Q1 2025 RPM International Inc Earnings Call
Speaker Change: [inaudible] Michael Laroche, Michael Laroche,
Speaker Change: [inaudible]
Speaker Change: Good day and welcome to the RPM International Physical First Order 2025 running conference call. Our participants will be in the snowly mode. Switching the assistant to placing all conference specialists by pressing the star key followed by zero.
Speaker Change: After today's presentation, there will be an opportunity to ask questions. To ask a question you may press start in the morning to telephone keypad. To enjoy your question, please press start in two.
Speaker Change: Please note today's event is being recorded.
Speaker Change: I would now like to turn the conference over to Matt Schlarb, Vice President and Best Relations and Sustainability. Please go ahead.
Matt Schlarb: Thank you, Rocco. Welcome to RPM International's Conference Call for the fiscal 2025 first quarter. Today's call is being recorded.
Speaker Change: During today's call at Frank Sullivan, our PM's chair in CEO, Rusty Gordon, Vice President Chief Financial Officer, and Michael Laroche, Vice President, Controller and Chief Accounting Officer.
Speaker Change: This call is also being webcasts, you can be access live or replay it on the RPM website at www.rpmink.com
Speaker Change: Comments made on this call may include forward-looking statements based on current expectations to then involve risks and uncertainties, which could cause actual results to be materially different. For more information on these risks and uncertainties, please review our PM's report filed with the SEC.
Speaker Change: During the conference call, references may be made to non-gap financial measures, to assist you in understanding these non-gap-made terms, RPM is posted reconciliation's the most directly comparable Gap financial measures on the RPM website.
Speaker Change: Also, please note that our comments will be on an asadjusted basis, and all comparisons are to the first step.
Speaker Change: 1st quarter fiscal 2024, unless otherwise indicated. We have provided a supplemental slide presentation to support our comments on this call. It can be accessed in the presentation of webcast section of the RPM website at www.rpmink.com. Now I would like to turn the call over to Frank.
Frank Sullivan: Thank you, Matt, and thank you to everyone for joining us today.
Frank Sullivan: We're hosting this call from our Innovation Center of Excellence in Greensboro, North Carolina. And I want to begin today by sending our sincere sympathy to all of the people in North Carolina and elsewhere who are impacted by Hurricane Haleen.
Frank Sullivan: The devastation is heartbreaking and our businesses are contributing to initial response efforts to help bring some sense of normalcy back to people's lives.
Speaker Change: This includes legend brands, which is supplying disaster restoration equipment and products to help people and businesses save and restore homes with water damage. And our Trump co-business, our teams are helping customers with roofing and other issues by providing tarps and generators.
Speaker Change: They're also supplying water and food to people in need, including our PM associates affected by the hurricane.
Speaker Change: We're all hoping for a fast recovery for the impacted region and our PM businesses and associates are contributing to this effort.
Speaker Change: Turning to our first quarter results, I'll begin with a high-level review.
Speaker Change: will go over the financials and more detail. Matt Schlarb will then give a balance sheet update and provide some insights into our ability to capture growth, opportunities, and Rusty Gordon will cover the outlook. After that, we'll be happy to answer your questions.
Speaker Change: We'll begin on slide three with our first quarter results. Overall our associates are doing an excellent job in controlling the things that we can in a mixed and uncertain economic environment.
Matt Schlarb: This includes continuing to execute our map 2025 initiatives in capturing growth opportunities where they exist.
Matt Schlarb: These self-help actions enable us to achieve our 11th consecutive quarter of record adjusted ebit.
Matt Schlarb: Across our PM, our associates are adapting to challenging economic conditions to continue to drive growth. This includes pivoting to growing end markets, finding new efficiencies in our operations, and investing in targeted growth initiatives.
Matt Schlarb: The cash flowed momentum we built in fiscal 24 was sustained in the first quarter, where we leveraged our map 2025 to continue making structural improvements to working capital efficiency.
Matt Schlarb: This resulted in another quarter of strong cash flow generation, which enabled us to repay an additional $75 million in debt.
Matt Schlarb: Over the prior 12 months, we have repaid 453 million in debt, and the resulting lower interest expense combined with adjusted EBIT growth led to adjusted EPS increasing 12.2% to a record.
Speaker Change: One $1.84.
Speaker Change: Moving to slide four, our construction products and performance coatings group led growth by focusing on the repair and maintenance businesses as well as growing in new construction markets.
Speaker Change: Aided by our entrepreneurial sales culture and broad portfolio of differentiator products and services for high-performance buildings, our teams have demonstrated their ability to capture growth opportunities where they exist.
Speaker Change: Over the past several years, we have pivoted from distribution centers to EV manufacturing and battery plants to the now strong infrastructure and data center markets.
Speaker Change: Despite the current, no growth environment, both of these segments generated record-eabit margins, which demonstrates the impact of our map 2025 initiatives.
Speaker Change: and how they can have tremendous impact with growing volume to fully leverage these operational improvements that we put in place and that are continuing.
Speaker Change: In our consumer and specialty products group, which have the most exposure to residential and markets, demand remains challenged.
Speaker Change: Importantly, they remain focused on executing our map of 2025 initiatives, and were thus able to expand adjusted ebit margins despite unabsorption headwinds from lower volumes.
Speaker Change: Our adjusted e-bit margin expansion matched our gross profit expansion and was aided by the S.G. and A. extreme mining actions we implemented at the end of fiscal 2024 such that our actual dollars of S.G. and A. spend in this quarter were below the S.G. and A. dollars in the prior year of first quarter.
Speaker Change: Overall, I'm pleased with our associate's ability to navigate the mixed economic environment and achieve our 11th consecutive quarter of record adjusted EBIT.
Speaker Change: Through investments in our business and increased collaboration, we are working to generate volume growth and realize the full benefits of our map 2025 initiatives.
Speaker Change: I'll now turn the call over to Mike Laroche to cover the financials in more detail.
Mike Laroche: Thanks, Frank.
Mike Laroche: Turning to our consolidated results on slide 5, sales declined 2.1% driven by FX headwinds and a slight decline in organic revenue. Pricing was slightly positive during the quarter.
Mike Laroche: Adjusted Ebit, grew 6.3% to a first quarter record driven by map 2025 benefits, including commodity cycle benefits, and progress on plant consolidations.
Mike Laroche: SGNA declined, aided by the three mining actions we implemented at the end of fiscal 2024.
Mike Laroche: Adjusted EPS, increase 12.2% to $1.84, which was a record. Driven by the adjusted e-viggrove and lower interest expense due to debt repayments over the past year.
Mike Laroche: Moving to geographic results on slide 6, sales declined in North America, where business trends generally mirror the overall company.
Mike Laroche: In Europe, FX had wins, and previously announced that best-touchers resulted in a stales decline, but we continue making progress with map 2025 in the region, and generated profitability growth.
Mike Laroche: In emerging markets, FX headwinds were particularly pronounced in Latin America and drove the sales to fly in there.
Mike Laroche: Asia Pacific and Africa Middle East grew as they benefited from spending an infrastructure in high performance building projects.
Mike Laroche: Next, moving to the segment results and starting with the construction products group on slide 7.
Mike Laroche: The segments growth was driven by turn key roofing systems and wall systems, which are being used in both new construction projects and renovations.
Mike Laroche: This growth is in addition to double-digit growth, CPT generated last year.
CPG-Eachie: CPG-Eachie, you've record Q1 adjusted you bit, due to improved fixed cost leverage from higher volumes, map 2025 benefits, and a focus on selling higher margin products.
CPG-Eachie: On slide eight, performance coating's group had a positive organic growth driven by the flooring business.
CPG-Eachie: Emerging markets also contributed to organic growth, which was in addition to strong growth in the prior year. This was more than offset by FX headwinds, and the previously announced European Infrastructure Service Business Investiture in the prior year.
CPG-Eachie: Adjusted Ebit was a first quarter record and was driven by map 2025 benefits and improved fixed cost leverage from higher volumes.
Speaker Change: Moving to slide 9, especially product screws sales declined as the manned in specialty OEM markets with housing exposure remains soft.
Speaker Change: Additionally, customers in the deaths disaster restoration business entered the hurricane season with high inventories, which muted the impact of storm-related flooding during the quarter.
Speaker Change: The food group grew during the first quarter, ate it by new business winds and a small acquisition.
Speaker Change: Adjusted E-bit grew during the quarter as map 2025 benefits more than offset the under absorption from lower volumes.
Speaker Change: On slide 10, a consumer group continued to face challenging market conditions as DIY demand at retail stores, remained weak, and those retailers reduced inventory levels.
Speaker Change: The rationalization of lower margin products also contributed to the sales declines.
Speaker Change: International markets grew during the quarter, primarily driven by targeted marketing initiatives, directed toward end users that allowed us to outpace the broader market.
Speaker Change: Although adjusted EBITDA client due to lower sales and unfavorable fixed cost absorption, map 2025 initiatives and the rationalization of lower margin products resulted in adjusted EBIT margin expansion during the quarter.
Matt Schlarb: Now, I'll turn the call over to Matt Schlarb who will cover the balance sheet, cash flow and provide an update on innovation.
Matt Schlarb: Thank you, Mike. Moving to slide 11, cash flow from operations total $240 million for the first quarter. As operating working capitals and percentage of sales, improved by 250 basis points from the prior year period. Driven by map 2025 structural improvements in working capital.
Matt Schlarb: Over the past two years, this metric has improved by 540 basis points.
Matt Schlarb: During the quarter, we used a portion of this cash flow generation to repay debt, which declined by $75 million in the quarter, and $453 million over the past year.
Matt Schlarb: We returned 76 million dollars to shareholders through dividends and share purchases during the quarter. Additionally, we are making investments in new production facility in Belgium that is expected to open by the end of the calendar year.
Matt Schlarb: This facility will be overseen by specialty products group, but will supply residents to all four segments, as well as external parties.
Matt Schlarb: The new Belgian facility represents the fourth RPM plant that is focused on inter-company sales, which are a key element of our procurement strategy to enhance resiliency in our supply chain.
Speaker Change: Earlier Frank talked about how businesses are pivoting to growing in markets, and I'd like to highlight one example on slide 12
Speaker Change: Spending on data center construction is up significantly over the past year, and our businesses are playing an important role in the construction of these high performance buildings.
Speaker Change: Our products and services meet the demand and requirements of these facilities, including having the water proof structure, meeting fire safety standards, protecting the expense of equipment from electric discharge and allowing the facilities to continue operating through ongoing maintenance and repairs.
Speaker Change: Additionally, benefits from our suite of products and services include labor needs and faster reducing labor needs and faster construction. These are important not just in the data center construction but throughout the entire construction industry that is struggling with skilled labor availability.
Speaker Change: Combined with our entrepreneurial sales culture, these high-performance products, systems and services have allowed us to capture these growth opportunities and will allow us to pivot towards expanding markets in the future.
Speaker Change: Now we'd like to turn the call over to Rusty Gordon to cover the outlook. Thanks, man.
Rusty Gordon: Our second quarter outlook is on the next page, slide 13.
Rusty Gordon: On a consolidated level, second quarter sales are expected to be approximately flat compared to a record prior year period, with the mixed economic backdrop continuing.
Rusty Gordon: Uncertainty surrounding the U.S. elections may cause some customers to defer decisions on spending and the impact of recent strikes at East Coast ports remains unknown.
Rusty Gordon: By segment, CPG's expected to generate low single-digit revenue growth in addition to record results in the prior year period when revenue grew 8%.
Rusty Gordon: Growth is expected to be driven by high performance roofing and wall systems, serving restoration and new construction projects.
Rusty Gordon: In PCG, sales are expected to be approximately flat, which includes the positive impact of more effective sales management systems.
Rusty Gordon: In SPG, overall demand is expected to decline by low-singled digits, as residential focus OEM demand remains soft, while other OEM businesses show signs of stabilization.
Rusty Gordon: In Consumer Group, sales are expected to be down low single digits. Continue DIY softness is expected to be partially offset by market share gains and growth in international markets.
Rusty Gordon: Rationalization of lower margin products will be a headwind of sales, but a benefit to margins.
Speaker Change: Consolidated second quarter of Justice Ebet is expected to increase in the mid-singled-digit percentage range compared to a record prior year period, driven by MAMP 2025 benefits and improved fixed cost utilization at some of our businesses.
Speaker Change: Our fiscal 2025 full-year guidance is on the following slide.
Speaker Change: Our view on the overall economic environment remains similar and our guidance is unchanged to what we previously communicated with sales up low single digits.
Speaker Change: and the Justice E, but increasing in the mid-single digits to low double digit range.
Speaker Change: We expect overall 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.
Speaker Change: Thanks to the progress we have made in our Center-led procurement teams, and CS168, we are better positioned to have our pricing, reflect increases in raw material cost in a timely manner.
Speaker Change: By segment, CPG should outpace its markets with its differentiated product and service offerings.
Speaker Change: and should continue to benefit from spending on infrastructure, high performance building and restoration projects while office construction remains fluggish.
Speaker Change: At PCG, they continue to benefit from increased spending on infrastructure projects, high performance buildings and emerging market growth.
Speaker Change: We continue to expect spending on reshoring projects to moderate in some areas like battery plants and expand in others like data centers and pharmaceutical manufacturing.
Speaker Change: At Consumer and SPG, which are most closely tied residential housing, we are encouraged to see interest rates declining, but it is too early to determine when this will translate into an increase in housing turnover.
Speaker Change: In the interim, we remain focused on operating improvements, so we are prepared to respond to a market rebound when it materializes.
Speaker Change: On a consolidated level, adjusted the ebit growth is expected to be driven by map 20, 25 benefits with the timing and magnitude determined by how quickly and to what extent volume growth returns.
Speaker Change: We also anticipate that we will continue to improve our working capital efficiency, which will lead to another year of strong cash flow.
Speaker Change: This concludes our prepared remarks, we are now pleased to answer your questions.
Speaker Change: Thank you. We will now begin the question and answer session. To ask you a question, you may first order them on on your telephone keypad.
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Speaker Change: Today's first question comes from John Minalti with BMO Capital Market. Please go ahead.
Speaker Change: Good morning, John. Good morning Frank. Thanks for taking my question and congrats on a nice strong quarter in a difficult environment.
Speaker Change: and I guess to that, so the consumer margins are putting up some pretty solid numbers, I mean I think it was 18 and a half.
Speaker Change: Percent this quarter, which is nearly a record for the first quarter, and that's despite some really challenging volumes. So I guess, can you help us to think about the operating leverage in this business now that map is...
Speaker Change: really kind of working his way through and how we can think about kind of what the margin profile would look like for the business in a more normalized DIY type environment.
Speaker Change: Sure, I'll comment to your question about consumer, but it really applies to
Speaker Change: All of our businesses.
Speaker Change: We have executed really well on our map to growth in our map 2025 follow-on operating improvement initiatives. We've gained efficiencies in our conversion costs.
Speaker Change: Particularly true in consumer and a restolium, and I've commented in the past.
Speaker Change: Without additional dollars of capital, we have uncovered almost 80 million units of new capacity.
Speaker Change: and that gives you a sense of the benefits that our operating improvement initiatives have uncovered. That doesn't do us much good unless we can sell it.
Speaker Change: and so we are really poised to lever growth to the bottom line. You can see that with a nice leverage in the construction product's group of the performance coding group, both of whom had positive univ volume growth to the quarter. And I think, as you're referencing, you can see the operating leverage.
Speaker Change: and even in our consumer segment.
Speaker Change: Um...
Speaker Change: when volumes will come back which they will.
Speaker Change: The last comment I'll make is across every segment of our PM. You know, we have been very deliberate and focused SG&A spends.
Speaker Change: A new product areas and on growth areas is rusty-commoned. We are moving our sales forces to the few pockets of where growth exists.
Speaker Change: But in each of our segments, a Q1, our dollar spend in S.E. and A was below last year. So we are taking a pretty targeted and disciplined approach to S.E. and A and you'll see that continue in Q2.
Speaker Change: Got it, okay, no, that's helpful. And then I guess, the second question would just be on the specialty segment, I think you mentioned in the release that there was some inventory issues around the legends business. I guess how long do you expect?
Speaker Change: It's a take to kind of work through that and should we see it uptick just given some of the issues that we're seeing in the US now around some of the hurricane problems.
Speaker Change: For the first time in probably four or five quarters, you're seeing positive EBIT growth.
Speaker Change: and our specialty segment and it feels very much to me like their challenged environment has bottomed out.
Speaker Change: They are particularly exposed to residential new construction indirectly with their wood finishes work that goes into doors and windows in the manufactured housing. And so it was really...
Speaker Change: I think good and comforting to see them to return to positive.
Speaker Change: Ebert Martin Generation, and I think the sales challenges that they faced for the last boy four, six quarters have bottomed out, and you will see improved modest improved performance in the specialty product segment as we go throughout the rest of the year.
Speaker Change: Thanks very much for the color. Thank you.
Speaker Change: Thank you, and an expression for the echo from Frank Mitch with for many research Please go ahead. Why Frank? Hey, good morning, good morning to you as well and good luck in the playoffs.
Frank Mitch: obviously I'm talking baseball now football sorry you indicated I think in the last conference call that there was an expectation that maybe price would be up 1% in fiscal 2025 I believe.
Speaker Change: Rusty said that the expectation is slightly positive. I'm curious if that's kind of a good placeholder, I think, you indicated that you're going to offset raw materials.
Speaker Change: Given the wide range on EBIT for the balance of this year, what would be a reasonable range of volume expectations that you have as you sit here today for fiscal 2025?
Speaker Change: I'm Price, we've benefited by about a half a percent in the quarter. We are facing some modest raw material.
Speaker Change: Increases in propellants, certain solvents and residents.
Speaker Change: and so I think the number that Russell decided still feels good for the balance of the year of about 1% price.
Speaker Change: that presumes, we don't see any dramatic impacts in higher raw material class, which at this point seemed to be pretty stable. In terms of growth,
Speaker Change: It's anybody's guess, but I would tell you that if we are starting on a path of interest rate.
Speaker Change: [inaudible]
Speaker Change: that will be the period of time in which you're going to see.
Speaker Change: A Recovery and Housing turnover, which remains at a 30-year low, big driver of our consumer segment, take away and also a new home construction and turnover, for especially products group. It does not take a lot of positive volume growth to leverage nicely to our bottom line.
Speaker Change: So, for instance, even in the second quarter
Speaker Change: you know our outlook is flat if things perk up here a little bit and we can
Speaker Change: Provide a one or two percent.
Speaker Change: and Pasha New Growth.
Speaker Change: You'll see that leverage nicely and better than our guidance to the bottom line. That's speculative.
Speaker Change: But we don't need 4% of growth to leverage really strong performance in the bottom line. We just need positive results and you see that in our two more industrial segments in this quarter.
Speaker Change: Uh, understood and very helpful, um, just curious.
Speaker Change: On the topic of the benefits of the rate cuts and timing, what sort of indications are you getting from your customer base, typically on the consumer side, in terms of their expectations as to when.
Speaker Change: When we might see the benefits take place six months, nine months, 12 months, 15, any sort of indications from your customer base on what their expectations are?
Speaker Change: Not really, I will tell you the inventories are at exceedingly low levels.
Speaker Change: You know, that's an area that where we just see a rebound and growth, I think will also help us kick start at least temporarily filling inventories in some cases to more normal levels.
Rusty Gordon: But Rusty Gordon did a very nice job for our board in the past year, year and a half, of actually mapping what was extraordinarily solid organic growth. My recollection is in the fall of 23.
Rusty Gordon: and tracking our univallium growth by segment and SPU to the Fed rate interest rate increases.
Rusty Gordon: and it took about two or three quarters of the Fed increasing interest rates.
Rusty Gordon: until we saw the negative impact, which was there in tent, particularly in housing and, again, affecting specialty in consumer.
Rusty Gordon: and then it went negative and you know we've had those challenges for the last three or four quarters. So with that I would tell you it probably is going to take a couple quarters of interest rate.
Rusty Gordon: Redoctions before the benefits of those start flowing into the economy in our business.
Rusty Gordon: So, I would guess the spring of this year and if it starts to hit, there is not much in the way of meaningful volume improvement in our current guidance.
Speaker Change: Okay, very helpful, thank you.
Speaker Change: Thank you, and I have a question today. I'm Kevin McCarty, the Medical Research partners. Please go ahead.
Speaker Change: Good morning, Kevin.
Kevin Mccarty: Good morning, Frank, what a welcome you're updated thoughts on capital deployment. I guess looking in the rear view, it seems as though you did a small deal in.
Speaker Change: Specialty Products, but more importantly, um...
Speaker Change: Just thinking about the deleveraging that you've done and...
Speaker Change: by my math through down about 1.4 times EBITDA in terms of the net that balance. So what are you seeing in the private market and how would you weigh that versus potential to accelerate purchases or alternative uses a cash?
Speaker Change: Sure, we are committed to the capital allocation model that has been the hallmark of our PM, investing in internal growth, investing in acquisitions, raising our dividend, we have our annual meeting of
Speaker Change: Stacholder's tomorrow, and our board will consider what would likely be our 51st consecutive.
Speaker Change: and Chris and Cash dividends.
Speaker Change: and we are committed on a regular basis now, regardless of stock price, to about $50 million a year, maybe a little bit more of share repurchases.
Speaker Change: Beyond that, I think we'll be opportunistic, but our ability to, um...
Speaker Change: to repurchase shares on a more regular and more consistent and larger basis exists in ways that didn't our balance sheet is in the best shape that it's ever been in in my 35-year career at our PM and so that feels pretty good.
Speaker Change: Specific to acquisitions, we are pursuing a lot of small product lines because we can get them done. The M&A market chilled through the kind of supply chain, hiccups and the interest rate rises. It's starting to loosen up a little bit.
Speaker Change: and we will continue to pursue the small, the medium-sized acquisition strategy that's been so successful for us in the past and our ability to leverage product lines or businesses because of our map initiatives are better today than they have ever been.
Speaker Change: Very helpful, and then second if I may, Frank, would you provide an update on your map program execution? Just kind of walk through where we are today in terms of asset consolidation, headcount, other cost savings, what's behind the company and what's still ahead in coming quarters.
Frank: Sure, a great question. I would say we're in the fourth or fifth inning of our map programs is started in the fall of 2018. Our MS168.
Frank: Approach, which is really a center-led operating efficiency and continuous improvement approach to our manufacturing and operations has really done quite well.
Frank: Um...
Frank: and we are taking that now to Europe, Dave Dunstead who runs our performance coding scope and his family moved to Europe year and a half ago.
Frank: really accelerating the map initiatives there that got stalled a little bit because of COVID.
Frank: But we are on target for the original $465 million of projected map 25 savings. That would imply a $185 million of map benefits on a full run rate basis.
Frank: by May 31, 2025 for this fiscal year. And I think it's highly likely that we will meet or beat that 465 total program goal.
Frank: The challenge for us in our map initiative, and it's not unique to us as growth. When you look at this quarter, I think that the 42%.
Frank: Gross Profit goal, and the 16% EBIT margin goal on a consolidated basis are within reach, and that is without the benefit of the $8.5 billion total revenues that we had targeted. We're going to fall short of that and all likelihood.
Frank: and so it really gives you the sense of this strong execution we've had. Have we come anywhere close to the 8.5 billion in revenues? We blow through those margin targets.
Speaker Change: Thank you so much, very helpful.
Speaker Change: Thank you, and our next question is very question David Fang with Dutcher Bank, please go ahead.
David Fang: Good morning, heck. Good morning. In consumer I guess volume was worth expecting August since you get anything to let you buy.
David Fang: and I think he talked about continuous consumer, I mean, customer-dee stalking, despite low-iminter-levels. Can't just talk about what has happened there and I guess how is that trending September versus August?
Scherb: Scherb, so the Ed...
Speaker Change: Performance in Consumer was as expected, you know, it was a combination of
Scherb: Lower inventory levels, particularly some of our big-backed retailers, and a continuing low.
Speaker Change: to mid-single-digit consumer.
Speaker Change: Negative Takeaway vs. Prior Years.
Speaker Change: We see that bottoming out this fall in terms of consumer takeaway.
Speaker Change: and as I indicated in response to an earlier question, I think inventory levels across most of our customers are at a point where if there is and when there is, because there will be at some point.
Speaker Change: A pickup and consumer take away and positive volume, you'll also see some adjustments in inventory to meet that demand.
Speaker Change: So, we are where we expected to be, it's disappointing. We are in our 15th month of negative consumer take away, I've been in our PM 35 years and have never seen this period of...
Speaker Change: Kind of flat the negative.
Speaker Change: Results in our consumer segment, it's...
Speaker Change: Not unique to us, and I think when you compare to the most directly comparable segments of some of our major peers, our consumer performance collectively is equal to or better than.
Speaker Change: and what we're seeing elsewhere. So we're managing it well and I think we're well positioned on the upturn.
Speaker Change: Also, as Rusty and Matt talked about
Rusty Gordon: We've got some new product introductions that we're pretty excited about, both in DAP and Rustolium and we're seeing some solid growth, the only place we're seeing positive growth is in our...
Speaker Change: Mostly European UK consumer business with some really nice optics as they continue to improve their operations.
Speaker Change: Good. On the positive side, you highlighted some data center opportunities on the slide. Can you maybe help us size and think about the opportunity in your backlog? And your ability to capture shares in the market?
Speaker Change: Sure, I can't size the data center or any market in particular.
Speaker Change: I can tell you in our construction products group.
Speaker Change: with
Speaker Change: Panelization with the roofing opportunities that we see, particularly with the tremko roofing supply and apply model with the challenges of labor and in the stone hard performance coding groups, stone hard space and flooring. Again, the supply and apply model and where that's somewhat of an advantage with some...
Speaker Change: and a challenge labor markets. Our backlogs are better today than they were a year ago.
Speaker Change: as we had commented in the last conference call.
Speaker Change: We have seen some of these big projects be pushed out until it's a good example.
Speaker Change: Some of their big new construction, new fab plants.
Speaker Change: where we're specified, have moved out in terms of timelines by a matter of 12 or 18 months. And so we have seen some big projects deferred. The backlogs are pretty strong in our more industrial segment businesses.
Speaker Change: Thank you.
Speaker Change: Thank you, and an expression for the action from Vincent Andrews and Morgan Stanley. Please go ahead.
Vincent Andrews: Morning, Vince. Morning, thank you. Could you give a little more detail on the skew rationalization you're doing in consumer group, both in terms of what the products are, maybe what that sort of negative weight is going to be on your volume going forward and just, you know, how below segment average margins are those products.
Speaker Change: Sure, we have a...
Speaker Change: Brandon and private label architectural paint plant and business in Europe that's part of our consumer segment and we have announced the closure of that and that is
Speaker Change: meaningfully below our segment and our PM average gross margin and meaningfully below our limit margin.
Speaker Change: and so while it will take some time and money anticipate that that will be completed by mid calendar year 25 and that will.
Speaker Change: from a margin perspective, essentially be addition by subtraction. We have also rationalized some small project paint product lines in the US relative to profitability and turnover.
Speaker Change: So we continue to use data better than we ever have, and our Australian business is kind of the leader.
Speaker Change: across our PM and that to take a hard look at where we're making money and where we're not, and how we would manage both our mix as well as where we more in our industrial businesses incentivize our sales force to drive the mix that we want.
Speaker Change: Okay, and then you also mentioned in consumer group that you had some success with some new international marketing campaigns. You talk a little bit about what those are and which brands are, they're impacting.
Speaker Change: Sure.
Speaker Change: So, there's really two areas that are driving our growth there, one is inzer, you know, we were the leader in specialty primaries for a long, long time.
Speaker Change: in North America, and certainly the idea of priming paint jobs is pretty ubiquitous in the U.S. now.
Speaker Change: Not so much so in the UK and Europe, and so we are seeing double digit organic growth in the rollout in different markets.
Speaker Change: An Internet Direct Program in our Rustolium business in the UK where people can go online and actually buy.
Speaker Change: Small quantities of paint for especially projects.
Speaker Change: and that has gone from single billions of pounds of business to.
Speaker Change: teens millions of pounds of business.
Speaker Change: and is growing at double digit rates. Don't know where the top is on that, but it's been a pretty exciting growth initiative over the last three years.
Speaker Change: Alright, thanks so much.
Granchon Punjabi: Thank you, and our next question today comes from Granchon, Punjabi, with Robert W. Verg, please go ahead. Morning, gotcha.
Granchon Punjabi: Hi, good morning, this isn't that setting in for Gonsham, so I guess I just wanted to dig in on pricing a bit here. You know, if you see any pricing pressure across.
Speaker Change: You know the various business units, due to either competitive activity, promotional activity to boost volumes, or for many index-related pasture mechanisms.
Speaker Change: The comments here are pretty much what we provided in the July.
Speaker Change: Ernings Call. We have seen some reductions in pricing on some of our products and the industrial sector and a little bit in depth that are more related to broad.
Speaker Change: Chemicals, so you saw a huge bike in Silicon prices and that came down, you saw a huge price in certain residents and those have come down. So in some instances we have adjusted accordingly, but have been able to maintain strong margin profitability in that. And then we have had...
Speaker Change: and some pricing in consumer.
Speaker Change: Really, really, and we talked about this in July as well.
Speaker Change: really related to price elasticity, and our highest performing product line, the universal paint. At one point, our price has got above 10 bucks a can, and the data we had suggested the consumers weren't buying it there, so we adjusted accordingly in a couple of our big accounts.
Speaker Change: So those are principally the pricing actions that we've taken. It's been relatively modest across all of our PM. And as I said on average in the quarter across our consolidated business, price was up about half a percent.
Speaker Change: and we would anticipate about a 1% impact of price in the full fiscal year, in part because of some modest raw material price increases in certain categories, particularly impacting consumer.
Speaker Change: God, that's very helpful. And then, you know, the execution on the math 2025 program has been impressive in context of a pretty choppy demand backdrop.
Speaker Change: How much price cost benefit do you have baked in to that cost savings number that you mentioned earlier for this year? And then what was the price cost impact specific to the first fiscal quarter here?
Speaker Change: Maybe you rusted your match. I'm not sure I understand the question.
Frank: Yes, so with inflation, we would expect it to be pretty neutral in the second quarter and then we would expect a little bit of inflation as we get in the back half of fiscal 25 and like Frank has talked about, we would expect pricing to be positive for both the second quarter and for the remainder of the year.
God: God, so it sounds like there wasn't much of a headwind or tailwind, there isn't much of a headwind or tailwind priced into the full year guide. That's how correct. Yeah, we did have a little deflation in the first quarter for raw materials, low single digit deflation. But with like I mentioned, expect that to be neutral in Q2.
Speaker Change: Okay, that's that's how cool things.
Speaker Change: Thank you, Emma. Next Washington today comes from John Roberts with me, so please go ahead.
John Roberts: Thank you, maybe I'll ask just one here. Do you think we're plateauing and reshuring an infrastructure activity in so quarter to quarter? We're going to sort of bounce up and down but a long kind of a top given the comps here are from a pretty high level. Would you think there's another leg of growth here to come in those two drivers?
Speaker Change: Yes, a great question. I don't think we're plateauing, but I think it's gonna play out over a longer period of time that people anticipated.
Speaker Change: There's still a big slug of the infrastructure-build dollars that are unspent and so...
Speaker Change: It will play out more slowly but it will still be positive for the next couple of years and then you know from a political front.
Speaker Change: I think what massively needs to be addressed.
Speaker Change: is permitting. There's been a lot of talk about that, but except in a few places, the permitting process is still long and arduous.
Speaker Change: You name it in terms of manufacturing. Those are the issues that we see them as we sit here today.
Speaker Change: and I know I said one question but maybe put data centers could you just maybe rank order that among just qualitatively what the most important drivers are they growth.
Speaker Change: So in the top three or top five or...
Speaker Change: Now I, again, I don't have the data or numbers on that in particular, I'll tell you what's been impressive and so on self-controgradualatory, but...
Speaker Change: We have been able to hang on to the entrepreneurial culture of RPM in the customer-facing parts of our business.
Speaker Change: and so if you look at our Euclid chemical company or Trump go sealants and water proofing, stone hard, their ability over the last couple of years to shift.
Speaker Change: from distribution centers to the growth of the cannabis industry that in terms of processing was looking at FDA quality, qualified facilities to manufacturing and on-choring to data centers has been really impressive and it's...
Speaker Change: Pleasantly surprised me that our sales forces have been as agile as they've been because
Speaker Change: Overall, particularly in our construction products group, the broad numbers on commercial construction in North America are principal business have not been good.
Speaker Change: But if you can go to where the growth is, you can still keep positive momentum and I think that's a strength of our PM.
Speaker Change: Alright, thank you.
Speaker Change: Thank you, and our next question today comes from Mike Harrison with C4 Research Partners. Please go ahead.
Mike: Morning, Mike.
Mike Harrison: Good morning, congrats on a nice quarter here. You mentioned, in a couple of different segments, some under absorption related to plant startups and as some investments ramp up.
Mike Harrison: Johnson's hoping that you could talk a little bit about how we should think about that playing out during the course of the year is that under absorption worse than the Q2 and Q3 and then gets better in Q4. Maybe you just talked a little bit about that timing. Thank you.
Speaker Change: Sure, so first of all, it's under absorption across many of our plants because a lower volume. And it's particularly acute in our consumer businesses.
Speaker Change: Secondly, we have had some major initiatives.
Speaker Change: which will roll off from a capital investment perspective into our P&L.
Speaker Change: particularly in depreciation.
Speaker Change: you know we're sitting in our...
Speaker Change: First-ever RPM combined innovation center of excellence, so traditionally our research development has been by segment or by operating company and this is a nearly 20 million dollar investment that's being absorbed in terms of operating costs and depreciation by our specialty products group.
Speaker Change: So that's part of the challenge to them in what's been a difficult volume environment over the last 12 or 18 months.
Speaker Change: We have this Reson Center of Excellence in other $20 million investment in Europe. That's also part of the Specialty Products Group, our day-go-all-color group.
Speaker Change: So we're making some strategic investments we just ramped up.
Speaker Change: and opened a new facility as part of our...
Speaker Change: Platform.
Speaker Change: Developing Country Group, it reports in PCGN Malaysia and will be opening a new plant in India this fall. All adding to operating efficiency, all adding to capacity in places where we're growing, but none of which will be fully utilized when they first hit our piano.
Speaker Change: Joseph Justin McSamples.
Speaker Change: I said so the tree helpful and then um...
Speaker Change: You know, I'm kind of curious if you can talk a little bit about the construction business.
Speaker Change: I feel like last quarter you guys sounded a little bit less confident on the timing of infrastructure spend. You talked just on this call about maybe that playing out over a little bit longer period.
Speaker Change #100: I'm curious, how much do you think that depends on who wins the election in the U.S. or do you feel like these are committed dollars that will play out eventually regardless of who wins?
Speaker Change #101: I think they're committed dollars.
Speaker Change #102: It's anybody's guess is to what happens based on who wins.
Speaker Change #102: But I think the Biden administration will be committed to seeing through successfully.
Speaker Change #102: their inflation reduction act spending a lot of which is going into particular.
Speaker Change #104: Colin Industrial Policy, as well as the...
Speaker Change #104: The Infrastructure Build
Speaker Change #104: Permitting, as I mentioned earlier, improved permitting.
Speaker Change #104: Processes will have to be.
Speaker Change #104: a part of that.
Speaker Change #105: The Trump administration, if they follow through with what they're saying, it's going to double down on on-shoring and supporting US manufacturing. So I don't see anything negative about that.
Speaker Change #106: You know, the consequences of that levels, the consequences of higher taxes on corporations, the consequences of tariffs. All of those will not be favorable to manufacturing, and so it depends on what the reality is post-delection.
Speaker Change #107: Thanks very much.
Speaker Change #107: Thank you and an expression comes from Mike Sisson with Wells Fargo. Please go ahead.
Speaker Change #107: Gordon Michael, hey guys, hope that the good ideas can execute as well as you guys did, so yeah I guess just one question, so for, for twenty six
Gordon Michael: What type of volume growth do you think you need to get to that 16% and then, you know, if the said
Speaker Change #109: Great cuts work, that's hope. What type of volume growth do you think the RPM portfolio should generate over the next couple of years? And maybe if you already thought between the segments.
Speaker Change #110: Sure, well I will tell you if and this is a big hit and very wishful thinking.
Speaker Change #111: But if somehow we're able to turn the corner and generate two or three percent consolidated volume growth in the second half of this year, by our fourth quarter, we will be on an annualized run rate of 42 percent gross profit and 16 percent even.
Speaker Change #111: That's how poised we are and literally whether we hit those on time or not is a function of
Groat: Groat, and it in...
Groat: We're not going to get to 8.5 billion and we don't need to get 8.5 billion to realize those.
Groat: I don't know the answer to your follow-up question other than my earlier comment.
Speaker Change #113: which is if we were on a path to something closer to 8 billion or 8.5 billion for this year which was our original target, we would be meaningfully ahead of our 42% gross margin and 16% e-but margin goals.
Speaker Change #114: Got it. Thank you.
Speaker Change #115: Thank you, and our next question today comes from Steve Burns with Bank of America. Please go ahead.
Speaker Change #116: Morning Steve.
Steve Burns: Warner Frank, I got a couple questions actually in response to comments that you made Matt and that is
Steve Burns: The first one, just a few minutes ago, you made a comment about deflation with a little single digit in the first quarter.
Speaker Change #118: Costs of good down roughly 50 million can you comment on how much of that was deflation versus
Speaker Change #118: Yeah, I mean, so Steve, just to give you a sense, so about we had deflation of 2% in the second quarter.
Speaker Change #118: So the rest of it was a variety of different factors that related.
Speaker Change #118: It's the first quarter, sorry. In other different factors, but certainly the work that our procurement teams are doing to reduce costs that are played into them.
Speaker Change #119: the Ross still roughly 70% of the costs are good so your procurement guys are working. And then the other thing you mentioned was about this new facility in Belgium and in Frank you mentioned just a minute ago about these new plants in the Asia.
Speaker Change #120: To get your X-US
Speaker Change #121: Sales to represent more than 20% of the total. Is that going to require building out manufacturing facilities globally so that you have more local supply? Or can you do it with more cross-selling or other initiatives that you might have in the works to drive that XULs, XULs, sales growth?
Speaker Change #122: Here, it's a great question and let me tell you what we've done differently.
Speaker Change #123: We did a report out to our board maybe three years ago, looking back ten years in M&A and we have a pretty strong track record of successful acquisitions. But the one area that stood out for us is not...
Speaker Change #123: meeting our goals was what we called small and far away. And so this was a call of the prior ten years of planting a flag and a distant developed world country with the notion that that small acquisition would be the catalyst for growth.
Speaker Change #123: and in fact, too many of those small little acquisitions in places in Latin America or Southeast Asia or India or the Middle East were ignored in atrophied.
Speaker Change #123: So it's the one area where we were destroying value single millions of dollars at a time with an exception which is our South African and the African Air Business run by.
Speaker Change #123: A gentleman named Grant Boonsire and his team out of South Africa, were almost from the beginning because of the unique nature of that country, they manufacture a carbeline and a tremko and stone hard.
Speaker Change #123: and then actually folded in a restolium acquisition in spray paint and that market. So they control all the manufacturing, they control all the administration, but they still go to market independently from a sales of marketing perspective.
Speaker Change #123: That was so successful that we...
Speaker Change #123: and Conjunction with that report to our board, have now put Grant Boonsire and his team and charge of the Middle East Africa, Southeast Asia and India.
Speaker Change #123: and...
Speaker Change #123: We are confident that we now have an approach to profitably grow in the developed world in ways that we didn't in the past
Speaker Change #123: and our last two years of growth and margin improvement there has proven that out. I'm actually going to be...
Speaker Change #123: and Johannesburg next week with Grant and his team, and so a combination of a recognition of what we were doing wrong on adjustment and what's true for every business where you have good leaders and we have a collection of good leaders in our platform group. We're going to be successful.
Speaker Change #123: and the fact that I'm taking time to go there tells you that we're excited about.
Speaker Change #123: What that can do for us in the coming years.
Speaker Change #123: And so yes, we're going to build out some capacity. We don't have any plans at this point.
Speaker Change #123: for new capacity beyond the plant and Mumbai and the plant in Malaysia, along with existing facilities. But we're very excited about a path to profitable growth. They quite honestly, we really didn't have in the developing world until the last couple of years.
Speaker Change #123: Thank you.
Speaker Change #124: Thank you, and the next question today comes from Joshua Spector, you'll be yes, please go ahead Morning, Josh
Josh: Good morning, this is a look-as-pum on the Josh. I'm trying to get back to the kind of volume outlook for the balance of the year. So I mean, the first quarter was down about 2% you know, the flat, so the second quarter of South God sort of implies down kind of 1-2.
Josh: as well. So I mean, to kind of hit your lowest single digit growth in a year.
Speaker Change #126: is implying that the volumes are going to pick up in the second half and they need to be up probably at least one to two at a minimum to kind of get in that range. So I just wanted to give you please walk us through sort of where you see sort of the acceleration coming from in the portfolio and what's giving you confidence in the outlook there.
Speaker Change #127: given that, I guess, the, you know, and my doctor is still being either softer and kind of awakening and just to set up with that place with again.
Speaker Change #128: Thanks. So I'll take that by segment. As we indicated, both our construction products group and performance coding group had positive volume growth in the quarter and that's on top of Scrawng record.
Speaker Change #129: Growth in the prior quarter, and so we see that continuing albeit at very modest level. I commented to an earlier question that it feels like our specialty product group after a very difficult 15 or 18 months has bottomed out.
Speaker Change #129: and we will start to see flat-ish or modest growth there, and so I really think that...
Speaker Change #130: The optionality to your question is when the consumer segment will turn positive.
Speaker Change #130: We certainly round significantly easier cops there in the second half of the year.
Speaker Change #130: and so that's how I think about growth, you know, we're...
Speaker Change #130: We are managing well and finding pockets of growth in our more industrial segment, operating units, SPGs, turning the corner, consumer is going to be facing easier cops in the second half.
Speaker Change #130: but what happens in consumer will be the variable in meeting or beating our guidance for the year.
Speaker Change #131: and then just on the consumer side, I'd show it for a fit, preface this by saying that you guys are.
Stephen Gordon: and Stephen Gordon, you're in Markets here for sort of quite a while, but just in terms of the broader market.
Speaker Change #133: The deal lives now being awake for a number of years. We sort of had the...
Speaker Change #133: We have the hog-wrestering and the pandemic that kind of...
Matthew Underline: and Matthew Underline, growth trends there in the market. But now most of the producers are sort of back below, sort of what the pre-pandemic levels were. So it's sort of really sort of hidden what the underlying potential growth trends are. I think.
Speaker Change #135: So I was just curious kind of getting your thoughts on like what the medium term
Speaker Change #136: sort of end-marked algorithm looks like they're now in consumer. Is that could that potentially be lower than what we thought it was? Like a few years ago, or do you think this is like a longer cycle business? So this is just being...
Speaker Change #137: quite a really long cycle with the interest rights and then as we get back to come down we'll see so the inflection lighter. So I just want to bring on your thoughts there and then maybe if you could if it would be helpful to go on a putter in the context of what happened in the last cycle in 2000 and I'd if that had helped to.
Cattabee: Cattabee, let me try it. Thanks.
Speaker Change #139: Sure, so I first of all, I think your assessment of that market through the COVID cycle is correct.
Speaker Change #140: Um, you know, there were big spikes and then people have found themselves back to kind of pre-COVID volumes and have added to it just accordingly.
Speaker Change #141: The biggest driving factor, at least in our portion of DIY, is housing turnover.
Speaker Change #141: You know, you went through the COVID challenges, the price, massive inflation driven price increases in housing, whether that's rental or what we care about is homes and high interest rates and high mortgage rates.
Speaker Change #141: and historically, they're not crazy high. If you're my age, you remember, please, it's pretty reasonable. But for a period of 10 or 15 years, people could buy long dated mortgages at very low interest rates.
Speaker Change #141: and so the mortgage class, I think everybody on the call knows this. We are at 30-year low.
Speaker Change #141: and so I think the big driver here, there's nothing cyclically changing or structurally changing about our industry.
Speaker Change #142: But we get a double bang when someone sells a house. They use our patch and repair products and our small project redecorating products to fix up their home to prepare it for sale.
Speaker Change #142: and then a new person buys that home and they redecorate a room, they do in addition, they redecorate a kitchen or a bathroom and again, whether it's our daft cocks and sealants.
Patrick: Patrick Paraproduks, the Restolium and Ours Interprimer Products.
Patrick: Get a benefit from that. We're at 30-year-low in housing turnover as interest rates.
Patrick: and Prove.
Patrick: and as the housing turnover picks back up, which it will.
Patrick: You'll see those dynamics that that drives in our consumer segment pickback up as well.
Patrick: So when I'll think anything structurally has changed, we just find ourselves in a unique circumstance relative to housing prices in turnover and your correct assessment of the big spike and then decline relative to what happened during COVID.
Speaker Change #144: All right, thank you.
Speaker Change #144: Thank you, and our next question today comes from SoKQRack, well JP Morgan, please go ahead.
SoKQRack: Thanks so, guys.
SoKQRack: Hi, how you've been sitting in the project today. In a second quarter, I'll look at the flag sales in five to seven even girls. And like what they're translated into a site.
Speaker Change #146: Wilson, when 8 billion in sales and like 250 million in E-book, and that would mean to you eat a little margin of something like 14% in the second quarter. And that's 13, the right number, it doesn't seem low because if you, you know, if you hold your bro's margin flat,
Speaker Change #147: I would imagine not thinking yesterday's spending is going up or do like a team's like a big, like I understand that the margin is always a margin deterioration in the smaller quarter, but that's your beginning to spend the next year there again, it seems it's a conservative outlook.
Speaker Change #147: So...
Speaker Change #148: Yes, I appreciate your comment about cyclicality, so our different quarters obviously have different margin profiles based on not cyclicality but the seasonality of our businesses and so our second quarter is typically lower in volume seasonally than Q1 or Q4 but versus the prior year, second quarter
Speaker Change #149: I would anticipate us holding or marginally improving gross margins.
Speaker Change #149: and the SGA discipline that we initiated in 2004. We will certainly hold in two two.
Speaker Change #149: So I don't think there's anything that's changing in terms of the margin dynamics or the SCNA spending or the gross margin improvement driven by map that you're seeing in two one. It's really just a function of volume growth.
Speaker Change #149: So the premise of your question is correct and no we're not going to be sliding backwards on margins and no we're not going to be giving up STNA discipline. So in many instances.
Speaker Change #149: and I think this is the guidance we provided feels today a little bit into our second quarter that Q2 is going to look like Q1.
Speaker Change #149: Any additional volume growth, then we're anticipating, we'll make that improve.
Speaker Change #150: Good night.
Speaker Change #151: If you expectation that your estimates, spending a total will be down for the year.
Speaker Change #152: I don't know that. I don't have that in front of me. Our expectation is our SC&A is a percent of sales will be improved for the year.
Speaker Change #153: But I don't know, so go off the top of my head.
Speaker Change #153: Actual Dollars.
Speaker Change #154: I can tell you this and again the same will be true in the second quarter and this is really a testament to the...
Speaker Change #154: Design and Execution of our MAP initiatives, and it is across our PM. We had $20,000,000 in fiscal $24 of Green Belt Ribbon improvements. And that is...
Speaker Change #154: 100,000 dollar improvement here and a 200,000 dollar improvement there across our plants and across our businesses and so those disciplines are continuing.
Speaker Change #154: and so our strength in these programs is a cultural change.
Speaker Change #154: and then the real focus in many, many places I'd continue with improvement in operating excellence.
Speaker Change #154: In most cases, the dollar amounts of which aren't huge, but when you add them all up, they're meaningfully moving.
Speaker Change #154: our conversion costs and adding to our bottom line. In most of my career, in our industry, if you had a 2% decline in sales, you'd be giving credit to have managed your incremental impact quite well if your earnings only declined.
Speaker Change #154: 46% when we pump out a-
Speaker Change #154: Another quarter of flat sales and can show solid ebook growth and teens EPS growth.
Speaker Change #154: I think we're operating at a pretty good level. Our challenge is growth and we are working on it intensely and it's true across the whole industry but we want to be the company that comes out of the box.
Speaker Change #154: Sooner and with a point or two of better growth and everyone else, when that happens will.
Speaker Change #154: will really reap the benefits of our map initiatives.
Speaker Change #154: I also asked about, I think, I'm feel like I'm familiar with a question on that matter.
Speaker Change #155: There's about like 25 million in chargers that you're talking to quarter, but we like destruction chargers, professions, C's, ERP, consolidation, and arguably these are like all, you know, map initiatives. And so...
Speaker Change #156: If that's the run rate for the year, there's like a hundred million in spend that's tied to the 125 million run rate in map savings. That's the way to think about it.
Speaker Change #157: Yeah, I don't have the...
Speaker Change #158: The cost in front of me may be a matter of us to get to pick them up. It's our expectations that when we finish the year, we will have benefited fiscal 25 at on a full run rate. You won't see it flow through our P&L.
Speaker Change #158: But when we achieve the remaining part of map 25, we'll have improved our cross structure and efficiency across our PN by another 180 million bucks. Not all of that will flow into fiscal 25, you'll see the full amount of that flow into fiscal 26.
Speaker Change #159: and um, and um,
Speaker Change #160: You know, the class related to some plant consolidation in Europe through significant, through significant spends in the data area, so we're spending more dollars in the IT data area which are one time to relate.
Speaker Change #161: Mary update, which is helping us a lot. And so, if you need more detail, we provide that in the earnings release behind the supplemental segment information, you'll see a footnote in there that breaks out the map, add-backs.
Speaker Change #162: and the street wall or the structuring related to plant closures, DRP and professional fees. That's right, that's where I got the $20 million from. So I was just wanting to take the right number to analyze, to sort of think about the cost to help.
Speaker Change #163: So we can ask for the last question, so they're like this.
Speaker Change #164: Litigation between like a story on NIC Industries.
Speaker Change #165: Where's the looshen of that that you'll have to take like a hundred ninety million dollars per week?
Speaker Change #165: Now, so...
Speaker Change #166: The range on that is a half million dollars, which is our current accrual and the original verdict of 190, we are sticking with the lower end of that range to put that in context.
Speaker Change #166: This is about a $2 million set of the Restolium Wipe-Dude products and it is a contractual IP.
Speaker Change #166: Litigation, it is not product performance, not any other liability, and so I think just the simple fact that you're dealing with a $2 million product line and light of the original verdict kind of puts in context.
Speaker Change #166: Many reasons why we feel strongly about the possibility of a significantly different outcome on appeal.
Alexa: Thank you, and our next question today comes from Alexa, you're from off with Keybank Apple Market. Please go ahead.
Alexa: Good morning. Good morning, everyone. In TCG, you mentioned positive impact of more effective sales management systems. Could you just elaborate on that, please?
Speaker Change #168: Sure, we are...
Speaker Change #169: using data.
Speaker Change #170: to look at our different product lines, PCG, consumer, CPG, almost all of our businesses. And we have moved from a company that quite honestly, four or five years ago, wasn't very good at analyzing mix.
Speaker Change #170: and it's prior financials like this quarter or the past year, to a company that is using data to try and manage mix on a prospective basis.
Speaker Change #170: So we are incentivizing with adjusted commission or bonus structures, our sales forces to focus on the products that...
Speaker Change #170: We have a competitive advantage on and typically higher margins.
Speaker Change #170: and it's having a positive effect.
Speaker Change #170: and so it's just being more sophisticated with data.
Speaker Change #170: It's being more sophisticated with understanding.
Speaker Change #170: the true profitability in real time of different product lines arrest KUs.
Speaker Change #170: and then either adjusting through some product line rationalizations or adjusting through and center programs where we're focusing our sales forces time and attention and you're seeing that as a piece of the margin improvement.
Speaker Change #170: Citrus thing to note in the quarter when you look at our map savings. And again, this will highlight for those on the call, why we're so focused on volume. 80% of our map savings were in the gross profit cost of sales lying.
Speaker Change #170: and so that's where a lot of math 25s focused whether it's driving you know better conversion cost or whether it's driving an improved product mix.
Speaker Change #170: It's great news, it's hard work, it's happening everywhere, and as I said earlier, it doesn't meet a damn thing unless you can sell another dollar of volume, and then that extra dollar of volume or that extra unit volume really hits your bottom line well, because it fully reflects the benefits of all the work.
Speaker Change #170: Okay, thank you all Frank. Thank you.
Speaker Change #171: And as a reminder, ladies and gentlemen, if you'd like to ask a question, please press star than one.
Speaker Change #172: All right, next question, comes from Arun Visulnoten with obviously capital markets. Please go ahead.
William Arun: William Arun.
Arun Visulnoten: Thank you, Frank. Thanks for taking my question. I think you've answered most of them, but maybe I'll just get some of your...
Speaker Change #175: Alaborated Thoughts on a comment you made earlier, so commercial, I guess.
Speaker Change #176: hasn't been that great but you still been able to see some success in CPG and PCG so do you expect that to continue or is commercial kind of
Speaker Change #177: You know, maybe regressing a little bit more and do you expect any kind of benefit from lower rates there or is that more of a consumer phenomenon?
Speaker Change #177: Kermt.
Kermt: So, yes, in terms of lower rate impact, and I'll go back to my earlier comment and the work the Rusty did for our board.
Speaker Change #179: Just like it took a couple quarters and three or four of the interest rate increases to finally slow down manufacturing. And I can tell you, the broader economy apparently didn't get into a recession, but if you're in manufacturing or housing, the last 15 months have not been a lot of fun.
Speaker Change #179: and so I think it'll take the same couple or three quarters or two or three interest rate cuts.
Speaker Change #179: to start to flow into a pickup and broader commercial new construction in housing.
Speaker Change #180: in the interim. So I'll give you a couple of examples. Panelization is a big area of focus.
Speaker Change #180: for our construction products group. It is the assembly of panels that are sent into commercial areas and allows for less labor and a more rapid construction time cycle. And so that's an area we're focused in it's an area that's growing.
Speaker Change #180: New Dura, which was principally residential and in the beginning of COVID boomed.
Speaker Change #180: So a 40 million dollar business that boomed up to 100 and then when interest rates went up and the housing market slowed, we saw a decline of revenues of 30 or 40%.
Speaker Change #180: There is now a very concerted effort at Trump Go with New Dura to focus on schools.
Speaker Change #181: The focus on facilities that have safety personnel, so think police departments, fire departments, EMS.
Speaker Change #181: and we are seeing Speck's Grow and we are seeing...
Speaker Change #182: Real Solid Double Digiic Growth on albeit on a lower base, but what's exciting about it is, it's a much better balance between residential and commercial activity from what was previously mostly a residential product line.
Speaker Change #182: So there are real deliberate thoughtful strategic efforts across multiple product lines, like the two examples I gave. Again, to figure out how to get growth in a pretty low growth, no growth environment.
Speaker Change #183: Okay, thanks for that, and then just maybe another follow-up on capital allocation.
Speaker Change #184: Is it, I guess, your objectives to continue to grow in organically maybe through bolt-ons, or is there something a little bit more substantial that you could pursue?
Speaker Change #185: and similarly, are there any product lines that are potentially holding back your growth and maybe would be best in another company or in your look at the disposal or what's kind of the portfolio review kind of telling you these days.
Speaker Change #186: Sure, I'm...
Speaker Change #187: So we constantly look at our portfolio and we pruned a couple of product lines over the last two years. We had a...
Speaker Change #187: What was a material chemical treatment for fabric and leather, our guardian protective products business?
Speaker Change #187: that over time turned into basically a consumer warranty business, they call them dry warranties. It meant you were issuing warranties without selling product.
Speaker Change #187: and we did not see ourselves as being competitive in that space. So a couple years, we sold that very high margin, really good people, but the ability for us to compete with big players in the insurance industry.
Speaker Change #188: was not in the cards that we sold it. We had some infrastructure service businesses in the UK. Unlike Trump, go roofing and stone hard, which the majority of a supply and supply contract, 50% or more, is material. In this case, it was a...
Speaker Change #188: Construction Services Business that was very lumpy and at high working capital requirements. So we divested that business through an MBO and then shut down another part of that business.
Speaker Change #188: So the pruning we've been doing has been more akin to the portfolio reviews or kind of product rationalizations of looking at product clients or in those two cases smaller businesses that didn't fit the criteria that we're striving for.
Speaker Change #188: Will continue to do that, but we don't have any large divestitures in mine today, and we will continue to pursue the small-the-medium bolt-on-product line program that's been very effective for our PM for the last 20 or 30 years.
Speaker Change #188: We are always open to the large transactions.
Speaker Change #188: that are out there, will look at them, it would be irresponsible not to, and I can say this because it was a very public PPG hired Goldman Sachs to sell there.
Speaker Change #188: 2 billion dollar North American architectural business. Of course we looked at it, but we continue and we'll continue to apply the RPM discipline to value. We're not interested in getting bigger, we're interested in getting better.
Speaker Change #188: Thanks.
Speaker Change #189: Thank you.
Speaker Change #190: Thank you. This concludes our question and answer session. I'd like to turn the conference back over to Frank Sullivan for closing the marks.
Frank Sullivan: Thank you, Raccoon, and thank you to all for your participation in our investor call today.
Speaker Change #191: We appreciate your interest in investment in our PM, many thanks to our associate, some of whom are on the call for what's been a...
Speaker Change #192: Really remarkable.
Frank Sullivan: Combined effort of 17,000 plus associates around the globe who are executing in each in their way on our map initiatives. The cultural change that we've affected is more powerful than the simple act of closing plans or some of the cost reduction actions we've taken and it's paying off for us.
Speaker Change #193: We have our virtual annual meeting of stockholders tomorrow at 1.30 p.m. Eastern time and it would welcome any and all of you to participate in that as well. Thank you for your interest in our PM and have a great day.
Speaker Change #194: Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.