Q4 2024 RPM International Inc Earnings Call
Good day, and welcome to the RPM International fourth quarter and fiscal year 'twenty 'twenty four earnings conference call.
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Speaker Change: I would now like to hand, the call over to Matt Schlarb. Please go ahead.
Matthew Schlarb: Thank you Andrea and welcome to RPM Internationals conference call for the fiscal 2020 for fourth quarter and full year today's call is being recorded.
Speaker Change: During today's call, our French Sullivan, Rpm's, Chairman and CEO, Rusty Gordon Vice President Chief Financial Officer, Michael Rowe, Vice President Controller, and Chief Accounting Officer.
Speaker Change: It is also being webcast and can be accessed live replayed on the RPM website at www Dot RPM in dotcom.
Speaker Change: 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.
Speaker Change: For more information on these risks and uncertainties. Please review Rpm's reports filed with the SEC.
Speaker Change: During this conference call references maybe made to non-GAAP financial measures to assist you in understanding. These non-GAAP terms RPM has posted reconciliations to the most directly comparable GAAP financial measures on the RPM website.
Speaker Change: Also please note that our comments will be on an as adjusted basis and all comparisons are to the fourth quarter of fiscal 2023, unless otherwise indicated.
Speaker Change: Provided a supplemental slide presentation is where our comments on this call can be accessed in the presentations and Webcasts section of the RPM website at Www dot are pending dotcom.
Speaker Change: As a reminder, certain businesses in Asia Pacific that were previously part of the construction products group are now being managed and reported under the performance coatings group effective June one 2023 as a result, all references to CPG P. C. G. Today reflect the updated structure. This change has no impact on consolidated results.
Speaker Change: This time I would like to turn the call over to Frank.
Frank: Thank you, Matt and good morning.
Frank: I will start our conference call with a high level review of our results and Mike <unk>, who will provide more details on our fourth quarter and full year financials, Matt Schlarb will then give a balance sheet update and discuss how we are using innovation to grow after which Rusty Gordon will cover all our outlook and we'll be pleased to.
Speaker Change: Answering your question.
Mike: I'll begin on slide three with our fourth quarter results.
Speaker Change: Overall, we're pleased with how rpms associated associates executed.
Speaker Change: Despite challenging end markets in several of our businesses, we leveraged map 2025 improvements to generate our 10th consecutive quarter of record adjusted EBIT.
Speaker Change: For the year sales were a record and adjusted EBIT increased approximately 12% to a record which was within the guidance we provided a year ago.
Speaker Change: This included approximately $160 million of map 2025 benefits on a run rate basis, roughly 100 million through the P&L in fiscal 'twenty four.
Speaker Change: Although a portion of these are being temporarily masked by lower fixed cost utilization from reduced volumes in.
Speaker Change: In addition to margin expansion map 2025 has played a critical role in our ability to structurally improve working capital throughout the entire year.
Speaker Change: This resulted in record cash flow from operating activities of $1.12 billion during fiscal 'twenty four.
Speaker Change: An improvement of over $545 million from fiscal 2023 and.
Speaker Change: And 356 million or 46% more than our previous annual record cash flow.
Speaker Change: We used a portion of this cash to reduce debt by approximately $557 million during the year and the resulting lower interest expense helped us grow adjusted EPS.
Speaker Change: By 14, 7% to a fourth quarter record and by 14, 9% almost fall further.
Speaker Change: For the full year to a record $4 94 per share.
Speaker Change: Moving to slide four for our construction products group led growth during the quarter with broad based strength in most of their businesses with roofing and its differentiated currency offerings, demonstrating particular strength.
Speaker Change: Consumer also executed well during the quarter, if they achieve market share gains.
Speaker Change: Graded product mix and realized <unk> 25 benefit generate record adjusted EBIT.
Speaker Change: Despite a sales decline due to continued DIY softness.
Speaker Change: After multiple years of achieving record results our performance coatings group declined in the fourth quarter as they faced challenging comparisons to the prior year and experienced negative headwinds.
Speaker Change: Timing of project completions, something we highlighted on our prior earnings call.
Speaker Change: And the specialty products group some end market showed signs of bottoming out.
Speaker Change: We continue to remain challenged in this segment.
Speaker Change: The economic situation remains very challenging however, we did a good job managing what we can control with a focus on that 25 and margin improvements to generate record adjusted EBIT and record levels of cash flow.
Speaker Change: Turning to geography on slide five North America Africa, and the Middle East grew.
Speaker Change: While sales declined in other regions, we're still executing well in these areas.
Speaker Change: European sales declined 4% due to FX headwinds and divestitures in the performance coatings group.
Speaker Change: However, their profitability improve meaningfully as targeted map 25 initiatives in the region gained momentum, including those focused on generating favorable product mix.
Speaker Change: Excluding FX sales in Latin America grew mid single digits as we continue to benefit from product service infrastructure projects.
Speaker Change: Asia Pacific is performing well under our new management structure, However, fourth quarter sales declined due to challenging comparisons as a large project was completed in the prior year period.
Speaker Change: To summarize our performance in the face of several end market and economic challenges, we have realized good improvements in gross margins as a result of our map 25 initiatives and.
Speaker Change: In addition to gross profit benefits map 25 is allowing us to better leverage the power of RPM.
Speaker Change: Create a more efficient and streamlined SG&A structure.
Speaker Change: We took several SG&A reduction initiatives in the fourth quarter, which will benefit us as we work our way through fiscal 2025.
Speaker Change: As economic headwinds persist, it's important to remember that the improvements we are making are structural.
Speaker Change: While they are helping us navigate near term challenges their benefits will be even more apparent.
Speaker Change: And markets eventually recover and we begin to generate better organic growth.
Michael Joseph Harrison: I'd now like to turn the call over to Michael Roach to cover our financial results in more detail.
Michael Joseph Harrison: Starting on slide six consolidated organic sales decreased <unk>, 4% as pricing was slightly higher in volumes overall were flat.
Michael Joseph Harrison: 0.7% headwind to revenue and divestitures net of acquisitions decreased sales by one 1%, resulting in a modest decline in sales for the quarter.
Speaker Change: EBIT margin expanded 90 basis points, which was driven by map 2025 benefits improved fixed cost leverage in the construction products group and favorable mix at the consumer group.
Michael Joseph Harrison: G&A increased during the quarter driven by incentives to sell higher margin products long term growth investments in compensation and benefits.
Michael Joseph Harrison: As mentioned, we implemented 2025 enabled initiatives to streamline our SG&A structure in the fourth quarter and those benefits will be realized in fiscal year 2025.
Michael Joseph Harrison: Adjusted EPS increased 14, 7% to $1 50 success, which was a record driven by the adjusted EBIT growth and lower interest expense as strong cash flow allowed us to repay debt during the quarter.
Michael Joseph Harrison: Next moving to the construction products group results on slide seven.
Speaker Change: Segment experienced broad based strength with roofing and wall systems, performing particularly well the growth came from both new building construction and renovation and regained market share in construction chemicals, we also generated growth in products serving infrastructure projects.
Speaker Change: Including those that reduce both the cost and carbon footprint of their construction.
Speaker Change: Some of these leading driving days, which reduced the amount of energy needed to produce cement.
Michael Joseph Harrison: And synthetic fibers that serve as a substitute for steel rebar and produce significantly lower tier two emissions and require less labor to install.
Speaker Change: The rise in adjusted EBIT was led by improved fixed cost leverage from volume growth that 2025 assets and driving a favorable product mix.
Speaker Change: On slide eight the performance coatings group sales decline as it faced challenging comparisons to the prior year period. When sales grew 10, 8% and the unfavorable timing of project completions and some were pulled forward into the third quarter, while other projects are experiencing delays.
Speaker Change: Additionally, Europe had pockets of weakness FX in the prior divestiture of noncore European service business also pressured sales.
Speaker Change: Adjusted EBIT declined as a result of lower sales and reduced fixed cost leverage from volume declines. This was partially offset by map 2025 benefits.
Speaker Change: Moving to slide nine specialty products group sales declined primarily due to challenging comparisons to the prior year period for disaster restoration business.
Speaker Change: In the prior year customers were rebuilding inventories that have been depleted as a result of increased storm activity and burst pipes from freezing weather in prior quarters.
Speaker Change: Overall specialty OEM markets, particularly those related to residential remained soft.
Speaker Change: The reduction in adjusted EBIT was driven by the sales and volume declines, which resulted in unfavorable fixed cost absorption.
Speaker Change: On slide 10, the consumer group gained share with the help of new products and grew in markets outside the U S, which helped to offset continued softness in the DIY space.
Speaker Change: The rationalization of lower margin products also contributed to the sales declines.
Speaker Change: That's 125 initiatives and an improved mix resulted in record EBIT, which was partially offset by under absorption associated with lower volumes and higher expenses from wages and benefits.
Speaker Change: Now I'll turn the call over to Matt, who will cover the balance sheet and cash flow and provide an update on innovation.
Matthew Schlarb: Thank you Mike.
Matthew Schlarb: Moving to slide 11 cash flow from operations totaled one point and one 2 billion for the year, an increase of $545 million from the prior year and $356 million more than our previous annual record over the past two years operating cash flow has improved by $944 million.
Matthew Schlarb: Now 2025 initiatives that resulted in improved profitability and working capital drove the increase.
Matthew Schlarb: In Q4, working capital as a percentage of sales fell by 350 basis points from the prior year period to 23, 5%.
Speaker Change: A significant portion of this cash flow was used to repay debt, which declined by $557 million. During the year. This has resulted in lower interest expense and increased flexibility to invest in future organic and M&A growth opportunities.
Speaker Change: During fiscal 2024, we returned $287 million to shareholders through dividends and share repurchases, which both increased during the year.
Speaker Change: As we enter fiscal year 2025 liquidity remained strong at $136 billion.
Speaker Change: On the next slide I'd like to highlight an example of how are you using innovation to help grow the business, we acquired a few years ago.
Speaker Change: In September 2020, we acquired Alley industries, a leading manufacturer of sandpaper, another braces that goes to market under the <unk> brand.
Speaker Change: Like many of these businesses they experienced supply chain disruptions over the past several years, but as those challenges have been resolved they are back on offense, and bringing new products to market and gaining share.
Speaker Change: One we'd like to highlight today is their new reptilian product line. These innovative products use a proprietary design and coding that helps channel a desk, while standing which prevents buildup it improves efficiency for the user.
Speaker Change: Chilean product line. It was also last four times longer than traditional powertrain sanding accessories.
Julian: Julian products are on the shelf now and build on Gators legacy of providing high performance embraces both pro and DIY customers like now.
Julian: Now I'd like to turn the call over to Rusty to cover our outlook.
Rusty: Thanks Man.
Rusty: Our first quarter outlook is on the next page slide 13 on a can.
Rusty: Solidago level first quarter sales are expected to be approximately flat compared to a record prior year period with many market trends from the fourth quarter continuing.
Speaker Change: By segment CPG is expected to generate low single digit revenue growth on top of the nearly 11% growth. They generated in the first quarter of 2024 and they benefit from their focus on restoration selling building envelope systems and unique turnkey.
Rusty: Offerings.
Rusty: And TCG sales are expected to be flat to the jet challenging comparison as a few larger projects were completed in the prior year period.
Rusty: And others are being delayed beyond the first quarter of 2025.
Rusty: N S. P. G. Overall demand is expected to remain soft. However, the segment is facing easier comparisons, which should result in sales declining in the low single digit range.
Rusty: In consumer group sales are expected to be down low single digits trends are expected to remain similar to the fourth quarter with market share gains and strengthen international markets being offset by continued DIY softness.
Rusty: Yeah.
Rusty: Consolidated first quarter adjusted EBITDA is expected to increase in the mid single digit percentage range compared to our record prior year period, driven by map 2025 benefits.
Rusty: As part of May of 2025, we are in the process of consolidating or have recently consolidated 12 facilities, which demonstrates our continued momentum and generating efficiencies.
Rusty: Our physical 2025 full year guidance is on the following slide slide number 14.
Rusty: We expect sales growth will be up low single digits and adjusted EBIT will increase mid single digits to low double digits.
Rusty: On the top line volume broke is uncertain as the visibility on the global economic outlook is limited.
Rusty: It includes the unknown impact of elections in the U S and other markets.
Speaker Change: Our strategic balance and focus on repair and maintenance shouldn't be beneficial as we navigate the Mexican economy.
Speaker Change: We expect pricing to be slightly positive in response to continued inflation in areas like labor and benefits and we expect moderate increases in raw material costs in the second half of the fiscal year.
Rusty: By segment CPG should outgrow its markets with its differentiated product and service offerings.
Rusty: And should continue to benefit from spending on infrastructure and restoration projects.
Rusty: After a year of strong growth CPG will face more challenging prior year comparisons in fiscal 2025, while commercial construction remained sluggish.
Rusty: Moving to P. C. G. They continued to benefit from increased spending on infrastructure projects as well as their more collaborative strategy in emerging markets, which is generating profitable growth.
Rusty: After years of strong growth the growth in spending on re shoring project appears to be moderating and P. C. G will also experience a temporary headwind from the under absorption impact of opening of new plants in India, and Malaysia that we highlighted on the last call the last quarter.
Rusty: Although these plants will be a longer term tailwind of P. C. G results.
Rusty: At S. P. G. The current expectation is that several key end markets will remain sluggish.
Rusty: As a result S. P G as per in certain products and their associated SG&A cost structure.
Rusty: The actions along with easier comparisons.
Rusty: S P G get back to growth, particularly if the end markets recover.
Rusty: And consumer will continue benefiting from new products and market share gains as well as driving the improved product mix, which is expected to more than offset near term softness in DIY.
Rusty: When end markets ultimately recover consumer is poised for strong profitability growth as a result of the map 2025 initiatives put in place.
Rusty: On a consolidated level the key driver of EBIT growth is expected to be our map 2025 benefits, including manufacturing and commercial excellence improvements as well as the actions we have taken to make our SG&A structure more streamlined.
Rusty: This includes leveraging the power of RPM to generate efficiencies in areas like automation digital selling tools and centralizing more back office functions.
Rusty: These efficiencies will be more apparent over time as we overcome the negative short term under absorption impact of map enabled plant consolidation.
Rusty: Finally, because of the strong cash flow and debt reductions made throughout fiscal year 2024, we will benefit from lower interest expense in fiscal year 2025. This concludes our prepared remarks, we will now be pleased to answer your questions.
Speaker Change: We will now begin the question and answer session.
Speaker Change: To ask a question you May press Star then one on your telephone keypad.
Speaker Change: If you are using a speakerphone please pick up your handset before pressing the keys.
Speaker Change: To withdraw your question. Please press Star then two.
Speaker Change: At this time, we will pause momentarily to assemble the roster.
Speaker Change: And our first question will come from Mike Harrison of Seaport Research partners. Please go ahead.
Speaker Change: Mike.
Michael Joseph Harrison: Hi, good morning, Congrats on a nice finish to the year here I'm just.
Michael Joseph Harrison: On the performance coatings business it looks like the revenue number came in maybe a little bit worse than you had anticipated I know you guys indicated that there was a there were some delays going on in projects, but can you talk about some.
Speaker Change: Some of the broader trends that you're seeing in terms of project activity.
Speaker Change: And what kind of visibility you have in that business I'm, particularly intrigued by this comment.
Speaker Change: Comment in here that you're expecting maybe some moderating growth from re shoring impacting that business this year.
Speaker Change: Sure.
Speaker Change: I think the biggest impact in the quarter for our performance coatings group was project timing and we talked about that on our last call.
Speaker Change: We had a number of projects that ended up being accelerated into Q3, which negatively impacted.
Rusty: The fourth quarter.
Rusty: We anticipate continued growth.
Rusty: Growth, although at a more modest level in the performance coatings group for the balance.
Rusty: Fiscal 'twenty five and so there is still a solid results there.
Rusty: The other thing that I think it's worth noting in fiscal 'twenty four was the divestiture of a number of European UK based.
Rusty: Service businesses in our performance coatings group.
Rusty: Which hampered our results year over year.
Rusty: But it was the right thing to do it's improving profitability and so we'll annualize that pretty quickly and I think those are reasons to believe that we will see positive momentum.
Rusty: But at a more modest rate than what we experienced in the past year.
Speaker Change: Alright, Thanks, and then whats also curious you mentioned that there are some map 2025 initiatives to streamline SG&A that you implemented during Q4 can you elaborate on those actions and maybe the timing and magnitude of potential benefits from those.
Speaker Change: Changes thank you.
Speaker Change: Sure they really fall into two categories.
Speaker Change: One was a unnecessary risk.
Speaker Change: Rip across a number of our business units and impacted about 170 RPM associates.
Speaker Change: And.
Speaker Change: The benefit to that on an annualized basis will be in the $25 million range.
Speaker Change: And then the other area is as we've talked about investments and.
Speaker Change: Number of significant growth areas and so we are continuing dose where they are.
Speaker Change: Uh huh.
Speaker Change: Providing good momentum and we are paring back on some of those that have not met our expectations as we go into fiscal 'twenty five.
Speaker Change: Thanks very much.
Mike: Thanks, Mike.
Mike: The next question comes from Kevin Mccarthy of vertical Research partners. Please go ahead.
Mike: Thanks, Kevin and good morning, Good morning, Hope, you're doing well Hey, Frank I wanted to follow up on a comment that you made in the prepared remarks.
Speaker Change: Whereby I think you indicated that.
Speaker Change: Some lower operating rates and associated fixed cost absorption was was masking some of the map program restructuring benefits can.
Speaker Change: Can you quantify that and.
Speaker Change: What is your expectation for that dynamic going into fiscal 2025, what will there be less masking perhaps.
Speaker Change: So let me have a rusty can provide some details but in general.
Speaker Change: As we've talked in the past and you can see it in the improvement.
Speaker Change: For over the last two years and gross profitability. It's the hardest thing to move and our map initiatives have been focused on that consolidated production facilities.
Speaker Change: We are in the midst of an map 25, another dozen opportunities to consolidate versus the 30 or so that will be completed in the original 2020 NAFTA growth program.
Speaker Change: As well as a very effective.
Speaker Change: <unk> way of introducing lean manufacturing and continuous improvement initiatives in our plants. So we are reducing.
Speaker Change: Our plant.
Speaker Change: Footprint, and we are increasing conversion cost productivity.
Speaker Change: All of that shows up when you sell something and so the only.
Speaker Change: Real solid almost 7% organic growth.
Speaker Change: In the fourth quarter was from our.
Speaker Change: Construction products group the others all.
Speaker Change: <unk> reads are modestly down.
Rusty: And so that's the big picture in terms of specifics, let me have rusty address their yeah, Kevin in fiscal 'twenty four there is a little over $50 million of unfavorable impact.
Rusty: From unfavorable absorption on conversion costs in the fourth quarter. It was.
Rusty: A little over 15 million, we'd expect more of that in the you know.
Rusty: Low volume growth environment.
Speaker Change: As you can see in especially in <unk>.
Rusty: Consumer and now in performance coatings, they are experiencing volume challenges and as Frank mentioned as we go through a lot of these plant consolidation project we are.
Frank: Building new plants for example, in India and Malaysia, we are.
Frank: Closing certain plants and relocating production to other plants with increased capital spending and some capacity expansion at certain sites. So as that transition goes on we will have some startup inefficiencies that will eventually work their way over time and.
Rusty: Efficiencies overall for RPM.
Rusty: Kevin I would add to your question really gets at the heart of our outlook and what's a pretty wide range for fiscal 'twenty five.
Rusty: We are operating currently in a low or no growth environment in general.
Rusty: And.
Rusty: If and when volumes pick up and I would expect in the second half of the year. If the economic circumstances don't deteriorate that we will see that will be certainly annualize and easier comps in our specialty products group and consumer.
Rusty: Any volume growth will accrete to very nice leverage on our bottom line.
Rusty: And so that's why we have come out with kind of a wide range in terms of our EBIT forecast. Our map 25 initiatives will continue to deliver solid results, but volume growth can hit our bottom line very nicely when it shows up.
Speaker Change: Okay and then that's very helpful. Maybe just a follow up on on that notion Frank.
Speaker Change: If volume growth does pick up how would you characterize the contribution margins in your businesses based on the new asset and cost footprint that RPM has.
Speaker Change: And.
Speaker Change: Without getting into specific details, but I think that the two biggest points of reference that people should focus on throughout the year is a huge improvement that we generated in our gross profit margins.
Speaker Change: And you.
Rusty: You've seen that and then B is $50 million of Unabsorbed overhead cost that rusty talked about.
Rusty: The gross margin is going to deliver more profitability per dollar of sales and there's a point at which we're going to have some favorable comparisons to these under absorption.
Rusty: Which will benefit our product line or I'm, sorry, our profitability.
Speaker Change: Got it thank you very much.
Speaker Change: The next question comes from Frank Mitsch Fermium Research. Please go ahead.
Frank: Good morning, Brian Good morning, Yeah. Good morning, Frank Congrats to our I guess, congrats you for calling fiscal 'twenty 'twenty four in terms of your initial guidance and let me offer my congrats to Matt on his recent promotion.
Speaker Change: Given your given your solid forecasting skills. Frank you indicated that you expect volume growth, perhaps in the back half of fiscal 2025. So I. So I guess you know as Youre looking at your order books physical I'm, sorry calendar 2020 for the back half, we shouldn't we shouldn't be baking in any DIY.
Speaker Change: Sort of improvement is that fair to say.
Speaker Change: I think that's fair to say I actually think both for the fiscal year and in the fourth quarter, we're executing at a really high level and our consumer group.
Speaker Change: We've been through what's now 15 months, maybe more 18 months of negative consumer takeaway across the DIY paint space.
Speaker Change: Some of that 18 months ago was I think.
Speaker Change: Still continued fallout.
Speaker Change: From the Covid bump, which was huge but as we sit here today, it's really driven by housing turnover. We are at 30 year low in terms of housing turnover and housing turnover is one critical element that drives consumer takeaway, but having said all of that.
Speaker Change: For the year ended the quarter Youre looking at.
Speaker Change: Negative units of about 1%.
Speaker Change: And versus are identifiable peers pretty strong result.
Speaker Change: In terms of how we're performing in it.
Speaker Change: A lot of the things that Matt talked about some market share gains new product introductions.
Matthew Schlarb: Some some strength in some new product introductions in the UK and Europe, and so I think our consumer group is performing at a pretty good level in this environment.
Speaker Change: And.
Speaker Change: I would expect that to continue.
Speaker Change: We don't have a better crystal ball than anyone else in terms of where the economy is going.
Speaker Change: Got you understood and.
Speaker Change: You had indicated.
Speaker Change: Ah you're obviously your balance sheet is that has been generating a lot of cash so that begs the question what to do with cash and I think you'd indicated prior that that valuations have been a bit of a hindrance in terms of of M&A.
Speaker Change: I'm not going to ask specifically about PPG and what's going on there, but I was wondering if you might be able to offer thoughts on.
Speaker Change: Potential M&A opportunities to think about our fiscal 2025.
Speaker Change: Sure.
Speaker Change: So as we've talked about we have a.
Speaker Change: Structurally improved our cash generation capabilities. So we're at new levels of cash flow, which we expect to maintain and marginally improved because there's still some more work to do in working capital improvement on our balance sheet is in the best shape, it's been in 30 years.
Speaker Change: And so we have plenty of opportunities for.
Speaker Change: Acquisition activity.
Speaker Change: I'd expect that to pick up.
Speaker Change: Versus what's been a pretty.
Speaker Change: Pretty modest acquisition period, particularly relative to Rpm's history.
Speaker Change: Our focus continues to be on the small and medium sized acquisitions that are highly strategic to our businesses and that's where you'll see us focus.
Speaker Change: Terrific. Thanks, so much.
Speaker Change: Thank you.
Speaker Change: The next question comes from John Mcnulty of BMO. Please go ahead.
John Patrick McNulty: Yes. Good morning, Thanks for taking the questions, Brian Hey, Frank So can you help us to think about what the cost savings would be tied to the 12 facilities that youre rationalizing I understand some of it's tied to efficiency at other plants and did that mean to get the full benefit may take volumes, but is there a is there just a flat cost bench.
A bit on the on the plant rationalization that we should be thinking about.
Speaker Change:
Rusty: I don't have those details I don't know if rusty.
Speaker Change: The swagger back.
Speaker Change: But I don't have a good sense of that good enough to give you a number that I could stand behind Rusty you have any more insights.
Speaker Change: It'll be John very meaningful in fiscal 'twenty five.
Rusty: You might have seen a few times before we are projecting $185 million of annualized savings in wave three of our map program in fiscal 25, Thats the highest year for savings in the plant consolidations are a big part of that.
Rusty: Okay fair enough. So so I guess, Frank when I think about your your guide for 'twenty five you've got the benefit of SG&A cuts that you spoke to you about $25 million, you've got what sounds like some pretty significant benefits on the plant rationalization.
Speaker Change: So it and it seems like you can get to kind of something in the whatever low to mid 14% margin range. As you look out to 2025 without much in the way of volume growth is that the right way to think about it and then the volume growth is kind of the additional kicker that that may push you closer and closer to that.
Rusty: 16% kind of longer term target is that the right way to think about it.
Speaker Change: Sure I think.
Speaker Change: We are on track to.
Rusty: In terms of delivered results our goals for fiscal 'twenty six.
Rusty: And our program is on an annualized run rate. So we will not experience all of those benefits that rusty talked about in fiscal 'twenty five.
At the end of 'twenty, five we will be benefiting.
Rusty: Fully from play.
Rusty: Plant consolidation and other map initiatives.
Rusty: So I think we're in good shape there.
Rusty: It just depends on volume and it's a broken record here, but we're in a low growth no growth environment and given our map 25 success.
Rusty: With flat results, we should be able to deliver.
Rusty: Solid EBIT growth and.
Rusty: Again, referencing the wide range and EBIT expectations.
Rusty: On the downside I think we'll be able to deliver mid single digit EBIT growth and when we get some pick up in volume you're going to see EBIT growth in the teens and.
Rusty: So don't don't have much more to add there because of a crystal ball and kind of the dynamics, particularly in our core North American market.
Rusty: I think we're gonna be into slow low no growth environment in Q1.
Rusty: And it.
Rusty: It is our expectation that by the time, we get to the second half youre going to see some positive results even.
Rusty: Theres no further deterioration just because we're gonna be rounding easier comps, particularly consumer and specialty products.
Rusty: Okay.
Rusty: Got it very clear thanks, very much Frank.
Frank Joseph Mitsch: Thank you.
Frank Joseph Mitsch: Okay.
Frank Joseph Mitsch: Okay.
Speaker Change: The next question comes from David Wong of Deutsche Bank. Please go ahead.
David Wong: Good morning, I guess first good morning, FY 'twenty five guidance I guess, you know deposit pricing how.
David Wong: How should we think about that in terms of your project based construction pricing and consumer pricing.
Speaker Change: And then I guess, which business segment are you seeing the highest year over year price increases today.
Speaker Change: So in general.
Speaker Change: Both pricing and raw materials for the time being relatively stable. Obviously, there are some exact exceptions up and down in different categories.
Speaker Change: Price in the quarter was marginally higher but.
Speaker Change: No.
Speaker Change: So I think the way to think about price for fiscal <unk>.
25 will be in the 1% range, maybe slightly higher.
The areas, where we continue to see.
Speaker Change: Inflation and wages.
Speaker Change: Benefits insurance costs.
Speaker Change: Similar to other companies is not specific to our industry. They have moderated in every case from where they were a few years ago.
Speaker Change: So it's gonna be a unless there is a meaningful change in inflation, one way or another I think a very modest impact on results.
Speaker Change: Okay got it.
Maybe I'll try at PPG, one more time I guess, how is your interest level its scope changed versus a few months ago and I guess absent of any acquisition, how should we think about capital allocation for FY 'twenty five.
Sure.
So our.
Speaker Change: Capital allocation will remain what it has been.
I would expect.
$50 million or more depending on circumstances share repurchases I would expect our board raised our dividend for us.
50, 51st consecutive year when they meet in October.
With our payout ratio.
Three years ago, we consistently get a payout ratio at or above 50% now we're in the mid thirties.
So our ability to increase our cash dividends at a rate more consistent with the earnings growth exists today and.
From an M&A perspective, I would expect us to do more M&A in the coming years versus a modest.
Period of M&A growth in the last couple of years, primarily focused on small to medium sized businesses or product lines.
And I guess no update on that PPG acquisition.
Beyond those comments no update.
Okay. Thank you.
Okay.
Speaker Change: Okay.
The next question comes from John Roberts of Mizuho. Please go ahead.
Thank you Alan.
On slide 14 under the full year 2025 guidance Rusty mentioned that PSEG had moderate growth from reassuring is that expected continued delays on project completions or are you seeing declining new project start activity.
Both.
Some of it is a.
Both in our construction products group and PSEG, some slowing down of projects that we have already won.
And.
And then it's just anticipation of.
Speaker Change: A low to no growth environment as we round in PCB and CPG are pretty challenging tax so the opposite of our consumer and specialty we expect positive growth both in performance coatings and construction products, but there'll be rounding some pretty healthy comps.
Speaker Change: In each quarter of fiscal 'twenty five.
Okay and can you remind us if there were tariffs on tin plate under the prior administration and how youre thinking about any risks around that.
Yes, there were tariffs on tin plate and that's kept our packaging, which primarily impacted our most impacts our consumer segment that those prices went up with the inflation and they never came back down so they've been sticky near the top end of those tariffs have been a contributing factor.
Thank you.
The next question comes from Ghansham Panjabi of Baird. Please go ahead.
Good morning, Good morning, Good morning, Frank I guess, you know going back to the consumer segment.
Can you just give us a bit more color on as to what exactly are you embedding for volume growth.
For that segment in fiscal year 'twenty five I know you called out some share gains, but do it do it yourself still seems a little bit weak.
It is so I would expect.
Q1, and consumer goods, so it looks like Q4.
We still see some.
Consumer takeaway is not.
Terrific.
The new product introductions, and some of the market share gains that we have and expanding.
The presence of the 501 and patented 500 one's breakeven.
Some exciting new product categories and introductions and gap.
Are going well so.
As we get into the back half I think youll see low to mid single digit growth in part just based upon easier comps, but in the first quarter were living in the same no growth environment or <unk>.
Modestly negative.
We're takeaway that we experienced in the spring.
Okay. Thanks, Frank and for C. P. G N P. C. G. You know obviously comparisons are more difficult in CPG and P.
P C G you called out some.
A moderation just based on project completions et cetera, do you sort of see that as a multi quarter.
Sort of dynamics that occurred.
Trying to get a sense as to the.
The cycles for those particular segments versus maybe consumer that you can ascribe to maybe a change in interest rates et cetera more directly.
Sure I think the timing issue most impacted Q4 and will continue a little bit into the early part of Q1.
But there are still many many hundreds of billions of dollars.
Through the infrastructure Bill and other things that will be spent.
Yes.
As the years unfold.
A lot of these shifts backs are a good example, we're well positioned in a number of those projects, but some of them have now been slowed down such spending is spread out over a couple year longer period of time than originally envisioned the dollars are still coming.
Concrete being poured when used with admixtures Euclid fibers.
We would expect to get a reasonable share of the.
The floor and fireproofing coatings and those so those are just some examples but if you look just at the NFL project here in Ohio.
It's moving forward.
But at a slightly slower pace than originally envisioned.
Otherwise.
I think the dynamics that are driving those businesses continue.
We have added salespeople.
We introduced new initiatives.
In the construction products group in particular, we've had a multiyear shift from selling components to selling systems and that seems to be paying off as our construction products group.
Performs.
A pretty punky.
New construction and commercial construction environment right now.
Yeah.
Perfect. Thank you so much.
Thank you.
Yes.
Next question comes from Jefferies, a caucus of J P. Morgan. Please go ahead.
Good morning, Jeff Hi, good morning, Thanks very much.
This year, you took $30 million in restructuring chart shows will you take more next year or less.
I think thats probably a.
Pretty good run rate considering some of the plant consolidations that we spoke about previously.
Going forward.
Okay and are the plant consolidations, new in that through the first nine months.
You spent a half million dollars 500000 on plant consolidation.
So.
Is there a what's the real step up this quarter and your cash spending or do you expect one for next year.
Yes, we had a couple of larger.
Plan announcements happened in the fourth quarter of this year, which really drove the increase spending in Q4.
We.
In support of all of our <unk> operations in Europe relocated to Europe, a little more than a year ago to help coordinate our map activities there.
As Youll recall.
We were focused mostly in North America.
The initiation of our planned initiatives.
Then COVID-19 hit which really slowed down.
Our ability to do what is pretty hands on on the plant.
<unk> process, and so Dave's leadership and the support of our associates and our operations in Europe.
We're catching up if you will and so a meaningful portion of the map 2025 plant consolidations are happening and will continue to happen in our European operations.
Thank you very much.
Okay.
The next question comes from Josh Spector of UBS. Please go ahead.
Good morning, Josh.
Hey, good morning, Frank.
So I wanted to ask on but I think about the low end of your guidance. So I mean, basically I assume that's pretty minimal sales growth, you're saying mid single digit ebay growth I mean that maybe gets you up I don't know 50 60 million or so on the EBIT line is the way to think about what that is is pricing is maybe slightly up it offsets.
Raws in that call it $50 million or so ends up being the map savings do you think you can achieve X volumes or is there anything else you would put into that math.
I think that's pretty much it.
Price will be modestly positive, but not really meaningful.
Unless dynamics change out there.
So the way to think about it is the continuing benefits of the map initiatives that we'll be building.
Throughout fiscal 'twenty, five offset by the volume or lack of volume under absorption that rusty referenced.
<unk>.
And when you net all of those I think we're still in a position to show positive momentum on the EBIT line, both in terms of dollars and margin.
In a.
Low load growth environment and so.
<unk>.
Q1 feels a lot like Q4.
In terms of where we sit today halfway through the through the quarter.
So I think I get your thoughts on the fiscal year correct.
And.
You heard me say multiple times that our wide range is based upon what happens with volume as we progress throughout the year.
Understood appreciate that I guess, if I build on that and think about the under absorption you sized earlier $50 million last year youre not getting the benefit of that without volumes do you have residual map savings with volumes.
I guess the question goes into is.
How much volume improvement do you need to really realize all the map plans I mean are we talking 3% to 5% are we talking a couple of years of growth catch up until you get that to really realize that 16% or sell margin structure.
Sure it'll play out over a couple of years, but 3% to 4% unit volume growth, we're seeing on our Bottomline really nicely.
Okay.
Okay. Thanks, Greg.
Thank you.
Okay.
The next question comes from Stephen Byrne of Bank of America Securities. Please go ahead.
Thank you Steve.
Thank you.
Your cost of goods were down 5% year over year in the quarter.
Can you comment on how much of that 5%.
Raw material cost deflation versus.
Perhaps your.
Facility.
Consolidations volumes were flat so with senior would be these other other categories any comments on that.
Yes, Steve so almost all of that.
Lower Cogs was related to raw material deflation. So we had about mid single digit deflation in Q4.
We started that process of consolidating those plants the plants in Q4, but we'll really see those benefits as we progress through 2025.
We also had the math benefits in terms of procurement and manufacturing work streams and those map savings were north of.
$20 million.
Packaging cost of goods in the corner.
Okay. Thank you and then maybe.
Just drill in a little bit more in your longer term outlook for SG&A.
Yes.
As a percent of sales in the high Twenty's seem right to you.
Or would you consider.
Consolidated <unk>.
Office sales.
Sales forces and things like that and beyond.
You know manufacturing facilities.
Sure. So I think structurally there is more opportunities for us, particularly in the G&A area over time.
Hi.
And we have a goal of getting our SG&A over time down to about 26%.
I will tell you that.
The most important asset.
PNM does not show up in our balance sheet and it's more than 2000 sales individual sales reps, we have more people in marketing.
And so given the nature of who we are and the entrepreneurial approach to customers in terms of sales marketing.
Tech service.
I do not envision.
<unk> sales forces.
Going back to my grandfather's 70, some years ago that more feet on the street the better some of the growth initiatives that has been driving our SG&A up has been the addition of salespeople.
And we're that's not paying off will will adjust in a business like our stone hard flooring business the.
<unk> of new sales reps.
Has meaningfully improve their business and the top line. So they are generating.
Our performance coatings group, they are generating solid organic growth.
And so.
That's how we think about SG&A going forward.
Okay.
Thank you.
The next question comes from Vincent Andrews of Morgan Stanley. Please go ahead.
Thank you and good morning.
Okay can I ask on consumer with the bifurcation of performance in pro versus.
DIY over the past couple of years could you could you first just give us an update on what you think your your business mix is now pro versus DIY and consumer.
Maybe we'll just start there.
Sure I would guess, we're probably about 70% DIY and about 30%.
<unk>.
Our two primary consumer.
Broad segments would be GAAP.
Cox sealants patch and repair products and they are adding new products and then rust oleum in various small project paints primers things like that.
We tend to be more consumer and rust oleum small project paint and zinsser primer and DAP products I think we're more 50 50 between consumer and pro.
Okay.
A follow up.
I know you mentioned a few times that you are waiting for existing home sales to come back and so I'm just kind of curious as your portfolio more levered to the work gets done.
Post home sale versus the prep work that might be done before the home goes on the market or are.
Are you indifferent.
Well, we're getting double whammy because in a sale we get both.
So when you think about our home sale.
People take time to fix up.
That should repair pain and plays very much into our hands because of the nature of our products, particularly patch and repair and the small project paint versus somebody hiring a contractor to paint their whole house, which is not the space that we're in today.
And then when somebody shows up into a new house.
They redid decorate rooms and.
Modest.
Improvement and again that benefits us so we benefit both on the sell and the actions taken to prepare the house for sale and on the buy and the actions that new homebuyers state and we are not seeing that to the extent that.
That we have in the past because we're at 30 literally a 30 year low and housing turnover because people stuck at homes of interest rates and other factors. It is also a significant driver of the underperformance in our specialty products group, our industrial coatings business, which is the largest segue.
Almost half of our <unk>.
Our specialty products group revenues.
Serves.
Kitchen cabinets, and all kinds of wood cabinets in Woodward and doors and Windows. So we are still tied into a meaningful part of what is still manufactured in the United States that goes into housing and.
That's been a challenge as well both on the new construction side as well as on the housing turnover side as it relates to furniture.
Major.
Home improvements.
So the increase we've seen in homes for sale. So far I guess the answer would be it's just not material enough to really move the needle for you yet is that fair.
That's correct again, whereas 30 year low and the.
Yeah.
Unfortunately.
Wall Street Journal reported just this week.
Housing prices hit a new high.
And so the value of homes in light of the inflation that we've experienced in North America. The significant increase in interest rates, it's impact on mortgages. All of those are factors that are underlying dynamics.
Our great.
That's why I comment on the.
The performance of our.
Consumer group in light of those with unit volume down about 1% in the quarter is really outstanding.
Shows positively in comparison.
<unk> peers.
I think we're performing well given the dynamics that are out there.
For further proof that when the worm turns.
We will see some.
Nice volume pickups, particularly related to the shelf.
Placement for.
Abrasives. So we're in the sand paper business and growing it is not a category that has existed for RPM, three or four years ago and.
Moving in some cleaner product categories.
And so theres a number of.
New initiatives I think will help growth.
Great. Thanks very much.
Thank you.
The next question comes from Mike Sison of Wells Fargo. Please go ahead.
Good morning, Michael.
Hey, good morning.
Nice end of the year hopefully the guardians can follow through.
Hey Man Franklin.
Frank what if demand gets worse going forward I, certainly don't hope that's the case, but if things get a little bit weaker.
You accelerate some of the maps savings to still sort of have a good year.
Relative to your guidance.
Sure. So I think that where our people are executing the map initiatives that really high level and I don't know that theres any accelerating those I think it's a very methodical approach to addressing.
Both the continuous improvement lean manufacturing disciplines more broadly across the globe.
Another initiative that is paying off for us and it probably took US 20 years to figure. This out is the platform approach to the developing world.
We had a stop and start efforts with our businesses as we either organically or through small acquisitions.
New acquisitions in southeast Asia, or in China, or in India, and we have a very high performing leadership team.
In South Africa.
And given their success because of the uniqueness of that market across our consumer brands and our construction products brands and our performance coatings brand. It was fundamentally a key.
<unk> business, we acquired a south African operation, So our performance coatings business. They now have sales.
They consolidated in administration and production, but have independent sales and market focus across almost all of Rpm's brands.
They are now responsible for the Middle East Africa, India, and Southeast Asia, and Thats paying big dividends for us.
And so that's a different approach for RPM.
Small base, but the growth percentages are pretty impressive and there's a lot more to come there.
So those are the types of things Michael that I think will allow us to.
To generate positive momentum in a low growth no growth environment, we don't see things.
Carrier rating.
Further I think theres been a rolling recession, notwithstanding all the headlines in the manufacturing sector.
Anything that touched housing you can see it.
And.
Been accretive to our supply chain supplier base and had a challenging year.
I can't speak to services or Tac, but if you're in manufacturing in the last 12 to 18 months have been challenging we don't see it getting worse.
Lastly, if it does get worse unrelated to our map initiatives there.
There would be room if necessary.
The SG&A area for additional expense reductions.
Got it and then quick follow up.
On innovation I recall Madura was one that had a lot of momentum a lot into commercial areas, but have you seen any progress and moving that product into the residential applications.
We have and also I think more importantly into commercial and so we have a real significant effort to get new dura.
Specified understood communicate and educate about new dura and get it specified into the new construction market for schools.
We now have a specification throughout schools and Kentucky for instance, following the terrible tornadoes to add a couple of years ago. We're moving it into other states, particularly states that are kind of in the tornado Alley area specification doesn't mean, we will get to work.
Yeah.
You've got to educate architects and engineers and builders.
And then you need to build momentum and we're starting to see that happen in the school market. So that's a nice area. The last comment I'll make about new Dura is my wife, and I had a unfortunate.
Sure flooding.
Circumstance in our home in Cleveland, Ohio, and after working with our insurance company for a few months to remediate that we made the decision to tear it down and build a new home.
And so we are in the midst of building a 5000 square foot neuberger of home.
Paying for it directly through the builder new to the architect new to the builder and I am learning along with them.
And the construction products group knows I'm going to learn firsthand.
All the good things that Youre talking about new Dura and what challenges there are through direct experience.
Got it thank you.
Thank you.
Once again, if you would like to ask a question. Please press Star then one.
And our next question will come from Alicia from malls of Keybanc. Please go ahead.
Good morning, good morning, Frank.
What is your expectation for infrastructure.
Sales for for your business in fiscal 'twenty five and beyond.
Sure.
They're going to continue.
You got a trillion dollar infrastructure bill that will impact a lot of the areas you've got chips Act in terms of chip.
Chip manufacturing in the U S and we're well positioned and our performance coatings group and construction products for some of that work and so we would expect to see the benefits of that I think through 2026.
But again it is you'll see a more modest sales growth in the past year, just because we're rounding some very challenging.
Comps.
But nonetheless, we will see positive growth there and we are well positioned to benefit from it.
Okay for ICF.
Some comments on our re shoring, especially.
Slowing down this fiscal year is it mostly comps or.
Some of the slowdown that you see there could be other reasons like I don't know lack of resources or demand or anything like that if you could give more color on the slowdown and you already see.
Sure. It's a combination of the more challenging comparisons, but it is also a slowdown in some of the project completions.
Thank you.
Whether it's.
Interestingly, it's as much about labor and new facilities as it is and training up.
Personnel to staff, new chip plants or other things as it is as it is about construction labor.
But the projects are not stopping there continuing to dollars are there and committed but I think the.
The expectation of how they'll be spent is now going to be spread out.
Over a longer period of time, so the impact in <unk>.
Fiscal 'twenty six will be I'm, sorry fiscal 'twenty five.
Will be pushed into 2006 and may be beyond.
Versus what was a pretty good start kick start in fiscal 'twenty five.
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 Andrea.
Well I'd like to conclude by recognizing and thanking our more than 17000 associates around the globe, who are executing at a really high level on our map initiatives, it's making a huge difference for RPM and for our shareholders.
Thank you all for your participation in our conference call.
And we.
We look forward to talking to you about the development of fiscal 'twenty five in October.
And to having you participate in our shareholder meeting as well and that'll happen at the same time. Thanks.
Thanks again for your interest in RPM and for your investment in research.
And have a great rest.
But I would say very quickly.
Summer of 'twenty 'twenty four 'twenty four thank you.
Yeah.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
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