Q2 2025 RPM International Inc Earnings Call
Thank you Nick and welcome to RPM Internationals conference call for the fiscal 2025 second quarter. Today's call is being recorded joining today's call are Frank Sullivan, Rpms, Chairman and CEO, Rusty Gordon Vice President and Chief Financial Officer, and Michael The Rouse Vice President Controller, and Chief Accounting Officer. This call is done.
Also being webcast and can be accessed live or replayed on the RPM website at www Dot RPM H dot com.
Comments made on this call may include forward looking statements based on current expectations that involve risks and uncertainties, which could cause actual results to be materially different.
For more information on these risks and uncertainties. Please review Rpm's reports filed with the SEC.
During this conference call references maybe made to non-GAAP financial measures to assist you in understanding. These non-GAAP terms RPM has posted reconciliations to the most directly comparable GAAP financial measures on the RPM website.
Also please note that our comments will be on an as adjusted basis and all comparisons are to the second quarter of fiscal 2024, unless otherwise indicated we have provided a supplemental slide presentation to support our comments on this call can be accessed in the presentations and Webcasts section of the RPM website at Www Dot R. P. M Dot com now I would like to.
Frank: Turn the call over to Frank.
Frank: Thanks, Matt and thank you to everybody joining us for today's call.
Frank: I'll start by providing a high level review of our results and Michael Rutz will cover the financials in more detail.
Speaker Change: Matt <unk> will then give a balance sheet update and provide details on our map 2025 Congress and Rusty Gordon who will provide our outlook.
Frank: At the conclusion of our prepared remarks, we'll be happy to answer your questions.
Frank: Our second quarter highlights on slide three.
Frank: We had a strong quarter with records in several areas, including sales adjusted EBIT margin and adjusted EPS.
Frank: We achieved these results in a continuing no to low growth macroeconomic environment.
Frank: And despite the $4 $4 million earnings headwind from a customer bankruptcy charge in our consumer group.
Frank: Additionally, we achieved record adjusted EBIT for the 12th consecutive quarter.
Frank: Over the last three years, our associates have consistently made progress implementing our map 2025 operating improvements.
Frank: Simultaneously demonstrating their ability to navigate mixed economic conditions to outgrow our markets.
Frank: We are pleased with the structural improvements we've made through may of 2025.
Frank: Our pipeline of map improvements remains full and continues to grow and we are.
Implement these initiatives for the balance of the 2025 fiscal year and in fiscal 2026.
Frank: Turning to slide four our ability to outgrow our markets was evident during this quarter as each one of our segments generated positive organic volume and sales mix mixed economic environment.
Frank: Across our segments, we leveraged our focus on repair and maintenance and our entrepreneurial culture to capture growth opportunities demand for our technical products, serving high performance construction projects with strong, particularly in our construction products group's turnkey roofing systems business.
Frank: Residential focused end markets, which had been under pressure for some time showed signs of stabilizing in the second quarter.
Frank: Aided by favorable weather conditions through the first two months of the quarter. This was an incremental positive for our consumer and specialty products groups.
Frank: Across all our segments, we continued executing on map 2025 initiatives, including SG&A streamlining.
And know that after more than a year of increasing SG&A as a percent of sales declined during the quarter, which is due to our associates' focus on structurally reducing expenses, while improving efficiencies.
Frank: These map 2025 improvements drove adjusted EBIT growth in each of our four segments.
Speaker Change: Rusty Gordon will cover this in more detail, but so far in the third quarter, we are facing real winter compared to mild conditions in the prior year. This is putting pressure on some of our businesses, particularly in the consumer segment, which is offsetting growth in other areas of RPM and map 2000, 2025 initiatives that we've put in place.
Speaker Change: RPM Associates continues to do an excellent job executing on the things within our control and I want to thank them for their commitment to our map 2025 program into growing their businesses and making RPM a structurally stronger organization.
Speaker Change: To summarize our current expected results are strong map 2025, driven performance is being temporarily interrupted by a real winter.
Speaker Change: But we will continue in our spring fourth quarter, where we expect to see a return to strong sales and earnings growth.
Speaker Change: I'd like to turn the call over to Michael Roach to provide details on our quarterly results.
Thanks Frank.
Speaker Change: Starting with consolidated results on slide five record sales were driven by positive volumes and sales in all four segments with FX being a headwind, particularly in emerging markets.
Speaker Change: Commodity cycle was neutral on a consolidated basis, but there were pockets of inflation, particularly within our consumer group.
Speaker Change: Adjusted EBIT grew seven 7% to a second quarter record driven by sales growth and map 2025 benefits, including progress on facility consolidations and continued SG&A streamlining partially offset by unfavorable mix.
Speaker Change: Adjusted EBIT includes the negative impact of a $4 $4 million bad debt expense.
Speaker Change: Sumer group customers bankruptcy.
Speaker Change: As Frank mentioned adjusted EBIT margin of 13, 8% with a second quarter record.
Adjusted EPS of $1 39.
Speaker Change: Also a second quarter record and increased 13, 9% compared to the prior year.
Speaker Change: This was primarily driven by adjusted EBITDA growth and lower interest expense from $226 $5 million and debt pay down over the past 12 months.
Speaker Change: Turning next to geographic results on slide six North American sales were generally solid across all segments in Europe macroeconomic conditions remain challenging however, map 2025 improvements and improved collaboration in the region continued to drive strong profitability growth.
In Africa Middle East our management team's focus.
Speaker Change: Focus strategy.
Speaker Change: Serving high performance construction and infrastructure projects with technical solutions generated strong growth.
FX headwinds drove the decline in Latin American sales, while Asia Pacific sales declined due to challenging comparisons to the prior year when large projects were completed.
Speaker Change: Next moving to the segments on slide seven construction products group generated another quarter of solid growth led by ex turnkey roofing systems and services business.
Speaker Change: Focus on restoration direct sales model and high level of service our roofing business offers a compelling value proposition for high performance building owners and has been outgrowing its markets.
Speaker Change: We've also introduced new products that contributed to sales growth.
Speaker Change: One example from our concrete admixtures and repair business includes a patent pending bond breaker <unk> hotel W. B, which increases <unk> user productivity and the expanding tilt up construction market by providing clean release of cast channels and reduces the need for repairs.
Speaker Change: In line with our building a better world sustainability program. It also has lower voc's than competing products.
Speaker Change: We've also introduced their speed our M C, which is a premixed products that can be used in multiple restoration situations.
Speaker Change: It is low permeability and free slot for resistance to prevent cracking.
Speaker Change: To cope normally five hours to enhance productivity on the job site.
<unk> second quarter sales in the southeastern U S were negatively impacted by hurricane activity in the quarter.
Speaker Change: Despite this CPG achieved record Q2, adjusted EBIT due to sales growth and map 2025 benefits, partially offset by unfavorable mix.
Speaker Change: On slide eight performance coatings group achieved record sales led by the flooring and protective coatings businesses, serving high performance construction projects.
Speaker Change: European sales growth was strong driven by improved collaboration through map 2025 double digit sales improvement in Africa Middle East also contributed to the growth.
Adjusted EBIT was a second quarter record and it was driven by map 2025 benefits and sales growth.
Speaker Change: Moving to slide nine specialty products group returned to sales growth led by the disaster restoration business.
Speaker Change: As a response to hurricane activity resulted in higher demand for its products.
Speaker Change: The food coatings and additives business also grew during the second quarter aided by a previous acquisition.
Speaker Change: Specialty OEM, which serves many residential focused end markets showed signs of stabilization during the quarter.
Speaker Change: Adjusted EBIT growth was driven by map 2025 benefits as well as improved sales.
Speaker Change: On slide 10, the consumer group also returned to sales growth in the quarter as it gained market share in DIY takeaway stabilize.
Speaker Change: So aided by favorable weather conditions in September October.
Speaker Change: Customer inventory levels were steady during the quarter.
Speaker Change: International growth continues primarily driven by targeted marketing campaigns focus directly on end users.
Speaker Change: Humor generated record adjusted EBIT in the quarter due to map 2025 benefits higher sales.
Speaker Change: And the rationalization of lower margin products, particularly the partially offset by moderate inflation and negative impact of the $4 $4 million and bad debt expenses from a customer bankruptcy.
Speaker Change: Now I'll turn the call over to Matt will cover the balance sheet and cash flow and provide an update on that 2025 initiatives.
Matt: Thank you Mike on Slide 11, we continue to make progress on working capital efficiency working capital as a percentage of sales declined 100 basis points in the last year and 670 basis points from two years ago, driven by map 2025 initiatives.
Matt: This working capital efficiency and expanded margins resulted in operational cash flow of $279 million during the quarter. The second highest mountain Rpm's history. The.
Matt: The record was in fiscal year 2024, and we benefited from a larger working capital increase our supply chain has normalized.
Matt: Strong cash flow over the past year has allowed us to reduce debt by $226 million.
In the second quarter, we increased our dividend for the 50 <unk> consecutive year returned to $83 $1 million to shareholders through dividends and share repurchases during the period.
Matt: Liquidity remained strong at $1 5 billion.
Now I'd like to provide an update on our map 2025 initiatives on slide 12.
Matt: As Frank mentioned earlier, we are confident that we will be able to continue building on the structural progress we have made and map 2025, and our Greenbelt program as one example wide.
Matt: Our Greenfield program as part of the <unk> 168. It is a process driven program that helps our associates by Daniel and identify areas for improvement create solutions to address those challenges implementing solutions and then monitor the results.
Matt: What started as a small program focused on the U S is expanding globally and we now have over 400 associates. We've completed training, which is now offered in seven different languages.
Six of these green belts have been promoted a plant managers to date more than $36 million and verified savings have been recorded in that number grows monthly.
Matt: Initially a top down program. It has evolved to become more collaborative and has resulted in sharing ideas and best practices across businesses. In addition to the financial savings. We are realizing other benefits such as improving safety, reducing waste and decreasing our environmental impact of.
Matt: Recent Greenbelt program at Rust Oleum developed the solvent recovery system is boosting benefits in all these areas.
Matt: <unk> projects have also been instrumental in our ability to increase effective capacity through more efficient processes. One example, stone-hearted implemented a green dot project that eliminated unnecessary unnecessary steps in the manufacturing process to increase throughput and improve quality with limited capital investment.
Matt: These are just a few examples of the ongoing work across RPM businesses with several training new projects in the pipeline.
Matt: Now I would like to turn the call over to Rusty to cover the outlook. Thank you man.
Rusty Gordon: Our outlook for the third quarter, which as a reminder is our seasonally slowest quarter is on slide 13.
Rusty Gordon: We expect the mixed macro environment to continue and the weather related tailwind during September and October have now become headwinds negatively impacting DIY demand and some construction activity.
Rusty Gordon: Additionally, at today's rates FX will negatively impact sales and adjusted EBIT.
On a consolidated basis, we expect sales growth in the third quarter to be flat compared to the prior year period.
Rusty Gordon: By segment, we expect low single digit growth in our construction products group as we continue momentum in selling waterproofing solutions.
Really offset by unfavorable weather when compared to unseasonably mild conditions in the prior year.
Rusty Gordon: And performance coatings group, we expect sales to be flat to up slightly is underlying demand for our high performance buildings remained solid.
Rusty Gordon: The segment faces challenging comparisons to the prior year period, when organic sales increased nine 2%.
Rusty Gordon: Were boosted by the timing of project completions.
Rusty Gordon: And residential end markets, which primarily impacts our consumer and specialty products groups. We.
Rusty Gordon: We saw stabilization in the second quarter, however, favorable weather trends in the second quarter have now reversed and mortgage rates remain elevated the lane further end market improvement.
Rusty Gordon: We expect sales in both the segments to decline in the low single digit range.
Rusty Gordon: Consolidated third quarter, adjusted EBIT is expected to be up or down low single digits compared to a record prior year period as map 2025 benefits, including structural SG&A reductions are offset by the softness in residential.
Rusty Gordon: <unk> end markets and moderate inflation in raw materials and labor.
Rusty Gordon: On the topic of raw material inflation, there is uncertainty as to the outcome of what potential tariffs.
Rusty Gordon: And a port strike could have.
Rusty Gordon: However, no matter what materializes, we are well positioned to navigate any potential challenges as we've ever been because of our center led procurement team.
Rusty Gordon: While we have modest imports from countries potentially subject to tariffs our procurement team has developed contingency plans to mitigate potential risks from different scenarios.
Rusty Gordon: Our fiscal 2025 full year guidance is on slide 14.
Rusty Gordon: Our sales outlook remains unchanged with expected growth in the low single digits.
Rusty Gordon: We are narrowing our adjusted EBIT range to 6% to 10% growth.
Rusty Gordon: From the previous outlook of up mid single digits to low double digits.
Rusty Gordon: We expect economic conditions to generally remain similar to the second quarter.
Rusty Gordon: And while there is clarity on the outcome of the U S election, political uncertainty has increased and other large economies like Germany, France, Canada and Korea.
Rusty Gordon: The impact and trajectory of interest rate changes, it's also not clear.
We expect pricing to be positive in response to continued inflation in raw materials and labor.
By segment CPG is expected to outgrow its markets with continued strength in high performance building.
Rusty Gordon: And restoration projects.
Rusty Gordon: P. C. G. We expect incremental demand improvements in the fourth quarter when comparisons become easier.
Rusty Gordon: At consumer and SPG, we expect that residential end market demand has potential for an improvement later in the fiscal year.
Rusty Gordon: The elevated interest rates for longer may push out the timing of this recovery.
Rusty Gordon: On a consolidated level, we expect adjusted EBIT growth to be led by Nab 2025 improvements and the realization of these benefits on the P&L will be driven by how quickly volumes recover. This concludes our prepared comments, we will now be pleased to answer your questions.
Rusty Gordon: <unk>.
Rusty Gordon: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys. If at anytime. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
Speaker Change: And our first question today will come from Mike Harrison with Seaport Research partners. Please go ahead.
Rusty Gordon: Hi, Mike Hi, good.
Good morning, Congrats on a nice quarter here.
Rusty Gordon: I wanted to ask about the third quarter guidance I understand that.
Rusty Gordon: Slower quarter, and it's a quarter, where typically you can see a more pronounced impact on <unk>.
Rusty Gordon: <unk> methods being leveraged.
Rusty Gordon: Across your fixed cost.
Rusty Gordon: I'm, a little bit surprised to see that you're guiding to flat sales and flat EBIT.
Rusty Gordon: So I'm just kind of curious why you would not expect to be able to show some EBIT growth.
Rusty Gordon: Despite flat sales.
Rusty Gordon: Because you have some some math benefits what are what are the negatives that are offsetting the map benefits I guess is my question.
Rusty Gordon: Sure. So first of all I think the outlook for Q3 is real simple it is.
Rusty Gordon: A number of years, particularly last year that was very mild and whether it's in our construction products group. Our early spring sales in our consumer group, we benefited by a very strong all time record third quarter last year on top of a record third quarter or the year before.
Rusty Gordon: And all you need to do is look out the window almost anywhere in this country and youre seeing snow and the return of a real winner and we have been remain always been seasonal and so I think the simple story is the strong.
Rusty Gordon: Leverage to our bottom line and a return in the second quarter, two volume growth not just growth, but unit volume growth in each one of our segments is being interrupted by a real winner we fully expect to see strong sales and earnings growth returned in the spring.
Rusty Gordon: It's a combination of I think we've turned the corner in and growth after a sluggish.
Rusty Gordon: Probably 12 or 15 months, our map benefits are continuing to leverage revenue growth to our bottom line and we've got a number of new product introductions, particularly consumer that will be starting to ship in February and March. So we feel pretty good about where we are we are.
Rusty Gordon: A seasonal business and have been since our founding and that seasonality is showing up.
Rusty Gordon: This winter.
Rusty Gordon: Alright.
Rusty Gordon: That's helpful and then.
Rusty Gordon: In both the consumer business and specialty business that you are seeing some benefits from Steve.
Rusty Gordon: Stabilization.
Rusty Gordon: In in residential markets could you maybe give us a little bit more color I know you called out specifically the residential.
Rusty Gordon: Piece of specialty and then maybe it's that some of your big box retailers have seen some stabilization in their inventory levels, but just talk about.
Rusty Gordon: What's giving you confidence that you are seeing stabilization in those markets. Thank you.
Rusty Gordon: Sure some of them, it's easier comps I think as those on the call know.
Rusty Gordon: We suffered through an extraordinary period of time, particularly in our consumer group with modestly negative consumer takeaway for many quarters, we were the beneficiary of Colgate bump.
Rusty Gordon: And then we bumped into the supply chain challenges rising interest rates old story.
Rusty Gordon: But we've never seen a 12 or 15 months.
Rusty Gordon: Flat to negative consumer takeaway in our consumer segment in our history and that's what we're coming out of so some of it's easier comps you are starting to see some softening in what were historically low.
Rusty Gordon: Housing turnover rates relative to rising interest rates and so housing turnover home sales and home construction are stabilizing and moving in the right direction, albeit in a choppy period.
My experience is when times are good and you start to see some choppy performance it might be an indicator of any downswing.
And when times have been tough and you see some choppy performance on the upswing it might be an indication of a turn and I think thats, where we are.
Rusty Gordon: Quite honestly the year over year weather impact is disappointing because we really started focusing on a pivot to growth across RPM.
Rusty Gordon: On top of real strong map initiatives going back to the initiation of those in 2018 and second quarter was very encouraging and it's being interrupted.
Rusty Gordon: So I think the dynamics that we're looking at are starting to move in the right direction.
Rusty Gordon: But as Rusty said Theres, certainly a lot of uncertainty relative to the pace of interest rate reductions <unk>, what's coming geopolitically relative to threaten tariffs and other things. So we will respond to.
Rusty Gordon: So those I think effectively.
Rusty Gordon: Put all that aside.
Rusty Gordon: It feels like we've hit bottom in some of our more challenged specialty products group.
Rusty Gordon: And consumer product lines.
Rusty Gordon: If you had a difficult year your F&I it should be moving in the right direction.
Rusty Gordon: Alright, thanks very much.
Rusty Gordon: Thank you.
Speaker Change: And your next question today will come from John Roberts with Mizuho. Please go ahead.
Speaker Change: Thank you morning, Jonathon and good morning in the consumer segment are you seeing a significant bifurcation and your customers I mean, you've got one that went bankrupt or you're seeing like above average growth in the large home center area and these are smaller customers are struggling and so the business is starting to.
Speaker Change: Bifurcate.
Speaker Change: I think that's been true over the last year year, and a half where you saw some challenges at some of the big boxes.
Speaker Change: <unk> strength and some of the dollar store and.
Speaker Change: Discount chain large discount chain customers.
Speaker Change: Where we saw better consumer takeaway as consumers shifted.
Speaker Change: In that direction.
Speaker Change: You also saw in response to that at some of our larger customers inventory adjustments over the last couple of years.
Speaker Change: We think most of those are behind us and I think youre going to start to see.
Speaker Change: Return this spring to more traditional consumer takeaway across our entire supply chain or customer base, but your comments were certainly true over the last 12 or 15 months and we could see it in our consumer takeaway numbers.
Speaker Change: Stronger results in certain areas of weaker results than others.
Speaker Change: And do you think your bad debt reserve sort of anticipate any additional smaller customers going.
Speaker Change: Going down.
Speaker Change: Yes.
Speaker Change: <unk>.
Speaker Change: See any.
Speaker Change: Yes.
Speaker Change: Challenges on the horizon.
<unk>.
Speaker Change: One hardware store co op.
Speaker Change: Business was challenged.
Speaker Change: <unk> assets have been picked up by any related entity and.
Speaker Change: I think some of that business will return but.
Speaker Change: It was a little bit of a surprise to us and to others.
Thank you.
Speaker Change: And your next question today will come from Josh Spector with UBS. Please go ahead.
Josh Spector: Yeah, Thanks, Hey, good morning, Frank.
Speaker Change: So I wanted to ask just on the November quarter, any really strong performance on sales I assume that 3% beat versus your expectations was primarily volumes, but correct me if I'm wrong, but on that basis, your EBIT to be by about 4%.
Speaker Change: I guess I would've thought that there would have been a lot more leverage to that volume because a lot of the map savings we've talked about bigger leverage on bigger volumes. So why do we see that come through in a much stronger way in the December sorry November quarter.
Speaker Change: Sure. So first of all it was on unit volume and each one of our segments was at 3% unit volume growth or better.
Speaker Change: And I think when you look across our segment performance.
Did demonstrate some.
Speaker Change: Average to the bottom line with the exception of consumer.
Speaker Change: If.
Speaker Change: If you adjusted for the $4 $4 million bankruptcy.
You would've seen a much better performance there on the EBIT line and.
Speaker Change: So that's kind of where we are there.
Speaker Change: And we would expect to see solid leverage you'll see in our Q4 solid leverage if we have the right volume growth.
Speaker Change: Yeah.
Thanks, and I guess related to that is so to your point on the may quarter.
Speaker Change: The math is the midpoint of your guidance would be about 15% EBIT growth.
What volumes do you need to underwrite to achieve that.
Speaker Change: I don't know off the top of my head.
Speaker Change: But certainly 3% unit volume growth that we've experienced in Q2.
Speaker Change: We will be.
In the range of what we need to drive solid double digit.
Speaker Change: Earnings growth in Q4.
Speaker Change: Okay. Thank you I'll, assuming there is not any again I think you have to adjust out the $4 4 million dollar.
Speaker Change: Receivable write off that we took in Q2 to get to a more.
Speaker Change: And we'll leverage number.
Okay. Thank you.
Okay.
Speaker Change: Yes, one last comment on that.
Speaker Change: Q4 is a higher volume.
Speaker Change: Quarter, as well Thats, why youll see better leverage.
Speaker Change: Back to seasonality, our strongest quarters are Q4, and Q1 Q2 is decidedly a lower revenue quarter in Q3 is our seasonally low period.
Speaker Change: Okay.
Vincent Andrews: And your next question today will come from Vincent Andrews with Morgan Stanley. Please go ahead.
Vincent Andrews: Hi, Thank you and good morning, everyone. Just two quick ones just to clarify some things. So first the $4 4 million was that in the original guidance or the guidance for fiscal <unk> or did that.
Vincent Andrews: I get that you had to leave it in for certain reasons, but was that was that anticipated in and the numbers you gave us last quarter.
No. It was not it was a.
Vincent Andrews: Late October event, and not something we anticipated.
Speaker Change: Okay, and then you've left the sales guidance alone for the full year, but you've narrowed the full year.
Speaker Change: EBIT EBIT range I just wanted to understand is are you pointing us a little bit more towards the lower end of that sales guide and that's what's driving the narrowing of the EBIT range or is there one or two items, that's causing that.
Speaker Change: No it's really the seasonality of Q3 and what its doing to our expected results versus an all time record Q3 last year.
Speaker Change: And then I think.
Speaker Change: <unk>.
Speaker Change: The variation there in Q4, which again, we expect strong fourth quarter.
Speaker Change: Whether it's modestly strong or very strong depends on whether the seasonality and the impact of weather pushes.
Speaker Change: Sales that otherwise would have had in Q3 to Q4 beyond what we expect so I think there is there is some wide.
Speaker Change: A bit of a wide range in terms of what we expect.
Speaker Change: On the bottom line will be double digit.
Speaker Change: At least our expectation today some of that is going to be whether we pick up otherwise what would have been Q3 results and Q4.
Speaker Change: Okay. Thanks very much.
Speaker Change: Thank you.
Speaker Change: And your next question today will come from John Mcnulty with BMO capital markets. Please go ahead.
John Mcnulty: Good morning, Good morning, Thanks for taking morning, Frank Thanks for taking my question.
John Mcnulty: So I guess the first one is I know you know over the last couple of quarters, you had spoken to in terms of the onshoring. There was a little bit of a pause that was taking place in like the performance and the construction segments, but you thought that would pretty soon come to an end I guess is that still the case or we pretty much through that that slow period and also I guess with the election now.
John Mcnulty: <unk> taken place and maybe they're a little bit more about U S. Protectionism are you seeing any signs of any increased around onshoring, yet or is it a little bit too early to see that.
John Mcnulty: I think it's too early.
John Mcnulty: We're seeing a continuation and kind of small to medium sized projects and manufacturing which is benefiting us.
John Mcnulty: As we commented last quarter some of the larger projects.
John Mcnulty: Microelectronics things like that that we're committed to and already have some some U S dollar support behind.
I believe we will play out over a longer period of time.
And so for instance, there is a big Intel project here in our home state of Ohio.
John Mcnulty: I don't see that be cancelled or halted.
John Mcnulty: Your expectations here now as it's going to play out over a five to seven year period as opposed to three to five year period. So it will even out some of this but we don't expect any of it to go away.
John Mcnulty: Got it okay, no that makes sense and then.
Speaker Change: On the map side, you indicated that youre seeing kind of the pipeline for map projects actually growing at this point I guess can you help to frame that in terms of size or potential uplift maybe to the to the past targets or anything like that.
John Mcnulty: Sure.
John Mcnulty: Our original map program targeted.
John Mcnulty: $290 million of savings and efficiencies and we shared that detail on how it would play out over a three year map 2020 mass growth program and when we concluded that program, we achieved actually about $325 million.
John Mcnulty: When we introduced map 2025, I believe the number over the entire period was $465 million you will see that.
John Mcnulty: In our P&L in fiscal 2006, we are continuing to execute on initiatives.
John Mcnulty: It's likely that the benefits of map 25, we'll reach our $500 million.
And so.
John Mcnulty: Our people continue to.
John Mcnulty: Performed pretty well Matt.
John Mcnulty: <unk>.
Matt Schlarb highlighted again and we've done this in some calls some of what those initiatives look like and I'll, just reiterate RPM had a very entrepreneurial culture and a lot of independents, particularly in the manufacturing and operations side.
John Mcnulty: Our ability to bring a center led approach and to beginning to introduce lean manufacturing disciplines that are not due to manufacturing, but it's been relatively new to RPM over the last four or five years is having a.
John Mcnulty: Really good impact and so we expect to see that continue as we introduce these into the European and international markets.
John Mcnulty: The impact of which was delayed by Covid as our initial focus is in North America. So.
John Mcnulty: I think the biggest change in our map initiatives, while we've executed.
John Mcnulty: On a bunch of cost savings and efficiency programs and we can identify the number of plants that we've closed we can identify the number of ERP systems that we've consolidated.
John Mcnulty: Probably the biggest harder to value measure is how it's changed our culture.
John Mcnulty: There is a level of collaboration across our operations and our business is today, a quite candidly didn't exist seven years ago, and we're reaping the benefits of that and there's more to come.
Speaker Change: Got it thanks very much Frank I appreciate the color.
John Mcnulty: Thanks, John.
Speaker Change: Your next question today will come from Frank Mitsch with the Permian Research. Please go ahead.
Frank Mitsch: Alright, thank you.
Frank Mitsch: Hey, good morning to you as well Frank.
To talk about the interplay between price and raws last quarter indicated that deflation was about 2% in the fiscal first quarter. Just curious what the second quarter is and what your outlook is there and it sounded like price was pretty close to flat in the fiscal second quarter.
Frank Mitsch: Just curious if you could provide any more color there. Thank you.
Frank Mitsch: Absolutely it's a great question.
Speaker Change: Your assumption is correct, we're about flat in a.
Frank Mitsch: Period of some.
Raw materials that are have declined a little bit some raw materials that are increasing.
Frank Mitsch: As we sit here today it feels like as we get into calendar 'twenty five.
Frank Mitsch: We're seeing what across the board will be somewhere in the one 5% to 2% inflation.
Frank Mitsch: Cros are core raw materials.
Frank Mitsch: We have some.
Frank Mitsch: Modest.
Frank Mitsch: Rice increases in one of our business units, especially products and one of our business categories and our construction products group announced both forge end of January and in March but.
Frank Mitsch: But we are on high alert in terms of where inflation might go relative to threat tariffs.
Andrew: Andrew or other factors.
Andrew: And a lot of people have learned over the last couple of years, both what are the tools to use to raise prices where appropriate.
Andrew: And how to instill the courage and your sales force to go get it.
Andrew: And so we're certainly on alert for that.
Andrew: And.
Andrew: I guess the last comment I would make is that we are not very exposed to the Asian markets.
Andrew: We don't do much business in China, The Asia Pacific region is our smallest.
Andrew: And we also don't have a lot of exposure.
Andrew: To import raw materials.
Andrew: Some are some of those will impact our food group that gets some ingredients from China, our legend brands business to get some components from China.
Andrew: Broadly speaking.
Andrew: Certain chemical raw materials, but I think our exposure is less than many of our peers.
Andrew: Terrific.
Andrew: Very helpful.
Andrew: And then in there.
Andrew: The balance sheet is about the best that it's been in a long time, you know you obviously made an acquisition.
Andrew: In the quarter TMP convert.
Andrew: You did some buybacks now with the stock down since Thanksgiving relatively significantly or materially I'm, just curious about the interplay between M&A versus versus buybacks.
Andrew: Sure.
Andrew: So first of all our balance sheets in the best condition. It's been since I joined RPM 35 years ago, our cash flows at record levels. As you saw in the quarter were continuing through the map initiatives to improve working capital efficiency, we're continuing to improve our cash conversion cycle, we continue to be focused on that.
Andrew: We will moderate the opportunities between.
Andrew: Buybacks and acquisition opportunities.
But I do not want to be the CEO the forces love with its best ever balance sheet becomes afraid to use it so what opportunities.
Andrew: Arrive.
Andrew: At the right value that are good strategic fits.
Andrew: We build balance sheet strength, so we can put it to use smartly and strategically.
Andrew: Thank you.
And your next question today will come from David Wang with Deutsche Bank. Please go ahead.
David Wang: Good morning, Hi, good morning.
David Wang: C. P G. What percentage of your volumes were negatively impacted by the Hurricanes in Q2 was that only 2% and I guess the majority of those delayed volumes probably won't be impacted much by the winter weather do you expect those to come back in Q3 post insurance claim payouts for well Q4.
David Wang: See the actual pent up falling volume improvement from all the weather events in Q2 and Q3.
David Wang: Sure.
David Wang: I don't have an exact answer to that I can tell you that our construction products group.
David Wang: And our performance coatings group had some disruptions at the beginning of the quarter because of the Hurricanes.
David Wang: And how that plays out in Q3 or Q4 is difficult to know.
David Wang: Some of it again will be weather related.
David Wang: If we continue with the severe cold weather and winter weather and snow across wide parts of the United States for another month or two.
David Wang: That would result in differing for instance products sold through distribution in our construction products group being deferred to later in the year meeting February or March as opposed to now.
David Wang: That's reflected in our outlook.
David Wang: So it could have been a stronger quarter, except for the early impact of the hurricanes.
David Wang: Yes.
David Wang: The write off in our consumer group, but it is what it is.
Speaker Change: Okay got it and then I guess you touched on this for consumer but on the various construction end markets you're exposed to you whether you have seen.
Speaker Change: You know where are you seeing any incremental signs of either improvement or deterioration or ads.
Speaker Change: Outlook potentially.
Speaker Change: Potential recovery change here.
Speaker Change: Sure so.
Speaker Change: As I commented earlier after 12 or 15 months of negative consumer takeaway, we kind of are seeing signs of that stabilizing.
Speaker Change: And so thats one piece of it.
Speaker Change: We are seeing some choppy signs that the housing market in terms of home turnover and new home constructions are.
Speaker Change: Starting to improve and.
Speaker Change: And we've got a number of new product introductions.
Speaker Change: Coming out of our consumer business and a couple of categories selling tokens some cleaning products that were in.
Speaker Change: Excited about and so.
Speaker Change: It feels like.
Speaker Change: The dynamics and rounding some easier comps because of the challenges that we've talked about.
Speaker Change: Give us hope that we're going to start to see better week by week and month by month consumer takeaway.
Speaker Change: Yeah.
Speaker Change: Okay. Thanks.
And your next question today will come from Kevin Mccarthy with vertical research partners. Please go ahead.
Kevin Mccarthy: Yeah. Thank you Kevin good morning, and happy New year to you Frank.
Kevin Mccarthy: I wanted to follow up on on two aspects of the prior discussion on the map program.
Kevin Mccarthy: First.
Kevin Mccarthy: You know it has to do with timing I think that previously there was going to be some spillover of your savings into fiscal 2026, and now you've upsized the target to 500 million. So I was wondering if you could comment on.
Speaker Change: What amount of savings you would expect to fall into this year versus next year and then secondly on map I think a couple of quarters ago, Frank you hinted that.
Speaker Change: You're working on potential for a new program and just wanted to follow up on that how would you characterize the likelihood and timing of any new programs.
Speaker Change: Sure.
Speaker Change: I don't have any specifics maybe one of my colleagues does on how we think about map. This year into next year other than our map 25 program and we communicated this in both the original 2020 growth in this one that we would achieve our results on an annualized run rate by May 31.
Speaker Change: 2025, meaning that the full impact would be realized in fiscal 2006, and so youre not going to see the full impact of that $500 million until we get into fiscal 'twenty six.
Speaker Change: We have been running at about $30 million of map benefits per quarter, keeping in mind and this goes back to an earlier question.
Speaker Change: A lot of the map 2025 benefits have been at the conversion cost manufacturing level.
Speaker Change: Level. So it's truly volume driven so with lower volume youre going to get lower benefits with higher volume and youll get higher benefits as opposed to an SG&A cuts.
Speaker Change: It kind of is even across your your monthly periods.
Speaker Change: We will be working on what follows map 2025.
Speaker Change: In our spring strategic planning process and it's my anticipation like we did in November of 2018.
Speaker Change: Like we did in November of 'twenty, two that sometime this fall we would have a communication.
Speaker Change: What follows map 2025 and.
Speaker Change: I don't know that I would provide much more details on that in part because we're working on it and in part because it's not finalized.
Speaker Change: <unk> be interesting to see what we call it.
Speaker Change: And but in any event.
Speaker Change: There is more work to do and we would anticipate providing some details around the new strategic.
Speaker Change: Jake planning and growth program.
Speaker Change: This fall.
I will tell you that.
Speaker Change: The challenge for us in relationship to that Great question about what's next.
Speaker Change: The need to embed and we're doing in the map learnings into our culture, and then pivot the organization to growth and the second quarter performance was.
Speaker Change: Sure.
Speaker Change: Felt good in terms of that movement that we need to make and it's disappointing to see it being interrupted by a real winner, but we anticipate.
Speaker Change: Seeing that focus come back in Q4, and we will provide more details in the fall.
Frank Mitsch: Okay sounds good as the second question. If I may can you comment on your sales volume experience in the months of December and I'm thinking about two things there Frank.
Speaker Change: First clearly weather is an important variable as you've talked about is that weather.
Something that you've already experienced.
Speaker Change: Over the last several weeks.
Speaker Change: Or something that you anticipate for January and February and then the second thing would be.
Speaker Change: Just kind of destocking around the calendar year end and how that impacted volumes. If at all you know relative to a normal year.
Speaker Change: Sure.
Speaker Change: Note that we would want to get into month by month performance criteria.
Speaker Change: But I can tell you on our outlook is shaped by the early part of Q3.
Speaker Change: Our February results again.
Speaker Change: You follow the hyperbole of the media.
Speaker Change: It's normally get in this horrible snow event in the southeast.
Speaker Change: Alberta Clipper coming across the United States, It's just a real winter and there has been snow on the ground there has been cold weather and the.
Yeah.
Speaker Change: Southeast.
Speaker Change: I could go on and on it's just a real winter and in comparison to.
Two record third quarters after each other.
Speaker Change: We are experiencing the seasonality that's been normal throughout Rpm's history started at the end of November.
Speaker Change: Continuing in December and as I look out the window doesn't feel like we're going to see the green grass until sometime in February or March and.
Speaker Change: And that is reflected in our outlook.
Speaker Change: I can tell you.
Speaker Change: And this is just a wish.
That's something we would plan on.
Speaker Change: I would like to see it work like Hell to have a positive EBIT number in Q3 not sure thats in the cards based on how long this weather hands around but if we did it would be our 13th consecutive quarter.
Speaker Change: Record earnings results.
Speaker Change: It'll be disappointing effect, and but we will pick up where we are and you'll see solid results in Q4.
Speaker Change: Great. Thank you so much.
Speaker Change: And your next question today will come from Jeff Zekauskas with Jpmorgan. Please go ahead.
Jeff Zekauskas: Good morning, Hi, good morning.
Speaker Change: Hi.
Speaker Change: The gross profit margin.
Speaker Change: Was the lower year over year, despite the 3% sales growth.
Speaker Change: What was that.
Speaker Change: Principally around mix.
Speaker Change: In our construction products group.
Speaker Change: We have a significant and growing.
Speaker Change: Services business or WTO weather proofing technology.
Speaker Change: A solid.
Speaker Change: EBIT margin, but a significantly lower gross profit margin than our peer material sales.
Speaker Change: So it was mixed in a number of places as mix in consumer and a few of our other businesses.
Speaker Change: The biggest mix impact.
Speaker Change: Within our construction products group.
Speaker Change: That's what drove the essentially flat year over year.
Speaker Change: Gross profit.
Speaker Change: We are assumed as I commented earlier to what we anticipate is coming in terms of raw material inflation.
Speaker Change: One five to perhaps 2% as we roll into the new calendar year.
Speaker Change: And are already.
Speaker Change: Taking a look where we can and price increases to overcome that to get back to a.
Speaker Change: Positive gross margin.
Speaker Change: Sure.
Speaker Change: Performance that we've been demonstrating for the last couple of years.
Speaker Change: Thanks for that.
Speaker Change: And thinking about the map program longer term.
Speaker Change: Is the point of the program to grow SG&A.
Speaker Change: I don't know, 1% or one 5% or some number that's below your normalized volume growth rate or is the point to the program or something else.
Speaker Change: So put aside the map initiatives, which are really focused on cash.
Speaker Change: Cash conversion cycle efficiency operating improvements and you could see that in our results.
Speaker Change: We are becoming more strategic about our SG&A spend notwithstanding some past criticism a year or so ago, when you could see our SG&A growing.
At a rate faster than sales it was very targeted at some growth initiatives after a year or so of that we were able to pivot to focus our organization.
Speaker Change: Im kind of solidifying, where we're having success with those initiatives and where we weren't where we werent cutting back.
Speaker Change: So I think we'll be better communicators about where we're investing for growth.
Speaker Change: Some new product categories for instance, in some cleaning products.
Speaker Change: Spring and our consumer business.
Speaker Change: Would anticipate a higher SG&A spend as we introduce some of these new programs. We can provide details when they are in the market.
Speaker Change: We are having higher spend associated with capital investments.
Speaker Change: That are hitting our P&L for instance, <unk> was an acquisition.
Speaker Change: Resin production that we acquired as part of our construction products group.
Speaker Change: Finally, seeing.
Speaker Change: Positive.
Speaker Change: Earnings out of that business, but it was vital in terms of what it provided for us. During this challenging time, we are investing heavily in a resident center of excellence as part of our day Glo color group in Europe.
Speaker Change: So there are some areas, where we're being very strategic.
Speaker Change: It will impact our SG&A.
When the results of those strategic investments in our P&L proved true everybody will be happy and when the results of those investments in our P&L are playing out will come.
Speaker Change: Okay. Thank you very much.
Speaker Change: Thank you.
Speaker Change: Your next question today will come from Mike Sison with Wells Fargo. Please go ahead.
Mike Sison: Good morning, Michael Hey, guys nice quarter.
Mike Sison: Yeah. This is back to the unit volume growth in <unk> pretty impressive 3% on what doesn't seem to be a very good economic environment.
Speaker Change: So in the fourth quarter, if the environment doesn't improve is that.
Mike Sison: How do you get to 3% it sounds like.
Mike Sison: Execution, and it's doing really well amongst the segments, maybe just a little bit of color.
Mike Sison: Of of if we stay in this little sluggish environment, how you get to growth.
And in the fourth quarter.
Mike Sison: Sure.
<unk> with an easier comp.
Mike Sison: Last year was a challenge in Q4 for us.
Mike Sison: And we had record earnings results driven by map, so real solid performance, but.
Mike Sison: Sales were relatively flat and we do see some of the dynamics that we've talked about on the call today improving.
Mike Sison: And so I think we're highly confident and forward momentum in Q4.
Mike Sison: Rusty commented on the.
Mike Sison: Uncertainty around some geopolitical things of where all of that goes so.
Who knows what the impacts of those those things are.
Mike Sison: But I think we're pretty confident forward momentum in Q4 relative to easier comps relative to the new product introductions that we intend to launch.
Mike Sison: Relative to some of the outperformance that we're seeing.
Mike Sison: <unk> products group.
Mike Sison: Just let somebody it appears youre putting out so those dynamics are not changing.
Mike Sison: Got it and then.
Mike Sison: As a follow up if you think about longer term, maybe 26 to some degree.
Mike Sison: And the economic environment actually improve which would be nice.
Mike Sison: What type of volume growth should that.
Mike Sison: Should RPM sort of elevate two and if you think about the cost savings and maps.
Mike Sison: That you should get in 'twenty six.
For 2016, when he's banner years and now maybe you can.
Mike Sison: Keep pace with the cabs next year as well.
Mike Sison: Well first of all.
I'd love to be.
Mike Sison: A fraction of what the Cleveland Cavaliers as to when they have the best record in the NBA and you're not getting a lot of recognition for it that's fine with me. They can just quietly sneak up on everybody.
Mike Sison: So go cats.
Mike Sison: I'll get a little philosophical here and this is geopolitical, but it's hard to know what's coming with all the geopolitical changes out there and so there's two big Crazy scenarios. One is a smooth holly geopolitical mats that leads to a meaningful economic downturn.
Mike Sison: The other is a a piece.
Peace dividend.
Mike Sison: With each new administrations in Europe, and U S. If somehow there is a resolution to the Russia and Ukraine, if the growing stability in the Middle East continues.
Mike Sison: Our performance in Europe, because of the map program is really strong and the bottom lines are economically in the European marketplace, which is both our second largest region.
Mike Sison: Our region with lots of opportunity a return to growth in the U K and Europe would be very positive.
Mike Sison: This stability in foreign currencies in Latin America will be very positive because our underlying performance here has been pretty solid.
Mike Sison: And lastly, I would comment on the platform of growth for each of the developed world. It's really an RPM platform approach being driven by our leadership team out of South Africa is part of the strength that we're showing in our middle East results, we're investing in new production in India, and we expect the same there. So we've got a lot of.
Mike Sison: Irons in the fire in terms of being prepared for.
Mike Sison: A positive turn in the market.
Mike Sison: Time will tell.
Mike Sison: Okay. Thank you.
Speaker Change: And your next question today will come from Alexia <unk> with Keybanc. Please go ahead.
Good morning, Thanks, Good morning, good morning, Frank.
Speaker Change: Just wanted to follow up on the pricing.
You mentioned some targeted price increases in the second half of the year, but are you expecting overall.
Speaker Change: To cover the raw materials and labor inflation that you were talking about some of that price cost in the second half of fiscal 'twenty five is it neutral or negative or positive.
Speaker Change: But we would expect to cover the.
Raw material inflation if any.
What is moderating but still.
Speaker Change: Increasing labor costs.
Speaker Change: And as I said earlier, we're kind of anticipating a 1.5% to 2% inflation in the second half.
Speaker Change: If it's less than that that'll be good if it's more than that we will respond accordingly, and some of it is really a function of even the anticipation of seeing that I think people are anticipating from a supply chain perspective and otherwise.
Speaker Change: What's going to happen in raw materials, what are they going to do with pricing and what's going to happen with supply relative to threaten.
Speaker Change: Threatened tariffs.
Speaker Change: And so how much of that gets realized.
Speaker Change: Something that everybody in our supply chain has tightened too and I think positioned to move on as necessary.
Speaker Change: And Frank you mentioned growth in your services business affecting the mix, but they're still contributing is that this has just happened to be a quarter, where services grew faster or is it something structural.
Speaker Change: And also is this growth and services driving sales for materials and coatings as well.
Speaker Change: So.
Speaker Change: You'll see the impact in the quarter.
Speaker Change: In our truckload construction products group, our large units our business roofing division.
It's about I would say, 60% materials sales, 40% today W. Ti, which is up meaningfully from where it was four or five years ago and ultimately yes. The services business drives material sales in some cases immediately where our <unk> business is acting as a general <unk>.
Speaker Change: Tractor.
Speaker Change: Having subs do the work, which drives material sales in other cases, it's the maintenance work that we're doing for large accounts.
Speaker Change: It keeps us on the roof and keeps us connected with those businesses such that when there is meaningful opportunities for material sales three years or five years down the road.
Speaker Change: We are their partner for those restoration projects.
Speaker Change: I would expect to see that grow over time with an interesting mix.
Speaker Change: A margin impact.
Speaker Change: <unk> Air which is an H E.
Speaker Change: The restoration business that we acquired a few years ago was starting to grow that as part of that.
Speaker Change: There are some other service areas that we're getting into and so.
Speaker Change: On the bottom line, we like it.
Speaker Change: And there's not a whole lot of difference in terms of EBIT margin impact and in fact over time, maybe we can improve that but there is a significant difference in the gross margin.
Speaker Change: Okay.
Speaker Change: Got it thanks a lot.
Speaker Change: Your next question today will come from Ghansham Panjabi with Baird. Please go ahead.
Ghansham Panjabi: Thank you good afternoon, and happy new year as well.
Speaker Change: So Frank Thanks, So Frank just sort of summarizing some of the questions.
Speaker Change: Just so I understand obviously, there's many different macro travel trends across your operating segments.
Speaker Change: But as it stands today do you think the volume might look across your businesses on a consolidated basis is better from a trend line standpoint going forward. It seems like CPG and BCG are delivering solid growth and it looks like residential has plateaued as well and of course I'm adjusting for <unk> and <unk>, which obviously if there is some weather nuances in there.
Speaker Change: Yes.
Speaker Change: So I think the answer to that is yes.
Speaker Change: We saw a number of things not only map related but this pivot to growth related show up in Q2, it's disappointing given the seasonality of the winter.
Speaker Change: Offering.
Speaker Change: Not going to be realized in the subsequent months and as I commented earlier right off the bat in December.
Speaker Change: <unk> in our outlook, we are seeing the impact of weather.
Speaker Change: As analogy this traditional in our business and hasn't really been a factor for the last couple of winters.
Speaker Change: But the underlying trend line and growth is positive.
Speaker Change: And organizationally.
Speaker Change: At the beginning of what we think of as embedding the map learnings into our culture and pivoting the organization to growth.
Speaker Change: The details of that are still in process and so.
Speaker Change: We will be in a position to provide.
Speaker Change: In more detail, what that looks like and what our expectations are on that over a multiyear period sometime this fall.
Speaker Change: Okay and then just second question on CPG specifically on.
Speaker Change: On slide 14, where you have all the uplift drivers for fiscal year 'twenty five.
Speaker Change: Call out office construction, obviously as one of the negatives is that sort of equally offset by some of the other positives in there you know high performance buildings.
Speaker Change: Infrastructure et cetera.
Speaker Change: Or is it is it a more substantial slowdown that you're expecting going forward for office construction.
Speaker Change: No. It's an interesting mix and I will tell you, particularly for our construction products group for our stone hard business for our Euclid chemical business.
Speaker Change: I've been incredibly impressed.
Because it patting ourselves on the back necessarily but.
Speaker Change: Our sales forces have become more agile and they had been able to move to where the money is and so whether it was having a disproportionate share of.
Speaker Change: Flooring fibers floor toppings as the Amazons were building out their distribution centers where today.
Speaker Change: We're getting I think at least our fair share if not more in this data center build out.
Speaker Change: Both here.
And in Europe.
Speaker Change: As opportunities in other parts of the World like India, where we are working hard to catch up because we have real strength here and so it's really been a combination of more agile sales forces and hats off to our businesses and our salespeople that have been doing that.
Speaker Change: And.
Speaker Change: And it has overcome some of the core business that mostly was sold through distribution and so broadly and expanding.
Speaker Change: Office building expanding fast food chains, expanding hospitality those products would have been served in the past <unk>.
Speaker Change: For instance for Transco sealants to our distribution.
Speaker Change: Quite candidly has been relatively weak in the last couple of years and a return to growth in those areas would be.
Speaker Change: I think a benefit.
Speaker Change: What we've learned to be more direct on major project projects and categories that are growing.
Frank Mitsch: Okay perfect. Thank you Frank.
Speaker Change: Thank you.
Speaker Change: Again, if you have a question. Please press star and then one.
Speaker Change: And your next question today will come from Arun Viswanathan with RBC capital markets. Please go ahead.
Speaker Change: Good morning Arun.
Arun Viswanathan: Good morning, Frank Thanks for taking my question and happy New year.
Speaker Change: So yes.
Speaker Change: Some of your comments I guess.
Speaker Change: You noted that you have seen some stabilization in some of the consumer DIY takeaway categories.
Speaker Change: Where is that occurring and the Alpha you you noted some share gains. So I guess, maybe if you could just help us understand where those are occurring and if they are occurring in areas that.
You would attribute to the housing market recovery or is it more just other specific items.
Speaker Change: Sure I can give you a few examples in the DIY.
Speaker Change: Some of its new.
Speaker Change: Product related our DAP business has introduced a new law on cavity foam.
Speaker Change: Product.
Speaker Change: They have expanded distribution of wall texture spray category, they've been learning in a big way in the past so we're getting sell in into some of these new product categories.
Speaker Change: In our solar business, we picked up some share in the automotive channels, so automotive retailers.
Speaker Change: <unk> one <unk>.
Speaker Change: Great.
It got off.
Speaker Change: To a slower start than we hoped and part of it is you can introduce new products because if you are introducing them into a <unk>.
Speaker Change: Negative consumer takeaway market youre not going to have the excitement that you want we're starting to see some expanded distribution in takeaway in the 501.
Speaker Change: <unk> patented.
Speaker Change: Spray application for some of our <unk> spray paint products and then also in Europe.
Speaker Change: Part of our consumer segment, one of the few places.
Speaker Change: Otherwise very punky economic environment, where we're seeing positive unit volume growth is in our consumer businesses in Europe and is being driven by two things one it really strong.
Focus centers zinsser primers into the European marketplace.
Speaker Change: Especially primers arent as or haven't been as ubiquitous in Europe and the U K is an error in the U S and so that's going really well.
Speaker Change: And we have what I think of as paint unlimited, but its a direct to consumer.
Speaker Change: E Commerce model, especially paints and it was launched in the U K, it's being expanded into parts of Europe and that is growing double digits and it's very exciting and so those are the areas.
Speaker Change: Positive results in our consumer business, notwithstanding the underlying challenging dynamics.
Speaker Change: Okay, great. Thanks for that so it sounds like as you said the underlying dynamics are still challenging but theirs.
Speaker Change: Maybe some pockets of encouragement.
Speaker Change: And then just Oh.
Maybe I'll ask a re ask the question on M&A.
There are there are some some properties coming to market.
Speaker Change: And the next.
Speaker Change: For the six months or so.
Speaker Change: It sounds like as you noted you wouldn't want to sit idle with with cash.
Speaker Change: What kind of targets would you be looking after would you would you be interested in going further into Latin America, Asia, and Europe or would it be more focused on North America.
Speaker Change: Maybe you can just provide us some regional and category kind of areas of interest.
Speaker Change: Sure.
So I think our M&A activity would be focused on the areas that you talked about.
Speaker Change: North America, Firstly, Europe, and Latin America, not likely to see in the developing world in the near term.
Speaker Change: <unk>.
We have been pretty good at identifying small product lines that are highly strategic.
Speaker Change: And so if you could buy nice product lines, they might be five or 10 million bucks, but if they fit a need in our product category.
Speaker Change: And we can double or triple the revenues the IRR homeruns.
Speaker Change: And so it is part of really thinking about an earlier question, how do we drive three or 4% organic growth and some of it is being very strategic about small to medium sized product lines that we can integrate and expand across our distribution our sales forces such that in year, two and three.
Speaker Change: Three it's adding to that organic growth number. So that's the first way that we think about it.
Speaker Change: Secondly.
Speaker Change: There will be some larger.
Speaker Change: Perhaps coatings <unk> specialty chemical our construction products business is coming to market.
Speaker Change: Private equity portfolios or otherwise and I think we.
A balance sheet that can accommodate that.
Speaker Change: We have missed some of the acquisition growth over the last five or seven years, because we've always had pretty strong discipline.
Speaker Change: About M&A value, our Golan M&A is not to get bigger.
Speaker Change: Get better and more profitable.
Speaker Change: And so we've got a balance sheet. That's in good shape and we will continue to look at opportunities as they come or as we can find them and execute on them.
Speaker Change: Great. Thanks.
Speaker Change: Thank you.
Speaker Change: Your next question today will come from Stephen Byrne with Bank of America. Please go ahead.
Speaker Change: Good morning, Steve.
Stephen Byrne: Morning, Frank.
Speaker Change: Okay.
Speaker Change: One of the restructuring items focused on them.
Speaker Change: Accounting locations can you comment on <unk>.
Speaker Change: Many accounting locations do you currently have and what was it a few years ago.
Speaker Change: So I think when we started map.
Speaker Change: <unk> 2020, we were around 100 accounting locations.
Speaker Change: Significantly reduce that now we're down to probably something in the.
40% or 50 ish range.
Speaker Change: Lot of work leveraging the work, we've done and consolidated the ERP issues and consolidating accounting locations as well as building out our accounting location that our shared service centers.
Speaker Change: In Mexico as well.
Speaker Change: I would just add to that from an ERP perspective, when we started the Napa initiative.
Speaker Change: <unk> had essentially 75 versions or instances of ERP, some common like SAP, but different instances and we have shrunk that down across RPM to somewhere in the mid teens.
Speaker Change: 14 is the number that sticks in my head, but given some of our far flung operations. It could be a few more than that but that's a dramatic improvement from what was 75 identified different instances of ERP systems.
Speaker Change: Ultimately our goal is to.
Just to finish that ultimately our goal is to get those down to somewhere in the mid single digits at least.
Frank Mitsch: Okay, and what about total head count Frank.
Frank Mitsch: Where would RPM right now and what would you target in a few years.
Frank Mitsch: Net of <unk>.
Frank Mitsch: M&A activity.
Frank Mitsch: Right now, it's about 17000, a little bit more.
Frank Mitsch: That number has been stable for the last couple of years.
Frank Mitsch: We had a D.
Frank Mitsch: Disproportionate growth in some of our shared service centers, which five or six years ago, where a few dozen and today are up to about 400.
Frank Mitsch: Those folks at more than pay for themselves.
Frank Mitsch: And the <unk>.
Frank Mitsch: One area that we continue to look to expand and it has been challenging but I think we're net net lending is.
Frank Mitsch: Salesforce.
Frank Mitsch: Then since COVID-19 and through Covid and ups and downs.
Sure.
Frank Mitsch: If there are good paints and coatings or construction product salespeople we.
Frank Mitsch: We are open for business and looking to expand.
Frank Mitsch: Sales forces in our performance coatings business units construction products business in particular.
Speaker Change: And just one quick one for you or Frank and that is you see any potential and moving any of the performance coatings products into a direct sales model similar to what you have in CPG.
Frank Mitsch: Sure Great question.
As part of our map initiatives going back to 2018, we look at our organization look at our business units and our groups and think about.
Frank Mitsch: What's the best way for us to be organized going forward.
Frank Mitsch: Can tell you that.
It relates to the original map programs some of that reorganization was done with a mind to what's going to make us more efficient.
Frank Mitsch: On a go forward basis, if we make any changes it's going to be entirely driven by.
What will allow us to accelerate growth.
Frank Mitsch: Okay.
Frank Mitsch: Very good thank you.
Frank Mitsch: Thank you.
We'll conclude our question and answer session I would like to turn the conference back over to Mr. Frank Sullivan for any closing remarks.
Speaker Change: Thank you very much Nick.
So I wanted to conclude by recognizing.
Speaker Change: Someone who participated in all of our conference calls for more than 15 years and was part of Rpm's growth.
Speaker Change: For a boy more than 30, which is add more who retired as our senior vice.
Speaker Change: President.
Speaker Change: And general counsel.
Speaker Change: December 31.
Speaker Change: He was the conscience of RPM and a significant part of our growth and success and we wish Ed and his wife, Kim and their family.
Speaker Change: Joy and new Adventures and we are joined today by Rpm's, New General Counsel, Tracy Crandall who's going to bring the same wisdom.
Speaker Change: And in kind of stable, even keel approach to keeping RPM underwrite paths are welcome Tracy.
Speaker Change: Thank you everybody for your participation in our call today and your interest in RPM.
Speaker Change: Best wishes to all for a happy healthy and successful new year, and we look forward to talking to you throughout the next couple of days.
Speaker Change: And then again in April when we conclude our third quarter and we will be able to talk about a return to growth in Q4 and beyond and have a great day.
Speaker Change: Conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.