so the things that we can control.
Speaker Change: We've generated record levels of cash flow in a six-month period. Our cash conversion cycle versus one year ago is almost improved by 30 days.
Speaker Change: And so the things that we can control are.
Speaker Change: Uh being executed very well. I think we're really happy with that As you're seeing in the third quarter, uh expectation
Sure.
Being executed very well I think we're really happy with that as youre seeing in the third quarter.
Expectation.
Speaker Change: to be able to generate a 25 to 35% EBIT growth on what essentially is the same sales as last year, gives you a good sense of the improvements we've made.
To be able to generate a 25% to 35% EBIT growth on what essentially is the same sales. This last year gives you a good sense of the improvements we've made.
Yeah.
Got it makes sense and actually maybe two that if I can squeeze one last one in.
Speaker Change: Got it. No, it makes sense. And actually, maybe to that, if I can squeeze one last one in, you know, you saw some notable margin lift, despite, you know, a pretty, pretty soft volume environment. I guess, can you help us to think about how much of that was from the price versus Raw's benefit versus some of the map improvements? And then I guess maybe the third bucket would be just general mix improvements. But I guess, can you help us to parse out where some of that real improvement was coming in?
You saw some notable margin lift despite a pretty pretty soft volume environment. I guess can you help us to think about how much of that was from the price versus raws benefit versus some of the map improvements and then I guess is maybe the third bucket would be just general mix improvements, but I guess can you help us parse out where.
Where some of that debt real improvement was coming in.
Speaker Change: Here, we went up cost price mixed positive in most of our businesses starting in the summer, and it will be cost price mixed positive relative to raw material inflation and our price increase efforts in consumer in the third quarter. I'll just use consumer as an example, over a 18 to 24 month period, we absorbed about 500 million dollars of higher costs, raw material, labor and things like that.
Sure we went up cost price mix positive in most of our businesses starting in the summer and it will be cost price mix positive relative to raw material inflation in our price increase efforts in consumer in the third quarter.
I'll just use consumer as an example over 18 to 24 month period.
We absorbed about $500 million of higher cost raw material labor and things like that.
Speaker Change: And as is normal in these cycles, we lose margin, spend time catching up, and we will be cost price mix, margin positive, and consumer for the first time in Q3. And you can see we've been that way in.
And as is normal in these cycles.
We lose margin spend time, catching up and we will be.
Cost price mix margin positive and consumer for the first time in Q3, and you can see we've been that way in <unk>.
Speaker Change: PCG and CPG going back to the beginning of the summer. I think you can also see the strong leverage when we've got volume in the PCG and CPG performance.
TCG in CPG.
Back to the beginning of the summer.
You can also see the strong leverage when we've got volume and the <unk> and CPG performance.
Speaker Change: And we would expect the same in our specialty products group and performance coding, I'm sorry, consumer group, once we start generating positive unifying.
And we would expect the same in our specialty products group and performance coatings I am sorry in consumer group once we start generating positive unify them.
Got it thanks very much I appreciate the color Brian.
Thank you.
Speaker Change: The next question is from David Wang with Deutsche Bank. Please go ahead.
The next question is from David Wang with Deutsche Bank. Please go ahead.
Good morning, Hi, good morning.
David Wang: Hi, good morning. I guess on construction, can you talk about the trends you're seeing by end markets? And I guess specific to infrastructure and reshoring, are you seeing any project delays either because of, you know, slower government approval or, you know, people are just delaying their projects in Q2 024 because of, you know, lower construction costs, expectations?
I guess on construction can you talk about the trends you're seeing by end markets and I guess specific to infrastructure and reassuring are you seeing any project delays either because a you know lower government approval or you know people are delaying their projects in Q2 thousand 24.
Because as you know.
Lower construction cost expectations.
David Wang: We have not seen much in the way of project delays, the project delays that we would experience.
We have not seen much in the way of project delays on the project delays that we would experience.
David Wang: tend to be weather-related, particularly in the construction products group. And so far, we're in pretty good shape there.
Tend to be weather related in the particularly in the construction products group and so far we're in pretty good shape there.
David Wang: You know, it actually feels like, and some of this is what happens when the government commits a trillion dollars of infrastructure and other stimulus, that there is a manufacturing renaissance happening. And so while we are specified on some major onshoring projects, particularly in the technology area, and that's coming, you're seeing the follow on of that with suppliers. And so we're a pretty good space with, for instance, stone art flooring.
It actually feels like and some of this is what happens when the government commenced a trillion dollars of infrastructure and other stimulus.
There is a manufacturing Renaissance happening and so we're specified on some major.
Onshoring projects, particularly in the technology area.
That's coming.
Youre seeing the follow on of that with suppliers and so we're in a pretty good space with for instance, stone are exploring a carb line high performance coatings Euclid chemical admixtures, a lot of the construction chemicals business.
David Wang: carboline high-performance coatings, euclid chemical and admixtures, a lot of the construction chemicals business.
David Wang: Also, just as a reminder, our Tremco roofing business is about 800 million bucks, and 95% of that is re-roofing and or renovation. And so we're not very exposed to the commercial construction cycle there. And so that's doing really well. Lastly, we have been moving with our WTI business into some asset management areas, including an acquisition of a couple years ago.
Also just as a reminder.
Our <unk> roofing business is about 800 million Bucks in 95% of that is re roofing.
And or renovation and so we're not very exposed to the commercial construction cycle there.
So that's doing really well lastly, we had been moving with RW Ti business into some asset management areas, including a acquisition of a couple of years ago.
David Wang: pure air and that is the refurbishment and renovation of commercial HV and industrial HVHC systems and that business is showing some really strong growth as well.
<unk> air and that is the refurbishment and.
Renovation of commercial HVAC, and industrial HVAC systems and that business is showing some really.
Strong growth as well.
Okay got it.
David Wang: good. And then on raw material, how much was raw material cost down in the quarter? And I guess, when do you expect the deflation benefits to peak?
And they are raw material, how much was the raw material costs during the quarter and I guess when do you expect that deflation benefits to peak.
Sure.
You want to take that.
Sure.
Speaker Change: Yeah, so we raw materials were down about 5% in the second quarter. Now, other things like labor are still going up and it varies by product category. Like some things, particularly in the consumer segment, like acetone was up 25%. Metal packaging and TIO2 were pretty flat. Propellant was a little bit up, but other raw materials were down that brought the overall average down about 5%.
Yes so.
Raw materials were down about 5% in the second quarter now are there things like labor are still going up and it varies by product category like some things, particularly in the consumer segment like acetone was up 25% metal packaging in Tio two were pretty flat propellant was little bit up but other raw materials were down.
Brought the overall average down about 5%. So we think that will probably hit a peak of raw material deflation sometime in the third or fourth quarter of fiscal 2024.
Speaker Change: So we think that we'll probably hit a peak of raw material deflation sometime in the third or fourth quarter of fiscal 2024.
Okay got it thank you.
The next question is from Josh Spector with UBS. Please go ahead.
Speaker Change: The next question is from Josh Spector with UBS. Please go ahead.
Good morning, Josh.
Josh Spencer: Hey, good morning, Frank. So I just wanted to follow up on the comments on, on SG&A. So your inflation in the first half is about 8% year on year. Talked about some discrete items driving that and some actions to reduce that in the second half. So what are your expectations for second half SG&A inflation and how does that carry into 20 fiscal 25?
Hey, good morning, Frank So I just wanted to follow up on the comments on SG&A. So your inflation in the first half of about 8% year on year.
About some discrete items driving that and some actions to reduce that in the second half. So what are your expectations for second half SG&A inflation, and then how does that carry into 'twenty fiscal 'twenty five.
Sure you should see SG&A.
Speaker Change: Eric, you should see SG&A read.
Right.
ROE at a lesser rate of second half of the year, particularly in the fourth quarter as we round.
Speaker Change: row at a lesser rate in the second half of the year, particularly in the fourth quarter as we round our performance last year. And you know, as we talked about, there are some
Our performance last year.
And.
As we've talked about there are some specific areas.
Speaker Change: that we are committed to investing in in relationship to being in a good position.
That we are committed to investing in.
In relationship to being in a good position to capture growth when the market turns Matt mentioned one of those today, we committed tens of millions of dollars to the establishment of a new R&D Center, it's part of our wood finishes group in our specialty coatings group.
Speaker Change: to capture growth when the market turns. Matt mentioned one of those today. We committed tens of millions of dollars to the establishment of a new R&D center. It's part of our wood finishes group and our specialty coatings group.
Speaker Change: Their performance in the last year hasn't been particularly good.
Their performance in last year, Hasnt been particularly good.
Speaker Change: Because of their directed or indirect exposure to things in housing, which has been a really tough, tough market environment. Nonetheless, we are committed.
Because of their directed or indirect exposure to things in housing, which has been a really tough tough market environment.
Nonetheless, we are committed.
Two investments there to investments in our legend brands business in terms of air handling its unification equipment.
Speaker Change: to investments in our Legend Brands business in terms of air handling and dehumidification equipment. A number of areas there, we have been investing significantly in some new product categories in our consumer group. And we're seeing placements of some new DAP spray products and recapture of some Rust-Oleum market share as well coming this spring. So we've been very deliberate about.
A number of areas there we have been investing significantly in some new product categories and our consumer group.
We're seeing placements of some new DAP spray products and recapture of some rust oleum market share as well coming this spring so we've been very deliberate.
The balance between harvesting map savings and reinvesting in what we believe is future growth opportunities.
Speaker Change: the balance between harvesting map savings and reinvesting in what we believe is future growth opportunities.
Speaker Change: Yeah, I guess I would add one other thing to that. We track that growth investment spending separately. And so if we get to the point where this soft landing turns into something a little more difficult economically, our ability to turn on a dime and cut tens of millions of dollars of SG&A could happen pretty quickly.
Yes, I guess I would add one other yes.
I would add one other thing to that we track that.
Growth investment spending separately and so if we get to the point where the.
The soft landing turns into something a little more difficult economically our ability to turn on a dime.
Cut tens of millions of dollars of SG&A, what could happen pretty quickly.
Okay.
Thanks, that's helpful and if I kind of carry that forward so can.
Speaker Change: Can you remind us of the expectation for the realized math to growth savings in fiscal 24, excluding raw material and price cost movements and your comments on investment?
Can you remind us of the expectation for the realized map to growth savings in fiscal 'twenty, four excluding raw material and price cost movements and your comments on investment.
That increased versus your prior expectations and that maybe the realization of those savings is less because you're investing more or is it the same calculus youre running two previously.
Speaker Change: versus your prior expectations, and that maybe the realization of those savings is less because you're investing more, or is it the same calculus you're running to previous?
Sure I'll, let Matt give you the details on the numbers in terms of what we communicated but.
Speaker Change: Here, I'll let Matt give you the details on the numbers in terms of what we communicated, but.
Matt: You know, our investment programs are essentially the same, so while they haven't increased in terms of the things that we've been doing in the map program at this stage, they also have not been cut back. So we are committed to a number of initiatives in across a number of recipes.
Our investment.
Programs are essentially the same.
And so while they havent increased in.
In terms of the things that we've been doing in the map program.
At this stage. They also have not been cut back so we're committed to.
A number of initiatives in across a number of our SP use.
Matt: the goal of being in a good position to harvest growth when the economy gets a little bit stronger.
With the goal of being in a good position to harvest growth when the economy gets a little bit stronger.
Yes related to the map savings you know in prior calls we communicated a run rate basis of $160 million in our P&L rate of about $100 million, we're still on track for that.
Thing is those savings and those benefits are actually being masked by a lot of the under absorption we've had from lower than expected volumes.
Okay. Thanks, guys.
The next question is from Jeff Zekauskas with Jpmorgan. Please go ahead.
Hi, good morning.
As a base case, how much is variable compensation likely to be up this year.
I don't know that we have that number specifically, but in a number of our businesses we have.
Addressed.
Commercial disciplines that didn't exist before in terms of.
Some CRM programs and other things such that.
We've replaced some old.
Compensation structures, and <unk> roofing and part of our construction products group with more variable compensation associated with pricing and margin.
So that's part of the increase in SG&A, which goes hand in glove with the increase in.
Gross margin profitability.
Okay.
Can you make some general remarks on.
Matt: your outlook on demand in the United States over the next 12 months in your various businesses and how you think it might change as the year progresses.
Your outlook on demand.
In the United States over the next 12 months in your various businesses and how you think it might.
Change as the year progresses.
Matt: Sure, you know, back to the construction products group and performance coatings group, we're really well positioned with what continues to be a huge slug of federal stimulus into areas that we have long been positioned to serve. And so I think we feel pretty good about that over the next twelve months.
Sure.
Back to the construction products group and performance coatings group, who were really well positioned with what continues to be a huge slug of federal stimulus into areas that we have long been positioned to serve.
And so I think we feel pretty good about that over the next 12 months.
The.
Matt: the halt of the most aggressive in history interest rate rise campaign by the Fed.
The halt of the most aggressive in history interest rate rise campaign by the fed.
Matt: will start to produce some better results. I mean, our specialty products group in particular, their largest business unit is our industrial coatings. We're in wood stains and finishes. We sell into items that directly or indirectly go into new homes, whether it's windows, doors, wood trim. And those markets have been negative.
We will start to produce some better results I mean that our construct our specialty products group in particular their largest business unit as our industrial coatings, we're in wood stains and finishes we sell into items that directly or indirectly go into new homes, whether its windows doors would trim.
And those markets have been negative.
Matt: since December of last year, which if you go back and model their declining performance, because the first six months of fiscal 23 look great.
Since December of last year.
Which if you go back and model their declining performance because the first six months of fiscal 'twenty three look great.
Matt: And then you model the Fed impact of interest rates on the housing market, both in terms of new home construction, in terms of housing turnover, you know, if you read the headlines, people being stuck in homes because of low interest rate mortgages, it's had a direct negative impact there. And then I also think in the consumer side, we're seeing the last vestiges across the industry of maybe the COVID boom.
And then you modeled a fed impact of interest rates and the housing market both in terms of new home construction.
In terms of housing turnover, if you read the headlines of people being stuck in homes because of <unk>.
Low interest rate mortgages had a direct negative impact there.
And then I also think in the consumer side, we're seeing the last vestiges across the industry.
Maybe the Covid boom.
Matt: where people did a lot of projects and redecorating. And as Mike said, headlines suggest that they're spending out there by consumers, but they're not on goods, they're more on services.
Our people did a lot of.
Our projects in redecorating and as Mike said headline suggests that they are spending out there by consumers, but theyre not on goods. They are more on services.
Matt: I think as the interest rate environment improves, you're going to see improvement in both consumer activity and in the housing activity, and at the same time, we'll be rounding significantly easier comparables.
I think it's the interest rate environment improves youre going to see improvement in both consumer activity and in the housing activity and at the same time, we'll be rounding significantly easier comparable.
Matt: And so if we are just to finish this, if we are.
And so if we are just to finish. This if we are seeing a interest rate environment that begins to modestly improve in the housing market. Both in terms of new construction.
Matt: Seeing a interest rate environment that begins to modestly improve in a housing market, both in terms of new construction and turnover improve, you're going to see our numbers pick up both in our consumer DIY businesses as well as our specialty products group.
Turnover improve youre going to see our numbers pick up both in our consumer DIY businesses as well as our specialty products group.
Okay, great. Thank you so much.
Thank you.
Speaker Change: The next question is from Vincent Andrews with Morgan Stanley . Please go ahead.
The next question is from Vincent Andrews with Morgan Stanley. Please go ahead.
Vincent Andrews: Thank you. Good morning. Could you talk a little bit about, you know, we're a little bit far enough along in this reshoring and infrastructure.
Thank you Eddie and good morning could.
Could you talk a little bit about you know, we're a little bit far enough along in its re shoring and infrastructure.
Vincent Andrews: activity that, you know, maybe you have some insight into how lumpy it's going to be for your business in terms of, you know, is there sell-in on these particular products, projects that you're spec'd in on, and as those projects are completed, you know, do you have a very orderly handoff to another suite of projects?
Activity that maybe you have some insight into how lumpy it is going to be for your business.
In terms of.
They're selling on these particular products projects that you expect in <unk>.
And as those projects are completed you know do you have.
Have a very orderly handoff to another suite of projects.
Vincent Andrews: that's of the same volume or more, or how should we think about the potential lumpiness of this benefit to your business?
That's the same volume or more or how should we think about the potential lumpiness of this benefit to your business.
Speaker Change: Yeah, sure. Back to my earlier comments. It feels like we're in a mini manufacturing renaissance.
Yes, sure back to my earlier comments it feels like we're in many.
Many manufacturing Renaissance because while we're being specified on a lot of these larger.
Speaker Change: because while we're being specified on a lot of these larger time-soaring projects,
I'm sorry in projects.
Speaker Change: In some cases, they haven't even put a shovel in the ground. And so on some larger projects that could be multi-million dollars, they will add some lumpiness to our results, as you suggest, but that's down the road. What we're seeing now is just a pretty
In some cases, they David even put a shovel in the ground.
So on some larger projects that could be multimillion dollars they will add some lumpiness.
Two our results as you suggest but that's down the road.
What we're seeing now is shifting.
I'm pretty sure.
Speaker Change: solid industrial capital spending number, and market share gains. Harder to point to in terms of new products with our construction products group or performance coatings group.
Solid.
Industrial capital spending number.
And.
Market share gains targeted to point to in terms of new products with our construction products group performance coatings group, but.
Speaker Change: There's been a preference in some instances for our Stoneheart flooring because we not only provide the material, but we supply the labor. So we do a turnkey project in an environment where labor has been challenging. That's provided a competitive advantage for us. The same thing is true when our chemical roofing business with our WTI business.
Theres been a preference in some instances for our stone hard flooring, because we not only provide the material, but we supply the labor. So we do a turnkey project in an environment, where labor has been challenging that's provided a competitive advantage for us the.
Same thing is true in our <unk> roofing business with RW Ti business and so having a labor component both in elements of <unk> and in the stone hard division of our performance coatings group is.
Speaker Change: And so having a labor component, both in elements of Tremco and in the Stoneheart division of our performance codings group, has also helped us from a competitive perspective.
It has also helped us from a competitive advantage.
Speaker Change: And then as a follow up in areas like consumer where you know the volume is challenged, are you facing any pressure from your retail partners to either price promote more or to step up media or expand or any type of things that might encourage for traffic.
And then as a follow up in areas like consumer where the volume is challenged.
Are you facing any pressure from your retail partners to either price promote more or the step up.
Media or ad spend or any types of things that might encourage foot traffic.
Speaker Change: We're facing pressure from customers across RPM businesses for modest price reductions here and there. As I mentioned, specific to consumer, we absorbed over five, that was our largest hit in terms of raw material costs.
Sure.
Facing pressure from.
Customers across RPM businesses.
Four.
Modest price reductions here and there.
As I mentioned specific to consumer.
We absorbed over there was our largest hit in terms of raw material cost, we absorbed about 500 million Bucks of rising costs over an 18 to 24 month period and frustratingly. It remains the one segment that is still seeing some inflation.
Speaker Change: We absorbed about 500 million bucks of rising costs over an 18 or 24 month period. And frustratingly, it remains the one segment that's still seeing some inflation. There are some tariff items around template which goes directly to metal cans.
There is some tariff items around tin plate, which goes directly to metal cans.
Speaker Change: and a couple other chemicals like acetone that are...
And a couple other chemicals like acetone.
Our <unk>.
Speaker Change: that have not experienced the meaningful raw material reduction that some broader...
That have not experienced the meaningful raw material reduction that some broader chemical categories have like Apache resins are silicones.
Speaker Change: chemical categories have, like epoxy resins or silicones.
Okay. Thanks, guys I appreciate it.
Thank you.
Speaker Change: The next question is from Mike Harrison with Seaport Research Partners. Please go ahead.
The next question is from Mike Harrison with Seaport Research partners. Please go ahead.
Good morning, Mike Good morning.
Frank I was hoping maybe you could give us a little bit more detail on the improvement that you've seen in the construction business in Europe related to the more focused sales strategy and the benefits that you saw in Asia Pacific and Africa, and the Middle East in your performance coatings business, where there is.
Mike Harrison: And Frank, I was hoping maybe you could give us a little bit more detail on the improvement that you've seen in the construction business in Europe related to the more focused sales strategy and the benefits that you saw in Asia Pacific and Africa and the Middle East in your performance coding business.
Ho: where there's some better coordination going on. Maybe just, again, some more detail on the changes that you've made there. And it sounds like you expect some additional improvement to come. Just wanted to gauge your confidence.
Better coordination going on maybe just get into more detail on the changes that you've made there and it sounds like you expect some additional improvement to come just wanted to gauge your confidence.
Ho: around how much more legs you could have from those actions. Thank you. Sure, sure.
Around.
How much more legs, you could have from those actions. Thank you.
Sure sure and it's a great question so.
Ho: So I think the first you got to step back and recall our 2020 Map to Growth Operating Improvement Program, we made a lot of good progress there. But our progress was interrupted by the COVID pandemic. Most of our early efforts in the first couple of years of the 2020 Map to Growth Program were focused on North America. And particularly in what we call MS-168 Operating Focus, we were interrupted in getting at Europe .
So I think the <unk>.
First you got to step back and recall, our 2020 map to growth operating improvement program. We've made a lot of good progress there.
But our progress was interrupted by the Covid pandemic.
Most of our early efforts in the first couple of years of the 2020 map to growth program, we're focused on North America, and particularly in the what we call <unk> hundred 68 operating focus.
We were interrupted and getting it Europe.
Ho: Post-COVID, and with MAP25, we've had tremendous cooperation between our construction products group and our performance codings group. But across all four of our segments, the group president of our performance codings group relocated with his family to Europe , and he's providing direct senior leadership oversight on executing, the simplest way to think about it, is a MAP to growth initiative in Europe .
Post COVID-19 and with map 25.
We've had tremendous cooperation between our construction products group and our performance coatings group.
But across all four of our segments.
The president of the group President of our performance coatings group relocated with his family in Europe, and he is providing direct senior leadership oversight and executing the simplest way to think about it is a map to growth initiative in Europe.
Ho: Likewise, we had too many small, far away, uncoordinated locations in the developing world. And we have coordinated and consolidated the oversight of those with a leadership team out of South Africa. And they've done an exceptional job. And so now in the Middle East and Africa, in India, in Southeast Asia, we are approaching the market as RPM, not by product.
Likewise.
We had too many.
Small faraway uncoordinated locations in the developing world and we have a coordinated and consolidated the oversight of those with a leadership team out of South Africa, and they have done an exceptional job and so now in the middle East and Africa.
India and southeast Asia, we are approaching the market as RPM that buy products certainly it's all of our products, but in terms of oversight of asset allocation accounting and finance systems, we're consolidating more of that under our one group and we're having real good benefits were good.
Ho: Certainly it's all of our products, but in terms of oversight of asset allocation, accounting and finance, IT systems, we're consolidating more of that under one group and we're having real good benefits. We're getting the right people in the right places.
And the right people in the right places.
Ho: We're eliminating redundant costs by, you know, as you'll recall, at one point we closed the books in 104 places every month, so we're addressing that.
We're eliminating redundant costs by as Youll recall at one point, we close the books and 104 places every month, so we're addressing that.
Ho: And so all these have had a really positive impact. The last thing I'll say is in Europe , we had a pretty strong performance in the quarter. The UK was the first of the major markets that we're involved in that really went into a recession.
So all these have had a really positive impact the last thing I'll say is in Europe, we had a pretty strong performance in the quarter. The U K, which is the first of the major markets that we're involved in that really went into a recession.
Ho: And so it feels like there's some spending activity there. I would say continental Europe is not economically doing particularly well. So most of what you're seeing there is self-help and the good execution on what I would call a European map to growth initiative with senior leadership on the ground overseeing it.
And so it feels like there's some spending activity there I would say continental Europe is not economically doing particularly well. So most of what youre seeing there is self help and the good execution on what I would call a European map to growth initiative with senior leadership on the ground overseeing it.
Speaker Change: All right, thanks for that. And then, you know, you guys have done a really nice job managing working capital, and obviously that's showing up in the cash flow. But as you look across your segments, are your internal inventory levels
Alright, thanks for that and then.
You guys have done a really nice job managing working capital and obviously, that's showing up in the cash flow, but as you look across your segments are your internal inventory levels.
Speaker Change: where they need to be at this point, just kind of trying to think about how we should look at production rates.
Where they need to be at this point.
Right.
Trying to think about how we should look at production rates and fixed cost absorption, particularly in that specialty business.
Speaker Change: and fixed cost absorption, particularly in that specialty business.
Speaker Change: and maybe consumer as we're kind of moving through this seasonally slower period in Q3 and then get into the spring pickup in Q4.
And maybe consumer as we're kind of moving through the seasonally slower period in Q3, and then get into the spring pickup in Q4.
Sure. Thank you.
There is more room for us to improve and working capital it will be incrementally smaller in the coming quarters, because again as you recall this time last year, and we talked about tackling inventories in particular and the underlying operating efficiencies.
Speaker Change: There is more room for us to improve in working capital. It will be incrementally smaller in the coming quarters, because, again, as you recall, this time last year, we talked about tackling inventories in particular and the underlying operating efficiencies, and we've been doing that very.
And we've been doing that very effectively and.
Speaker Change: And there, as I mentioned earlier on the call, we picked up almost 30 days over the last 12 months in our cash conversion cycle. There's not another 30 days to pick up, but there is incremental improvement that we will be generating in the coming quarters in the coming years.
As I mentioned earlier on the call we picked up almost 30 days over the last 12 months and our cash conversion cycle is that another 30 days to pick up but there is incremental improvement.
That we will be generating in the coming quarters in the coming years.
Alright, thanks very much.
The next question is from Mike says on with Wells Fargo. Please go ahead.
Speaker Change: The next question is from Mike Cezanne with Wells Fargo. Please go ahead.
Morning, Michael.
Mike Sison: Hey guys, happy new year. Frank, you mentioned that the consumer group could or maybe could see an inflection point in the spring. What do you think, what are you looking forward to see? Any indicators, anything you're looking for to maybe give you confidence that that could happen?
Hey, guys Anthony.
Great. Thank you mentioned that that the consumer group could or maybe casino inflection point in the spring or what do you think what are you looking forward to see that.
And then any indicators anything youre looking for to maybe give me confidence that that could happen.
Sure.
I think we need to get into the spring months, which is our typical strongest selling season.
We introduced the rust oleum five in one stop for US This time last year.
We've introduced a.
Highly anticipated new DAP spray product, it's a essentially a single component that replaces a prior two component products.
Frank Sullivan: So we've got a number of new product areas. We're also picking up a little bit of lost market share from the prior year. And so some of it's going to be some new product placements, and others of it's going to be a sense that
So we've got a number of new product areas. We're also picking up a little bit of lost market share from the prior year and so some of it is going to be some new product placements and others of it is going to be a sense that.
Frank Sullivan: If the economy picks up a little bit, particularly as it relates to housing turnover.
If the economy picks up a little bit, particularly as it relates to housing turnover.
Frank Sullivan: you'll see improvement in our consumer and specialty products group. As a reminder, and I think all of you on the call know this,
You'll see improvement in our consumer and specialty products group as a reminder, and I. Thank all of you on the call know this.
Frank Sullivan: Housing turnover, particularly for us, is more an indicator of economic activity than new home construction. We're not directly involved in new home construction except in our specialty products group and to a lesser extent at DAP.
Housing turnover, particularly for US is more an indicator of economic activity than new home construction, we're not directly involved in new home construction, except in our specialty products group and to a lesser extent at DAP.
Frank Sullivan: But when you have housing turnover, a lot of repaired maintenance and a lot of fix up for people that are selling, and then a lot of repaired maintenance and redecorating for the buyers, and that activity has been at multi-decade lows over the last 12 months.
But when you add housing turnover, a lot of repair and maintenance and a lot of fix up for people that are selling and then a lot of repair and maintenance and redecorating for the buyers and that activity has been at multi decade lows over the last 12 months.
Speaker Change: Got it. And then just quick follow up. I apologize. I missed this. What did you think?
Got it and then just a quick follow up.
Just I missed this.
What did you think.
Speaker Change: Pricing would be in the third, in the fourth quarter, and then, you know, there are some, some sort of, you know, sort of news from the home improvement guys, they want to get a lot of the inflation back from the supplier. So it sounds like they're pushing for price decreases. How do you sort of handle that in the consumer group and
Pricing would be in the third and the fourth quarter and then.
There are some some sort of yes. So no news on the home improvement guys. They wanted to get a lot of the inflation back from the supplier. So it sounds like they're pushing for price decreases how do you sort of handle that in the consumer group.
Speaker Change: Are there other ways for you to really keep some of the pricing that you achieved over the last several years?
Are there other ways.
Really keep some of the pricing that that you achieved over the last several years.
Yes.
Speaker Change: Yeah, I don't think about it so much as pricing as I do margin. Some of that goes along with new product introductions. Some of it goes along with category management activities that we have with big customers. And quite candidly, some of it is finally recapturing the lost margin during the commodity cycle activity. I don't answer your earlier part of the question. I don't anticipate much in the way of pricing Q3 or Q4.
Think about it so much as pricing as I do margin.
Some of that goes along with new product introductions some of it goes along with it.
Category management activities that we havent big customers and quite candidly some of it is finally recapturing the lost margin during the commodity cycle.
<unk> I don't answer to your earlier part of the question I don't anticipate much in the way of price in Q3 or Q4.
Speaker Change: the exception might be in a few rare areas like consumer, I think people are paying attention to what's happening with with this
The exception might be.
Fewer areas like consumer I think people are paying attention to what's happening with with this.
Speaker Change: tariff negotiation around template. There's some consolidation there in the industry to say a frustrating item. So there are a couple of areas that we're paying attention to. Now, whether that drives additional price increases or not, time will tell, but broadly speaking, across our PM, we don't anticipate much in the way of price in Q3 or Q4.
Tariff negotiation around tin plate there is some consolidation there in the industry would say.
A frustrating item. So there are a couple of areas that we're paying attention to.
Now whether that drives additional price increases or not time will tell but.
Broadly speaking across RPM, we don't anticipate much in the way of price in Q3 or Q4.
Got it thanks.
Speaker Change: The next question is from Alexey Yefremak with KeyBank. Please go ahead.
The next question is from Alexia <unk> with Keybanc. Please go ahead.
Good morning, this is Ryan on for legacy.
Alexy Mok: Good morning. This is Ryan on for Alexi. I kind of want to just piggyback off of the last pricing question there. So I was wondering if you can maybe talk about how pricing is trending on bids for new projects in both CPG and PCG.
I wanted to piggyback off of the last pricing question. There. So I was wondering if you could maybe talk about how pricing is trending.
Bids for new projects in both CPG A&P C J.
Alexy Mok: So in general, we have held price across most RPM businesses.
So in general we have held price across most RPM businesses.
Very few exceptions and the exceptions tend to be.
Alexy Mok: Very few exceptions, and the exceptions tend to be more commodity spaces around epoxy resins or silicones. We participate in line striping and in bridge and highway work, and that tends to be a little more price sensitive because they tend to have basic coatings that are more directly related to the underlying
More commodity.
Spaces around park.
Paci resins are silicones, we participate in line striping.
And in.
Bridge and highway work and that tends to be a little more price sensitive because they tend to have basic.
Coatings that are more directly related to the underlying.
Chemical raw materials.
Okay. That's helpful. Thank you and then can you just maybe talk about what you guys are.
Speaker Change: Okay, that's helpful. Thank you. And then, can you just maybe talk about what you guys are.
Seeing in the in the repair and maintenance business. Obviously it has held up relatively well is this business still growing or any color here would be great. Thank you.
Speaker Change: Seeing in the repair and maintenance business, obviously it's held up relatively well. Is this business still growing or?
Speaker Change: Absolutely. It's holding up really well. You can see that in our construction products group.
Absolutely.
It's holding up really well you can see that in our construction products group.
Speaker Change: vast majority of that is repair and maintenance. And then also industrial capital spending, which seems to be pretty solid. That also impacts our performance coatings group. So
The vast majority of that is repair and maintenance.
And then also industrial capital spending which seems to be pretty solid that also impacts our performance coatings group. So.
Sure.
Speaker Change: We're pushing, as I mentioned earlier, other opportunities, you know, I mentioned the pure air.
We're pushing as I mentioned earlier other opportunities.
And the pure air.
Speaker Change: acquisition of a couple years ago over the last two calls. We're seeing some nice growth there. And that was really in response to customers who talked to Tremco and our WTI services component. When we're up on their roof, can we help them with their HVAC equipment? And we didn't have an answer to that question for many, many years, and we do now. So we're able to sell more.
The acquisition of a couple of years ago over the last two calls we're seeing some nice growth there and that was really in response to customers, who talk to <unk> and our <unk> services component.
When we're up on their roof can we help them with their HVAC equipment and we didn't have an answer to that question for many many years and we do now so we're able to sell more.
Speaker Change: on the same roof and or sell new components with the same sales force. And we're pretty excited about it. And over time, I think we'll look for other opportunities as we think about this business more as an asset management, asset maintenance business, as opposed to just a purely roofing materials business.
On the same roof <unk> sell new components with the same sales force and we're pretty excited about it.
Over time, I think we'll look for other opportunities as.
As we think about this business more as an asset management asset maintenance business as opposed to just a purely roofing materials business.
Okay.
Very helpful. Thank you.
Speaker Change: The next question is from Steven Byrne with Bank of America. Please go ahead.
The next question is from Stephen Byrne with Bank of America. Please go ahead.
Yes, Thank you morning, Steve.
Thank you Frank with respect to the New innovation Center down in North Carolina.
Stephen Burnne: Thank you. Frank, with respect to the new Innovation Center down in North Carolina, I was curious whether you're seeing any responses and changes between the various segments. Is there any increase in collaboration between them? And maybe more specifically, do you expect that?
I was just curious whether youre seeing any any responses and changes between the various segments is there any increase in collaboration.
Between them and maybe more specifically.
Do you expect that.
Stephen Burnne: you know, multi-segment R&D center to benefit primarily from a cross, you know, a transfer of technology from one, you know, one segment to another, or do you think that it will have more effect?
Multi segment R&D center to benefit primarily from a cross.
Transfer of technology from one.
One segment to another or do you think that it will have more effect on cross selling in order to more of the commercial level between the segments.
Stephen Burnne: on cross-selling, you know, at the more of the commercial level between the segments.
So it's a great question and if you recall one of the key elements of our original map to growth program.
Speaker Change: That's a great question. And, you know, if you recall, one of the key elements of our original map to growth program.
Speaker Change: was going from a relatively decentralized RPM with a holding company perspective to thinking about functions and disciplines in three areas.
What's going from a relatively decentralized RPM.
With a holding company perspective to thinking about functions and disciplines in three areas. One is remaining independent and entrepreneurial the other would be centralized and then the middle One is center led.
Speaker Change: One is remaining independent and entrepreneurial, the other would be centralized, and then the middle one is center-led.
Speaker Change: We have effectively centralized our procurement across RPM. That's helped us meaningfully. That was a big element of the original map to growth program.
We are effectively centralized our procurement across RPM, that's helped us meaningfully that was a big.
Element of the original map to growth program.
Speaker Change: We are center-led in manufacturing and operations, and we are instituting a common playbook for our manufacturing facilities across the globe.
Our center led.
In manufacturing and operations and we are instituting a common playbook for our manufacturing facilities across the globe.
Speaker Change: We'll continue, but on a smaller basis. In the original Map to Growth program, we closed about 25 facilities.
We'll continue but on a smaller basis in the original map to growth program. We closed about 25 facilities you will see a few incremental closures, particularly related to our activities in Europe.
Speaker Change: You'll see a few incremental closures, particularly related to our activities in Europe .
And the R&D Center was really born of our operations asking us and recognizing that there is an opportunity for better collaboration across our businesses. So I think it is going to be sharing best practices and I think it will be.
Speaker Change: So I think it's gonna be sharing best practices and I think it will be.
Speaker Change: cross-fertilization of technologies that can play, for instance, from an industrial sector into the consumer sector. We're pretty excited about it. It's going to take time to be realized.
Cross fertilization of technologies that can play for instance from an industrial sector into the consumer sector. We're pretty excited about it it's going to take time to be realized.
Speaker Change: But it goes hand-in-glove with really trying to look at RPM as a formerly pretty much holding company with 40 or 50 independent.
But it goes hand in glove with really trying to look at RPM as a formerly pretty much holding company with 40 or 50 independent units.
Speaker Change: to recognizing what can we centralize and what can be central led to take advantage of collaboration. Our four group presidents are doing an extraordinary job of leading that collaboration in terms of their actions and their words, and it's filtering down through the organization in a very positive way. So I said, I,
Recognizing what can we centralize and what can be center led to take advantage of collaboration our four group presidents are doing an extraordinary job of leading that collaboration in terms of their actions and their words and it's filtering down through the organization and a very positive way as I said.
Speaker Change: The execution in this quarter of the things that we control was really good, and I would expect more of that to come. Obviously, results will be impacted by the underlying economic activity.
The execution in this quarter are the things that we control was really good and I would expect more of that to come obviously results will be impacted by the underlying economic activity.
Speaker Change: Thank you, Frank, and maybe just continuing with the potential for cross-selling, I wanted to ask you a little bit about specialty groups.
Well, thank you Frank and maybe just continuing with the potential for cross selling.
Wanted to ask you a little bit about the specialty group are you are you reevaluating that segment in any way or there are there businesses in there that you would view as maybe not having either sufficient growth potential or maybe they're just no potential for cross selling with your other.
Frankken: Are you re-evaluating that segment in any way? Are there businesses in there that you would view as maybe not having either sufficient growth potential or maybe there's just no potential for cross-selling with your other businesses and thus some might be targeted for divestiture?
And thus some might be targeted for divestiture.
Speaker Change: Sure, it's a great question. And we, you know, we look at divestitures regularly, a possibility of divestitures regularly with our board.
Sure. It's a great question and we look at divestitures regularly possibility of divestitures regularly with our board.
Speaker Change: But I can tell you in this MAP25 program, in many ways, we're going just the opposite. We've had some challenges in our Dayglo business, but we've had huge success.
But I can tell you in this map 25 program in many ways were going just the opposite.
<unk> had some challenges at our day-glo business, but we've had huge success with Arnett polymers and then the corsicana.
Speaker Change: with Arnett polymers and then the Corsicana chemical plant that we bought in Texas as part of our construction products group.
Chemical plant that we bought in Texas, It's part of our construction products group were taking those leadership teams and working with day-glo to create a resin center of excellence in Europe.
Speaker Change: We're taking those leadership teams and working with Daigle to create a resident center of excellence in Europe and expect the same type of benefits in Europe that we're gaining from having some control over some key chemical raw materials.
And expect the same type of benefits in Europe that we're gaining from having some control over some key chemical raw materials.
Speaker Change: Our Leisure Brands business has a new MRO, if you will, focus that will allow for a more steady state as opposed to the swings of the weather events that have really spiked their business from one quarter to the next or one year to the next.
Our legend brands business.
A new.
MRO, if you will focus.
That will allow for a more steady state as opposed to the swings.
The weather events that have really spiked their business from one quarter to an extra one year to the next.
Speaker Change: And there's some real complementary efforts there with our construction products group that is already in that asset management business. But we regularly look at opportunities to divest, and as you all know, the M&A market's been pretty dead.
And there are some real complementary.
Efforts, there with our construction products group.
That is already in that asset management business.
But we regularly look at.
Opportunities to divest.
And as you all know the M&A market has been pretty dead.
Sure.
And so whether it's on the buy side.
And the sell side, we'll have to see.
Interest rates come down and M&A activity and valuations come back up and that plays both ways.
Thank you.
Okay.
Your next question is from Frank Mitsch with Fermium Research. Please go ahead.
Good morning, Frank.
Hey, good morning, and happy New year, if I could just follow up on that last question kind of begs the it does beg the question about your thoughts on uses of cash.
And you just discussed that the M&A market is a little bit and.
I made the comment before about your buybacks today overstated I don't know if that was a 40% flip to try and signal that you guys are thinking about increasing your buybacks at these levels. What are your what are your thoughts there M&A versus buybacks.
So we are committed to.
Buying back dilution in every year and then Boyd throughout my career here, we've been pretty strategic as to what do we get aggressive in buybacks realm.
Relative to how we perceive value.
And that will continue but.
We will be a more common more regular buyer of our stock quarter by quarter by quarter, along with increasing our dividend.
Frank If you look at the opportunities we have with a higher level of permanent cash flow a year ago, we talked about I think it might have been a question from you focus on cash generation and we indicated it would be to pay down debt, we've done that very successfully.
But our dividend payout ratio over 20 years has gone from the mid <unk> to mid thirties.
Our cash flow has increased dramatically and we are in a better position to be irregular buyer of our stock.
<unk> continue our dividend program.
Unless and relationship to buying our stock we.
We see some sizable acquisition opportunities at the right value.
Got you very very helpful.
If I could come back earlier.
I believe it was Matt made the comment that.
Unabsorbed fixed costs are kind of masking the benefits.
The map program, what have you and I guess I was thinking that for fiscal 2024.
Unabsorbed fixed costs would be materially less than they were in fiscal 'twenty three.
How are you thinking about the interplay between this fiscal year and last fiscal year.
On that item.
Sure.
They should be less in fiscal 'twenty three in the second half.
Unfortunately not.
As much of a recovery as we had hoped because of our original expectation on volume growth.
Which as we covered in the todays call we are not seeing yet in consumer or the specialty products group.
But you are seeing in this quarter and youll see in future quarters, So real strong leverage to the bottom line.
Sure.
Our construction products group and performance coatings group because of the map 25 benefits when we have good volume and its going to be coming you're going to see nice leverage.
Very helpful. Thank you.
Thank you.
The next question is from Kevin Mccarthy with vertical research partners. Please go ahead.
Good morning, Kevin.
Yes, good morning, Frank.
A question on your sales mix by geography, if I look at slide five.
It seems to me that Theres, a very large disparity between your negative 3% in North America, and what looks to be an average of.
Positive, 9% to 10% overseas. It doesn't look like currency was a big factor this quarter. So.
I'm curious could you speak to why.
Youre doing so well overseas what are maybe the two or three most important drivers.
In your view and how sustainable those might be and do you think that in future quarters, we will continue to see faster growth overseas versus the U S.
Sure.
So I commented earlier in the call Kevin.
What we're seeing particularly in Europe is just a better focus and better organized approach.
<unk> of it is a map to growth for Europe.
And so we are driving efficiencies. There. We're also having a more focused sales effort in a bunch of our businesses and then lastly, we're rounding some easier comps, particularly in the UK that went into a recession before most of the other markets that we serve.
We also organized in what we call a platform approach.
For the developing world and it's having a real positive effect. So unless there is a some type of further disruption in a world with plenty of disruptions.
I would expect that we would see.
Really solid growth in Europe, and the rest of the world.
And that the growth in North America, probably is not going to be a lot different in the coming quarter than you see here again because of.
The year over year flat to negative in consumer and specialty products group and hopefully that will change in Q4, but we will see.
Okay. That's helpful and then I wanted to follow up on the discussion.
Regarding specialty products.
Can you speak to the margin level and outlook there Frank I'm cognizant that you had a step down when you divested the higher margin Guardian business there.
First half of the year, it seems to be running 9% and 10% how would you characterize the current level versus normal.
<unk>.
Do you have a target.
For that segment margin looking out a couple of years, how can we think about the likely trajectory there.
Yes, that's a great question and and yes, we do.
The specialty products group should be generating.
In a better economic environment.
Mid to slightly higher teen.
EBIT margins and they've been there before.
The Guardian products business was an outsized EBIT margin, but that was a $40 million business.
And so our expectations are within economic recovery and a few year jet specialty products group will be back to the.
Mid single I'm, sorry, mid double digit mid teens EBIT growth and.
To an earlier question I am very confident we can get there.
We're taking advantage of this opportunity now to synergize, a few things, but if we don't get back. There then we would take a look at that specialty products group, where pieces of it in relationship to Rpm's future.
Okay.
Very good I appreciate the color.
The next question is from Ghansham Panjabi with Baird. Please go ahead.
Good morning, guys happy new year.
Thank you Frank to you as well just going back to the lower consolidated sales guidance for fiscal year 'twenty. Four can you just sort of clarify what specific segment or segments that is do you do in is the offset in maintaining your EBIT guidance, just purely incrementally more favorable price cost.
No the EBIT guidance is.
A favorable price cost mix and significant improvements from our map 25 initiatives.
And as Frank Mitch asked earlier.
Better overhead absorption versus last year, when we really tackled inventory shutdown production or number of places. So we've been very aggressive in right sizing inventories and after quite candidly 30 years of my career talking about improving working capital finally getting around to getting it done on a <unk>.
Sustainable basis, so thats been our focus.
And we're executing and it's happening so we're excited about that but.
The EBIT margin improvement is a combination of cost price mix, which finally turned positive this fiscal year.
And the benefits from the <unk> 25 program in our operations one of the key things to that is the vast majority of the map 25 initiatives.
Related to.
Commercial activities in terms of how we incentivize salespeople relative to margins, it's focused on conversion costs.
And a number of areas. There. So the impact is mostly a gross margin impact, which means you don't realize it until you sell something.
So it's not like an SG&A cut that you can annualize over.
Divide by 12 and annualized over a year it really flows into your.
P&L as you move units.
Yeah.
Okay, and then on the consumer business I mean, if you kind of zoom out there's been a lot of.
Ups and downs over the years, but COVID-19 and supply chain shortages et cetera, and then of course no interest rates.
What is the base case at RPM at this point for calendar year 'twenty four in terms of volumes do you are you expecting a better year I mean, obviously interest rates impacted the markets last year, but that in theory should be in the base.
You know that that should be in the base from last year.
Sure I think youre, asking about maybe fiscal 'twenty, five which starts on June one.
Our fill rates are back in the high <unk> across the board that was not true two years ago.
We are at lower levels of inventory and <unk>.
Last year for the first time in my career shut down production in January and February you Rightsize inventories were typically we'd be.
Adding inventory to sell into a big spring season, So we've gotten much more agile.
In our manufacturing ability so that we don't have to have the same size of safety stock.
So those are the improvements that we have made.
But fill rates are where they need to be I think inventories for the most part in the supply chain are where they need to be.
And we just needed to help with our retail customers drive consumers back into the stores.
Help them think of projects that they can do and the real first opportunity for us to do that we will be this spring because of the seasonality of the business in particular.
You see we expect.
Good leverage in the third quarter, but the third quarter as network, we expect to see any revenue surprises because of the weather seasonality of some of our industrial businesses and certainly our consumer group.
Okay. Thank you.
Okay.
Again, if you have a question. Please press Star then one.
The next question is from Arun Viswanathan with RBC capital markets. Please go ahead.
Morning Arun.
Good morning, Frank Thanks for taking my question and happy New year.
So I guess first off.
Just wanted to go back to kind of the sales outlook.
It looks like it's kind of a tale of two cities.
Sitting here with.
The consumer and specialty products group.
Maybe a little bit more sluggish wow.
Reassuring infrastructure drives more strength in construction products in PMC.
Would you see that maybe switching as we move into the back half of calendar 'twenty four.
Maybe I'll just start with that and just see.
That's kind of in line with your thinking.
No we think that the construction products group and performance coatings group will have a solid second half of fiscal 'twenty four and the dynamics that we had talked about earlier in terms of stimulus infrastructure bills in.
Increases in industrial capital spending and a resurgence in manufacturing should bode well for those business units and product lines in fiscal 'twenty five I think the thing that we're focused on is continuing to improve our businesses and operating leverage.
With the expectation, whether it's in Q4, whereas we get into fiscal 'twenty five.
Seeing some positive unit volume growth at a consumer and a return to growth in most of our specialty products group companies and again, that's where we're most exposed to OEM coatings to residential construction and we're not alone in having a very difficult challenge there are certain segments of it.
Manufacturing had a tough year and anything that touches housing in the last year has not done very well.
Got it and then.
You mentioned 25 fiscal 'twenty five.
Previously you had put out some some map 2025 targets.
That 16% adjusted EBIT margin.
So still see that in the cards I think were maybe 100 basis points below that on an annual basis right now, but maybe whats kind of the bridge to getting there or what are some of the factors that we would we would need to see to realize.
Realize that level of margin performance.
Sure.
We're on target for that I think whether we can achieve that on the timeliness or within the timeframe that we communicated depends on when do we see the turn in positive unit growth in consumer and our specialty products group, but we will have a <unk>.
Pretty robust appraisal of that when we release, our fourth quarter results in July and talk about the balance of our 2025 fiscal year, which is the end of the map 25 program.
And just lastly, I think this question.
They have offered some comments, but I just wanted to ask again.
Within any of the businesses are there any particular areas that you.
You think there are just likely.
Not likely to recover as you see and may be candidates for divestiture.
How is kind of the portfolio review going thanks.
Sure Yes.
Not at this time, but back to your earlier question.
One of the key elements of getting to that 16% consolidated EBIT margin is a specialty products group.
Whose consolidate or each group level EBIT margins are in the mid teens or slightly higher which is up from about 9% and 10% level today. So there needs to be a significant recovery there and we're focused on it without that we will not hit the 60% consolidated goal.
Great. Thanks, a lot.
This concludes our question and answer session I would like to turn the conference back over to Frank Sullivan for any closing remarks.
Thank you we appreciate everybody's participation in an investor call. This morning and for your continuing interest in RPM I'd also like to thank our associates for their tremendous dedication and hard work in fiscal 2024, we are executing.
At a high level and you could see it in our results and lastly at all on the call.
Wish you a happy.
<unk> and prosperous new year, Thank you and have a great day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
Yes.
Yes.
Yes.
Yes.