Q3 2025 RPM International Inc Earnings Call
Good day and welcome to the RPM International fiscal third quarter 'twenty twenty-five earnings call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the Starkey followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on a touchtone phone to withdraw your question. Please press Star then two.
Please note that this event is being recorded.
Speaker Change: I would now like to turn the conference over to Matt Schlarb, Vice President of Investor Relations and sustainability. Please go ahead.
Speaker Change: Thank you Nick and welcome to RPM Internationals conference call for the fiscal 2025 third quarter today's call is being recorded.
Frank Sullivan: During today's call are Frank Sullivan, Rpms, Chairman, CEO, Rusty Gordon, Vice President and Chief Financial Officer, and Michael <unk>, Vice President Controller, and Chief Accounting Officer. This call is also being webcast and can be accessed live or replayed on the RPM website at www Dot our PMT dotcom.
Frank Sullivan: 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.
Frank Sullivan: For more information on these risks and uncertainties. Please review Rpm's reports filed with the SEC.
Frank Sullivan: During this conference call references may be made to non-GAAP financial measures to assist you in understanding. These non-GAAP terms RPM has posted reconciliations to the most directly comparable GAAP financial measures on the RPM website.
Frank Sullivan: Also please note that our comments will be on an as adjusted basis and all comparisons are to the third quarter of fiscal 2024, unless otherwise indicated.
Frank Sullivan: We have provided a supplemental slide presentation to support our comments on this call. It can be accessed in the presentations and webcast section. The RPM website at Www Dot R. P. M Dot com now I would like to turn the call over to Frank.
Frank Sullivan: Thanks, Matt I'll begin today's call with a high level review of our third quarter results and what we're currently seeing in our markets and Michael Rowe, who will cover the financials in more detail for the quarter.
Speaker Change: Next Matt will provide an update on our balance sheet and some of the activity in our European market and finally, Rusty Gordon I'll conclude our prepared remarks their outlook for the fourth quarter after which we'll take your questions.
Speaker Change: An overview of our third quarter results is on slide three.
Speaker Change: During our most recent earnings call in January I discussed how each of our segments generated solid organic growth in the second quarter, but how the U S. It was experiencing a real winner for the first time in a couple of years, which will impact our third quarter as the third quarter progressed weather conditions deteriorated further including in the southern and why.
Speaker Change: Stern portions of the United States, two geographies that typically have outdoor construction and project activity during the winter months, the SaaS experienced unseasonably cold temperatures right up through the end of March and the west was disrupted not only by weather, but by wildfires.
Speaker Change: The third quarter, it's also our seasonal slowest quarter. So the financial impact of business changes gets magnified both positively and negatively. This was certainly true this year as the weather related headwinds and softness in some specialty OEM markets more than offset our map 2025, and SG&A improvements in the quarter.
Speaker Change: During the quarter, our businesses made good progress improving working capital efficiency, a key component of our map 2025 program by continuing to demonstrate disciplined production levels to reduce inventories, which temporarily put pressure on margins, but resulted in our second best ever third quarter <unk>.
Speaker Change: Operating cash flow in our company's history.
Speaker Change: All of this resulted in our 25 third quarter profitability being closer to that in fiscal 2023, rather than the last year. When we had much more favorable weather conditions and huge year over year gains in sales and earnings.
Speaker Change: By taking a more granular look at the segments over the past three years on slide four you can see that third quarter. Adjusted EBIT has increased at three of our four segments compared to two years ago when demand conditions were similar to today.
Speaker Change: This is evidenced that our map 2025 initiatives and SG&A streamlining our making a positive impact on our financial performance, even in a challenging demand environment with lower fixed cost utilization.
Speaker Change: On slide five you can see some of the positive factors impacting our fourth quarter.
Speaker Change: Across RPM, we continue to implement implement our map 2025 initiatives.
Speaker Change: And this will continue into our fiscal 2026, new year, which begins on June one as we identify new opportunities for improvement.
Speaker Change: The financial impact of these improvements will become more evident as our volumes recover.
Speaker Change: Overall, we remain focused on the things within our control implementing improvements across our businesses and outgrowing our markets.
Speaker Change: We are also leveraging the fact that the primary function of many of our products and services is extending asset life. This value proposition becomes even more important to end users during times of economic uncertainty when budgets are tight.
Speaker Change: This repair and maintenance focus also helps us insulate our businesses from economic.
Speaker Change: The volatility and the impact it has on new construction.
Speaker Change: The impact of tariffs tariffs and inflation is dynamic, but we can tell you what we know for the most part RPM manufacturers products and the countries or regions in which they are sold RPM is limited cross border procurement and sales. So tariffs will not play a large role in our cost structure as it might for some other companies.
Speaker Change: Furthermore.
Speaker Change: While our sales, which do cross borders is limited most of this activity takes place in North America between the United States, Canada, and Mexico, which are still following the U S. MCA agreement, which currently is exempt from the most recent tariff impact.
Speaker Change: We anticipate that raw material inflation, which was previously assumed to be in the low single digits will now be increasing in the mid single digits. As a result of the impact of recently announced tariffs and duties.
Speaker Change: Areas include resins.
Speaker Change: Shellac.
Speaker Change: Solvents, and in particular packaging and metal packaging, which impacts our consumer segment. The most.
Speaker Change: Looking at the segments in our construction focused businesses the construction products and performance coatings group are benefiting from our turnkey service model in roofing and flooring.
Speaker Change: From acquisitions improved collaboration between operating segments, and our passive fire protection businesses and selling wall systems and building envelope systems to high performance buildings in areas like data centers.
Speaker Change: In our specialty products group end markets remain challenged however, our businesses continue to gain share in areas like custom wood coatings, especially food coatings. It helped mitigate the impact of current market pressures. These will provide upside as demand recovers.
In our consumer segment, we have launched multiple new products. This spring to drive growth. This includes the main green refillable and the household cleaners category. This patent pending product contains two chambers, one with cleaning concentrate and the other with water and the two mix when Sprague the water is simply rebuild.
Speaker Change: When it runs out in user gets the equivalent of four standard battles are cleaner and one which reduces waste and provides the user superior value.
Speaker Change: We're proud to announce that this project was recently awarded the best.
Speaker Change: Concentrate in the cleaners category of the 2025.
Speaker Change: Houseclean award from better homes and gardens.
Speaker Change: The consumer group also launched a number of new products like rust oleum or low odor, a water based aerosol paint it has the durability abuse both indoors in outdoor projects.
Speaker Change: Turning to slide six in addition to organic growth.
Speaker Change: We are generating and cleaner through innovations like the main green.
Speaker Change: Recent introduction.
Speaker Change: We announced a definitive agreement to acquire the pink staff to expand our offerings in the cleaning space.
Speaker Change: RPM is operated in this category for more than a decade with brands, including Craig Cutter mean Green Lincoln can chromium.
Speaker Change: The addition of the pink stuff will broaden our product offerings and strengthen our position in several sales channels, including e-commerce grocery and drug stores, and importantly opens RPM and principally our rust Oleum group.
Speaker Change: To a market in North America in excess of $12 billion.
Speaker Change: Thanks stuff as a global leader in household cleaning products led by their high performance cleaning paced.
Speaker Change: Calendar 2024 sales were approximately 150 million pounds.
Speaker Change: <unk> operates globally and in the U S with Europe being their largest market over the past several years. This disruptive brand has been one of the fastest growing cleaning products categories in the U S household cleaning space.
Speaker Change: We are well positioned to support future growth as the pink stuff in the U S and elsewhere by leveraging our consumer segments expertise in category management innovation as well as our global operational footprint, which has been strengthened by our map initiatives over the last couple of years.
Speaker Change: We expect the transaction to close late in the fourth quarter of fiscal 'twenty five or early in the first quarter of fiscal 2026.
Speaker Change: During this time of heightened economic uncertainty we are focused on the things within within our control such as completing our map 2025 program and leveraging our competitive strengths, including the ability of our products and services to extend asset life and to deliver value to customers and outgrow our markets.
Speaker Change: I'll now turn the call over to Michael Roche to provide details on our third quarter financials.
Michael Roche: Thanks, Greg on slide seven consolidated sales declined 3.0% versus the prior year record with unfavorable weather conditions and foreign currency translation the biggest drivers.
Michael Roche: Adjusted EBIT declined by $31 9 million driven by lower production volumes, including working capital efficiency initiatives that resulted in lower fixed cost absorption.
Michael Roche: Sex and temporary inefficiencies from plant consolidations and startups contributed to the profitability decline.
Michael Roche: We also faced challenging comparisons as adjusted EBIT increased 31, 3% in the prior year period, which was a third quarter record.
Michael Roche: Nonoperating expenses increased driven by higher M&A expenses as well as increased employee compensation.
Michael Roche: These pressures more than offset map 2025 benefits in SG&A streamlining.
Michael Roche: Turning next to geographic results on slide eight sales declines in North America were primarily driven by weather, while on Europe growth generated from sales and marketing initiatives, such as improved digital marketing and collaboration were offset by FX.
Michael Roche: Africa Middle East sales were down slightly after growing 22, 9% in the prior year.
Michael Roche: <unk> was the primary driver for sales declined in Latin America, and Asia Pacific and they also faced challenging prior year comparisons.
Michael Roche: Yes.
Michael Roche: Moving to the segments on slide nine construction.
Michael Roche: Products group sales declined versus a record prior year level as it was impacted by unfavorable weather, particularly in the southern and Western U S. FX also pressured sales.
Michael Roche: Lower volumes and the impact of temporary inefficiencies from plant consolidations reduced fixed cost absorption during the quarter.
Michael Roche: This was partially offset by SG&A streamlining actions.
Michael Roche: <unk> also faced challenging comparisons to the prior year when adjusted EBIT increased 69, 8%.
Michael Roche: On slide 10 performance coatings group sales declined slightly against challenging prior year comparisons when organic sales increased nine 2% to a record level.
Michael Roche: Both was led by the fiberglass reinforced plastics businesses, which saw strong sales in the data center construction market.
Michael Roche: Adjusted EBIT declined versus a record prior year as lower production volumes resulted in reduced fixed cost utilization.
FX and plant startup costs also reduced profitability.
Michael Roche: The performance coatings group faced challenging comparisons as adjusted EBIT grew 45, 1% in the prior year.
Michael Roche: Moving to slide 11 specialty products group sales declined as specialty OEM markets were weak and lower remediation activity reduced demand for the disaster restoration business.
Michael Roche: Partially offsetting these declines are food coatings and additives business continued its strong performance aided by our prior acquisitions.
Michael Roche: Lower volumes resulted in reduced fixed cost absorption that adjusted EBIT. Additionally.
Michael Roche: Additionally, several growth investments, including the Rep and innovation centers of excellence impacted Spg's financial results, but benefited all RPM segments.
Michael Roche: Map 2025 improvements in SG&A streamlining actions helped offset the profitability decline.
On slide 12, the consumer group generated slightly positive organic growth aided by new product introductions and market share gains in the area and areas like cleaners.
Michael Roche: The consumer group also faced challenging comparisons versus the prior year when adjusted EBIT increased 34, 6% <unk>.
Michael Roche: Consumer demonstrated good discipline and working capital efficiency by limiting production to reduce inventory levels lower production levels had a temporary negative P&L impact, but serve to structurally improve cash flow.
Michael Roche: The consumer group also experienced material inflation in areas, including packaging and solvents will put pressure, which put pressure on profitability.
Michael Roche: Now I'll turn the call over to Matt, who will cover the balance sheet and cash flow and provide more details on recent activities in Europe.
Matt Schlarb: Thank you Mike on Slide 13, our steady improvement in working capital efficiency continued in the third quarter driven by inventory reductions, particularly in our consumer segment as Mike just mentioned working capital as a percentage of sales improved by 70 basis points and approach our goal of 20% as you see when our 10-Q is filed.
Matt Schlarb: Our average days of inventory, our Dio declined by eight days year to date.
Matt Schlarb: This improvement in working capital led to the second strongest Q third quarter operating cash flow generation in the Companys history, and $91 $5 million.
Matt Schlarb: During the quarter, we returned to $83 $1 million in cash to shareholders through dividend and share repurchases.
Matt Schlarb: We also have increased our year to date capex by nearly $21 million driven by several growth projects, including the resin center of excellence in Belgium, a new distribution center also in Belgium, and a new production facility in India. The consolidation of eight plants to our map 2025 program also contributed to the higher Capex liquidity remained strong at one.
Matt Schlarb: Two 1 billion.
Matt Schlarb: Turning next to slide 14, I wanted to highlight the progress we have made over the past several years in Europe across the continent, we focused on implementing map initiatives to include increased collaboration improve efficiency and outgrow our markets.
Matt Schlarb: And our construction products group our teams have taken a system selling approach focusing on higher value added products and services.
Matt Schlarb: Multiple small acquisitions in Europe have aided this strategy in line with our building a better World program. We're also selling more products at advanced sustainability like new Dara insulated concrete forms that improve energy efficiency and weather resiliency.
Matt Schlarb: And our performance coatings group, we are seeing momentum from improved collaboration among segments in our passive fire protection businesses and the implementation of <unk> 168, commercial excellence programs that are starting to show benefits the.
Matt Schlarb: The acquisition of MPC that we discussed last quarter, serving as a platform to accelerate sales of fiberglass reinforced products on the continent.
Matt Schlarb: In specialty products group, we recently celebrated the opening of the resin center of excellence and they have begun production of materials for other RPM companies and third parties. We have also consolidated facilities to help improve efficiencies.
Matt Schlarb: Finally, the consumer group has had success in implementing targeted marketing campaigns, the diyer and contractors like and those businesses continue to grow as.
Matt Schlarb: As we've gotten better data to analyze SKU profitability, you've rationalized lower margin Skus, which has enabled us to consolidate production. We're also making investments in efficiency like the new centralized distribution center in Belgium.
Matt Schlarb: We have not completed implementing map in Europe, but the work we've done positions us to better leverage the growth investments, we have made and will make in the region now I'd like to turn the call over to Rusty to cover the outlook.
Rusty Gordon: Thank you Matt.
Frank Sullivan: Our fourth quarter outlook can be found on slide 15, Frank already provided some of the reasons why we expect consolidated sales to be flat and returned to modest earnings growth and margin expansion in the fourth quarter.
Speaker Change: It is a challenging macro environment.
Speaker Change: This growth is expected to be led by our performance coatings group, which is benefiting from spending on high performance buildings growth in passive fire protection as well as its acquisition of TMP C, which is the seasonal business that generates most of its sales and <unk>.
Speaker Change: Profits in the fourth and first quarters.
Speaker Change: <unk> also faces easier comparisons to the prior year.
Speaker Change: In construction products group, our teams have done a good job focusing on selling systems for high performance buildings and on the repair and maintenance solutions in a challenging macro environment. However, they are facing challenging comparisons to the prior year when organic.
Speaker Change: <unk> sales increased six 6%.
Speaker Change: So sales are expected to be flat for the quarter.
Speaker Change: In consumer the benefit of new product introductions is expected to be offset by more cautious consumer spending.
Speaker Change: Resulting in a low single digit sales decline.
Speaker Change: While consumer confidence has weakened recently over time, our products serving DIY customers.
Speaker Change: Have historically outperformed during times of economic stress and as.
Speaker Change: Consumers look to extend the life of what they own rather than buying new.
Speaker Change: Also our guidance assumes no impact from the acquisition of the <unk> stuff.
Speaker Change: Specialty products group is expected to have a low single digit sales decline as market share gains in certain businesses are offset by more than.
Speaker Change: Our being more than offset by sluggish demand in specialty OEM markets, which includes the impact of weak new home construction.
Speaker Change: Adjusted EBIT is expected to be up low single digits as many of the map 2025 improvements are masked by under absorption, including temporary inefficiencies as we consolidate plants.
Speaker Change: Foreign currency is also expected to be a headwind in the quarter, but less so than it was in the third quarter.
Speaker Change: This concludes our prepared comments, we are now pleased to answer your questions.
Okay.
Speaker Change: 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 were using a speakerphone. Please pick up your handset before pressing the keys.
Speaker Change: If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star and then two.
Speaker Change: In the interest of time, please limit yourself to one question and one follow up.
Speaker Change: And your first question today will come from Kevin Mccarthy with vertical research partners. Please go ahead.
Kevin Mccarthy: Good morning, Kevin Thank you and good morning, good morning, Frank.
Speaker Change: Obviously a lot of.
Speaker Change: Uncertainty in.
Speaker Change: Increasing over the last week or so so I was wondering if you could speak to what you have assumed in terms of macro growth and other key assumptions in formulating.
Speaker Change: Your guidance here for the fourth quarter.
Speaker Change: Do you anticipate.
Speaker Change: Positive or negative GDP growth for example in any.
Speaker Change: Any noticeable impact thus far in the early days on your order books.
Speaker Change: Sure.
Speaker Change: First of all from a manufacturing perspective, I would tell you we've been a low growth no growth environment for 18 months and it's not unique to RPM and we do not see that changing either in this quarter or in the foreseeable future.
Speaker Change: Think relative to our map initiatives, we're pretty well positioned to outperform in that environment.
Rusty Gordon: As you heard from Rusty we are pleased to be returning to profitable growth in Q4.
Speaker Change: No.
Speaker Change: I think with the nasty weather behind us, particularly in comparison to a mild winter last year.
Speaker Change: Our Q4 is going to look more like our Q2.
Speaker Change: Most of that is self help some market share gains from new product introductions, we're benefiting as you can see throughout the year again with the exception of the <unk>.
Speaker Change: Seasonal third quarter, and our construction products group and performance coatings group by project selling and also those product categories, where we're providing the labor.
Speaker Change: Which has become more of a competitive advantage in our labelled labor constrained market. So I think we feel good about the dynamics.
Speaker Change: Underlying RPM in what's otherwise a GDP no growth environment, and we don't see that changing.
Speaker Change: Very good and as a follow up if I may how much lower or are your operating rates in the February quarter and is there a way to quantify the impact that that would have had on your operating margin.
Speaker Change: Sure I can provide a high level.
Speaker Change: A comment on that and Rusty can provide some more detail but.
Speaker Change: As we talked about in the past and you can see in most of our quarters.
Speaker Change: Q1 of this year is a good one we had.
Speaker Change: Lower sales, but nice leverage to our bottom line.
Speaker Change: <unk> unit volume to take advantage of the map initiatives that had been principally operating efficiency driven.
Speaker Change: And with the declines in Q3 year over year.
Speaker Change: We have had negative impacts we've also had some higher transition costs as we move production from plants that are being consolidated in the new plants.
Rusty Gordon: Rusty you want to add some detail.
Speaker Change: Yes.
Speaker Change: You heard our organic growth was down one 8% there is up slightly positive pricing. So most of that was volume decline and then you couple that with our.
Speaker Change: The initiative to reduce inventory.
Speaker Change: Which should inventory days were down about eight days.
Speaker Change: Year to date basis.
Speaker Change: That leads to reduced production in the under absorption of fixed costs.
Speaker Change: I see thank you very much.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: And your next question today will come from Mike Sison with Wells Fargo. Please go ahead. Please go ahead.
Michael: Okay, Michael Hey, guys.
Speaker Change: If you think about.
Speaker Change: The portfolio you have now you have the maps and I understand the industrial downturn that we've seen for forever themes.
Speaker Change: How do you think the portfolio holds up.
Speaker Change: If the US does go into a recession at GDP type recession.
Speaker Change: Sure I think I think we're again in pretty good shape to outperform.
Speaker Change: Our <unk> roofing business is.
Speaker Change: Yes.
Speaker Change: Predominantly in re roofing and repair and maintenance.
Speaker Change: Our pure air business as part of that a couple of years old we've taken the last 18 months to get certified and that is a air air handling HVAC refurbishment business that we've been asked about for years, because we're up on roofs.
Speaker Change: We've spent the last 18 months getting certified throughout all 50 states.
Speaker Change: We have good momentum there interestingly enough.
Speaker Change: So we're really competing against a replacement of the major.
Speaker Change: Commercial HVAC.
Speaker Change: Providers most of that equipment is Chinese made and so we think we'll have some pick up there.
Speaker Change: The other piece of that is we're pretty focused on some of the areas, where we see continued strength Datacenters is a good example, where stone hard flooring carb line coatings and in particular fiber grade FRP grading are being specified.
Speaker Change: I think we're in a pretty good position to continue.
Speaker Change: The decent performance that you've seen of our performance coatings group and construction products group over the last year, putting aside the seasonal impact in weather impact of Q3.
Speaker Change: Got it and as a quick follow up just wanted to hear your thoughts on the tariffs again do you think.
Speaker Change: Yeah sort of this raw material inflation is this going to be sort of a peer price increase or do you kind of see it as a tariff surcharge, meaning if they go away they come back down and then so how do you think about that and what you plan to do in terms of pricing to offset it.
Speaker Change: Sure it's a great question.
Speaker Change: Companies have done a really good job in a pretty short notice basis I assume all companies are doing this of identifying the impact of tariffs across RPM.
Speaker Change: I can tell you we did this in February with the China, 10%, we updated in March with the impacts in China and then we've updated it most recently for the April 2nd tariff announcements.
Speaker Change: Across RPM the impact the unmitigated impact as we sit here today and that's important because obviously things can change is about three 2% it'll.
Speaker Change: It'll be larger.
Speaker Change: Larger in the United States at about four 3%.
Speaker Change: And obviously, that's subject to change based on the increase of reduction of tariffs.
Speaker Change: And so we have done that work unit by unit I'll give you. An example of that in a minute.
Speaker Change: The mitigating activities that we're looking at.
Speaker Change: Is a couple of things one annex too.
Speaker Change: That was announced as part of the April 2nd.
Speaker Change: Tariff announcements, it's essentially specific raw material categories exempted from those tariffs.
Speaker Change: Alternative sources. So in some cases, we're able to move production from a foreign country to the U S or from China to India.
Speaker Change: Vendor partnerships at this point, we have certain.
Speaker Change: Solvent vendors.
Speaker Change: That we would get imported we would have.
The tariffs for the time being.
Speaker Change: Product substitution and then lastly price increases.
Speaker Change: We are in the process of addressing <unk> instituting price increases where necessary. So I think for the most part we will.
Speaker Change: Offset all of that impact.
Speaker Change: And in the Grand scheme of things at this point.
Speaker Change: About $74 $75 million of raw material impact on the $2 5 billion dollar.
Speaker Change: Spend so not material the RPM, but we have a unit by unit way to address it and.
Speaker Change: And then I'll provide one more example.
Speaker Change: Gives you a sense of the detail, we get down to and we announced the pink stuff acquisition.
Speaker Change: And.
Speaker Change: We have done the analysis of their business they export mostly intercompany about $35 million from the UK to the U S.
Speaker Change: For example, about 13 or $14 million of that is on a pace to cleaner and we have a plan, where we can spend about four or $500000 in an existing U S. Consumer production facility in the next couple of months that will allow us to move production.
Speaker Change: Production of U S sold.
Speaker Change: Self paced.
Speaker Change: In the U S to be reached.
Speaker Change: In the U S.
Speaker Change: Six different categories.
Speaker Change: And pink stuff, we're not apply so that's just one example.
Michael Roche: And I appreciate the question Michael because that is exactly the type of analysis, we have done across every one of Rpms 20, Sbu's. So I think we have a pretty good handle on the impact.
Michael Roche: Of this mitigating factors, we're on the lookout for changes <unk>.
Michael Roche: Reciprocal tariff increases.
Michael Roche: And then the last comment I'll make is.
Michael Roche: Where we started which is for the most part we produce products and the countries or regions in which we sell them. So we don't see this being a significant impact on RPM.
Michael Roche: Great. Thanks, that's helpful. It warms up for the Guardian.
Michael Roche: Okay.
Michael Roche: Yes. Thank you.
Speaker Change: And your next question today will come from Mike Harrison of Seaport Research Partners. Please go ahead.
Speaker Change: Good morning, Mike.
Hi, good morning.
Speaker Change: Was hoping frankly, you can maybe give us.
Speaker Change: From Fox.
Speaker Change: The near shoring trend.
Speaker Change: Thanks Ben.
Speaker Change: A nice contributor to some of the strength that you've been seeing in the CPG in pseg's segments over the last few years. So I'm just curious have you seen that.
Speaker Change: Trends starting to slow a little bit.
Speaker Change: Would your expectation be that this newest round of tariffs.
Speaker Change: Could potentially.
Speaker Change: Reinvigorate some of that near shoring trend that drives some additional.
Speaker Change: Estimate and U S manufacturing facilities.
Sean: Sure Sean.
Sean: So in general I think the answer is yes, both the buy and administration and now the Trump administration with Terra.
Sean: Tariffs have indicated there.
Sean: Focus on the importance of re shoring and so we've been a beneficiary of that particularly in the technology area and that's continuing.
Sean: We serve broadly manufacturing I'll tell you the one area where.
Sean: We see and anticipate things slowing down is auto.
Sean: And so that's the one area of spend where I think over time, you might see some re shoring, but in the current moment there seems to be some paralysis.
Sean: Trying to understand.
Sean: What all this means for the auto industry aside from that.
Sean: We don't see any change in the.
Sean: The re shoring in technology, and the announcements that youre hearing from the Intel's or the apples.
Sean: The continuing build out of data centers things like that.
Which.
Sean: We're in a pretty good position to be part of.
Sean: Alright, Thank you and then I wanted to ask.
Sean: Specifically in the construction business you referenced the unfavorable weather and I just wanted to understand a little bit better.
Sean: A lot of this activity just get pushed out of Q3 and into Q4 or are you seeing cases, where there are longer delays or even some cancellations.
Sean: <unk> I think I'm just curious to.
Sean: To understand why we wouldn't see some better.
Sean: Better demand or better better numbers.
Sean: Construction in the fourth quarter. Thank you.
Sean: Sure sure so it start with.
Sean: Our seasonal comparison.
Sean: We are weather impacted people won't get on upon roofs, when there's snow on them.
Sean: And we saw snow this year in Florida, and in Texas and the Carolinas.
Sean: Disruptions throughout the country.
Sean: And a challenging comparison when last year, we had a very mild winter. So youll recall last year in the third quarter construction products group sales were up four 3% and EBIT was up 70%. So that's a big mountain to climb.
Sean: We had to reverse this year weatherwise.
Sean: Most of those projects have been pushed off.
Sean: And so we.
Sean: We are starting to see some of that come back.
Sean: But again that winter weather worked its way right through.
Sean: Right through March.
Sean: We are sitting here in Cleveland, Ohio.
Sean: It is 2006 degrees and there is snow on the ground it must be opening day to the Cleveland Guardians, which it is and so.
Sean: Certainly that impacts us.
Sean: Really a good backlog in our roofing business that continues.
Sean: And as we move from selling components to selling systems.
Sean: And in the areas of construction that we've talked about I think we're in a pretty good shape. So our backlog has not shrunk.
Sean: And our people are anxious to get back up on roofs, and get back to work and start selling itself.
Sean: Alright very helpful. Thank you.
Sean: Thank you.
Speaker Change: And your next question today will come from Ghansham Panjabi with Baird. Please go ahead.
Ghansham Panjabi: Hey, guys good morning.
Speaker Change: Good morning, how are you getting good morning, Frank.
Ghansham Panjabi: Maybe you could just give us a bit of an update on the map progress plant specific to Europe.
Ghansham Panjabi: What's been done so far what's left to do and maybe in terms of the outlook for 2026 in terms of flow through savings specific to that region.
Ghansham Panjabi: Sure.
Ghansham Panjabi: General were.
Ghansham Panjabi: Moving later than we would've anticipated, mostly because of Covid disruptions.
Ghansham Panjabi: In Europe, and so in the past year.
Ghansham Panjabi: <unk>.
Ghansham Panjabi: We have.
Ghansham Panjabi: Initiated and completed I want to say eight manufacturing facility closures and consolidations principally in Europe and.
Ghansham Panjabi: And so that's moving very well, we are pulling together administrative areas around accounting and.
Dave: That's moving very well, Dave <unk>, who is the.
Dave: President of our performance coatings group you May recall moved his family a year and a half ago to Europe to really provide.
Dave: Some senior leader oversight there so thats helped drive better coordination.
Dave: To get at these map savings that we got first in North America and now we're getting in Europe.
Dave: <unk> savings in Q3 in general or about 28 million Bucks across all of RPM, obviously that was offset by an equivalent amount of under absorption.
Dave: And some of the other challenges we faced in the quarter, but we're making good progress there.
Dave: <unk>.
Dave: I think we communicated in the last call that we anticipate obviously running through the finish line at May 31, 2025 of the map initiatives will have some bleed to bleed over into 2006, the impact on the map initiatives.
Dave: Through may of 2025 on fiscal 'twenty, six should be about 100 million Bucks.
Okay very helpful. And then just to clarify the previous comments on CPG and the backlog the backlog youre, referring to or just specific to the fact that <unk> came in below forecast just based on whether is it did I hear that correctly.
Dave: The backlogs are.
Dave: Pretty good strong quote activity and <unk> roofing and re roofing projects and our W. Ti business, which is the contracting arm of Tramco. So historically, mostly roofing maintenance repair <unk> general.
Dave: The GC <unk>.
Activity on major re roofing projects it is starting to incorporate pure air.
Dave: And as another category of kind of us.
Dave: Our self supply.
Dave: And so those activities are continuing we are not seeing a slowdown in.
Dave: And the backlog and I would anticipate.
As I said, a return to profitable growth and.
Dave: In Q4.
Dave: And into the summer.
Speaker Change: And then just finally, Frank on the <unk> acquisition, just remind us how big is cleaning products for you at this point and what will it be as a percentage of sales following the.
Steph: Thanks, Steph acquisition close.
Steph: Relatively modest and all at rust oleum about $50 million.
Steph: And pink stuff is call it 180 $190 million about 150 million.
Steph: Pounds and growing very nicely. So we will be looking at a $225 million category huge opportunities there.
Steph: No.
Pinkston: 12, $15 billion market, both in North America, and Europe Pinkston.
Pinkston: <unk> has really strong brand recognition and good trajectory in the U K.
Pinkston: Got nice growth through Continental Europe, and it's been introduced last few years of growing in the U S. So it's got a nice growth profile.
Pinkston: It has a margin profile at the gross margin and EBIT line that is higher than the RPM average.
And we're pretty excited about.
Pinkston: Both that and the fact that they have a very sophisticated social media online.
Pinkston: <unk> initiatives that we think will enhance not only our cleaner categories, but other parts of Rpm's consumer group.
Pinkston: So they have a great management team. We're excited about the addition of RPM in.
Pinkston: It really makes us a bigger player in what's a huge new market for us.
Frank Sullivan: Thanks Frank.
Pinkston: Thank you.
Speaker Change: And your next question today will come from John Roberts with Mizuho Group. Please go ahead.
Pinkston: Good morning, John Good morning.
Speaker Change: Hey, good morning, this is actually <unk> on for John.
Speaker Change: Good morning, Joe.
Speaker Change: Good morning, so checking back on your raw material comments, you're now.
Speaker Change: Guiding for up mid single digit percentage versus low single percentage are you thinking that tariffs tariffs will more than offset the decline in oil prices and then again could you share on which raw materials youre expecting to see the biggest tariff impacts. Thank you.
Speaker Change: Sure sure.
Speaker Change: First of all the oil price decline is a.
Speaker Change: Function over the last couple of days and really in response to tariffs and concerns about economic activity.
Speaker Change: But the.
Speaker Change: The tariff situation, we will have little or no impact there.
Speaker Change: The largest categories said.
Speaker Change: That will be impacting tariffs for us are things like.
Speaker Change: Resins pigments solvents.
Speaker Change: Specific additives.
Speaker Change: Certain components raw materials for our food group.
Speaker Change: <unk>, one which is hundreds of millions of dollars in metal packaging and so the dynamics, we're facing or both.
Speaker Change: Managing what I indicated at this point is about $74 million we perceive.
Speaker Change: Impact on a $2 5 billion dollar <unk>.
Speaker Change: <unk>.
Speaker Change: From tariffs and so we talked about the mitigating factors there.
Speaker Change: And in dealing with the pricing and some of the pricing is a function of the tariffs themselves quite candidly some of it is predatory.
Speaker Change: Seeing significant pricing increases in metal packaging as U S steel producers are taking advantage.
Speaker Change: The tariff situation to prematurely raised their prices and they are doing it.
Speaker Change: And so those are the dynamic factors.
Speaker Change: We see.
Speaker Change: As we sit here today in the U S for instance, which will drive an additional 4% or so.
Speaker Change: Raw material inflation that is an unmitigated.
Speaker Change: 4% and as I indicated earlier.
Speaker Change: Pricing.
Speaker Change: Shifting.
Speaker Change: Sourcing to the U S or to a lower tariff country are all things that we are actually doing now on a business unit by business unit basis. So we would expect to offset most of that 4% as we get into the quarter and into the summer.
Speaker Change: Got it thank you.
Speaker Change: Thank you.
Speaker Change: And your next question today will come from David Wang with Deutsche Bank. Please go ahead.
David Wang: Hi, Good morning, just PCT I think so far it's been a lumpy year can you talk about the mix of the backlog here.
Speaker Change: I think there has been some pullback in data center spending.
Speaker Change: Recently when people talk about it so I guess what are you seeing.
Speaker Change: Your backlog in terms of those trends.
Speaker Change: Sure So our PCB business.
Speaker Change: As the same strong backlog that we see in CPG. So I would anticipate again, a return to profitable growth in Q4.
Speaker Change: Our outlook in our <unk> business is a little shorter than CPG. So.
Speaker Change: It would be hard pressed to tell you, where we're going to be in the summer or the.
Speaker Change: For the fall, it's also a more global business.
So while it's hard to predict what our fiscal 'twenty six which starts June one is going to look like depending on where we sit with tariffs.
Speaker Change: Possibility of of.
Reciprocal or.
Speaker Change: The competitive tariffs from other countries and so.
Speaker Change: It is very uncertain in terms of longer term outlook.
Speaker Change: In terms of the next 90 days, we got a really solid backlog and we're going to generate some pretty good business.
Speaker Change: Okay. Thanks, and then on the Pink step acquisition can't give more details on the margin profile of that business relative to the cap.
Speaker Change: Some of our segments.
Speaker Change: But what types of multiples you have paid pre synergy and <unk>.
Speaker Change: Do you expect any meaningful synergy from that business.
Speaker Change: Sure.
Speaker Change: So a couple of things we will provide more details.
Speaker Change: July after the transactions close is expected to close at the end of May or first part of June.
Speaker Change: I will tell you.
Speaker Change: In general.
Speaker Change: We feel pretty good about the M&A trend M&A market.
Speaker Change: We see multiples coming down.
Speaker Change: In the case of the Pink stuff, we were able to do the transaction.
Speaker Change: And a multiple or two lower than kind of the headline transactions out. There. We were also able to structure it such that <unk>.
Speaker Change: 80% of the purchase price paid upfront and 20% is on an earn out based on.
Speaker Change: Meeting sales and profitability targets and so we that's.
Speaker Change: <unk> in particular, but we're seeing multiples coming down we're seeing.
Speaker Change: A pretty good collection of opportunities M&A wise.
Speaker Change: I think people are willing to look at structured transactions given all the uncertainty here. So that's an area that feels.
Speaker Change: Like we're going to see some more activity than we have in the last couple of years.
Speaker Change: <unk> is a great opportunity for us because it is a global brand, whereas most of our consumer brands are very strong typically number one in north America, but not much presence outside of that.
Speaker Change: It also both in its UK and Europe markets, but as importantly for us in the U S is in grocery drug store and so some major distribution.
Speaker Change: Channels that we typically don't participate in.
Speaker Change: So we're excited about that.
Speaker Change: It's across.
Speaker Change: A broad collection of cleaning categories, its iconic pace, which is our strongest.
Speaker Change: Strongest brand in our strongest product, but also a trigger spray multipurpose cleaner is very effective.
Speaker Change: And then cleaning products and a number of other areas. So a really nice addition, and I think after getting our feet wet over the last 10 years in the cleaning category.
Speaker Change: It really helps us become a more significant player with better opportunities for growth.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you.
Speaker Change: And your next question today will come from Vincent Andrews with Morgan Stanley. Please go ahead.
Hey, good morning, everyone.
Speaker Change: Just wanted to follow up Frank you talked about March.
Speaker Change: Does it sound like you saw much sequential improvement from the bad weather months of Janet Fab and maybe they were still were some weather challenges in March but March is typically a much bigger quarter.
Speaker Change: Janet I'm, sorry, a much bigger month than Jan and February. So could you just clarify that did not see much of an improvement sequentially out of February.
Speaker Change: We basically saw a year over year part of it was the comparison again, the last year and our you've heard this but.
Speaker Change: With sales up 4% and EBITDA up 70 in CPG and sales up 7% need up EBIT up 45 last year and PCT.
Speaker Change: Sales down last year in consumer and even up 35, we faced a.
Speaker Change: A really tough comparison.
Speaker Change: No.
Speaker Change: In March.
Speaker Change: Sales were flat and EBIT was up marginally.
Speaker Change: So.
Speaker Change: That was a big improvement over.
Speaker Change: December and January.
Speaker Change: Flat flat sales.
Speaker Change: And modestly up EBIT is.
Speaker Change: It's not anything to write home about but it was an improvement.
Speaker Change: Versus the first two months of the year and again.
Speaker Change: Early weather related and we saw that as we got into the.
Speaker Change: Further end of the quarter after our January call.
Speaker Change: Okay, and then if I could ask you on the Pink Stephanie can you just kind of referenced this but it does offer RPM entre into some other distribution channels retail and it also sounds like maybe E. Commerce that you are maybe not as active in what parts of the portfolio. Do you think you have some low hanging fruit in terms of leveraging that does thanks Steph distributional.
Speaker Change: Relationships with.
Speaker Change: I think that takes stuff introduces our north American consumer group and businesses in the cleaning category in general.
Speaker Change: Into grocery and drugstore.
Speaker Change: Which is not a channel that we plan literally thousands of new outlets and so that's something we're going to be focused on.
Speaker Change: And then building on there.
Speaker Change: Social media expertise.
Speaker Change: <unk>.
Speaker Change: Something we're excited about as well and then lastly, they are a global brand.
Speaker Change: They are not in China, or India, but they are throughout the European continent, U K and the U S and so maybe it can help.
Speaker Change: US launch some of our other cleaning products and other consumer products more broadly.
Speaker Change: Into the UK and European market, we've got a nice presence in our small project paint categories in the UK and Europe, but literally nothing until now in the cleaning category. We've got some really good products.
Speaker Change: With the.
Speaker Change: Sure.
Speaker Change: Yes.
Speaker Change: Being green.
Speaker Change: Crud cutter.
Speaker Change: We're excited about being green and that just that was a internal growth investment. It is a patented spray nozzle that actually pulls the exact amount of water and concentrate you need.
Speaker Change: And people end up getting the equivalent of four containers in one.
Speaker Change: And it's gotten a lot of awards and so it's not just.
Speaker Change: The pink stuff, but we had been building on our strength in cleaners and doing some internal investment, including this new <unk>.
Speaker Change: Innovative product that we're excited about and would expect to see some significant growth.
Speaker Change: From this mean green dual chamber product that was literally just introduced and started shipping at the end of <unk>.
Speaker Change: End of March.
Speaker Change: Okay sounds great I'll pass it along thank you.
Speaker Change: Thank you.
Speaker Change: And your next question today will come from Josh Spector with UBS. Please go ahead.
Josh Spector: Good morning.
Josh Spector: Hey, good morning, Frank.
Josh Spector: Just a question on the consumer segment.
Speaker Change: I understand the year over year comp becomes a little bit less easy, but youre forecasting low single digit declines versus slight growth and I think on a two year comp. It actually does look a little bit easier. So I'd just be curious if you could talk about what youre seeing in that market kind of what your big customers are maybe doing from.
Josh Spector: A buying perspective is that impacting you or what else can you comment on there. Thanks.
Speaker Change: Sure. Thank you.
Josh Spector: In terms of.
Josh Spector: Comparable products not new product introductions that we've been talking about.
Josh Spector: We have been through 18 months.
Josh Spector: Really flat or declining consumer takeaway.
Josh Spector: And consumer sentiment is not terribly.
Josh Spector: Hot right now and so we don't see the catalyst other than market share gains new product introductions for meaningful growth in that category.
Josh Spector: I think our consumer leadership teams and our associates have done a good job on a comparative basis.
Josh Spector: We have outperformed our peers in a difficult environment.
Josh Spector: Some quarters that means that our revenue dropped less than theirs, that's not anything we're excited about.
Josh Spector: From a performance perspective, I think we're doing pretty well.
Josh Spector: But unlike our <unk>.
Josh Spector: Comments on the construction products group and performance coatings group.
Josh Spector: There is no big huge catalyst suggests that consumers are running back into the stores and we're going to get back to the 3% to 4% or better.
Josh Spector: Our product takeaway from the economy and so.
Josh Spector: Most of our performance will be self help it'll be market share gains <unk> new product introductions.
Speaker Change: Alright, Thanks could Frank just one quick one in your comments you talked about specialty products group, managing innovation centers and that being a cost.
Speaker Change: Is that a headwind we should bake in an ongoing basis like at that $1 2 million a quarter that impacts specialty on a forward basis or is that not the right way to think about it.
Speaker Change: No. It is the right way to think about it but that's been fully loaded into the industrial coatings group. So our industrial coatings group of the specialty products group is about half of their 750 million in sales.
Speaker Change: And that's where that cost is Barry.
Speaker Change: And we have absorbed that cost for the most part is a new expense throughout fiscal 'twenty five so as we get into fiscal 2006, it will be comparable.
Speaker Change: And.
Speaker Change: We will talk about.
Speaker Change: Our outlook and guidance for.
Speaker Change: Fiscal 'twenty, six and any adjustments that we want to make for the new year when we provide.
Speaker Change: For our fourth quarter in July.
Speaker Change: Very clear thanks Frank.
Thank you.
Speaker Change: And your next question today will come from Frank Mitsch with Fermium Research. Please go ahead.
Speaker Change: Hey, good morning, Frank.
Speaker Change: I want to come back to the physical.
Speaker Change: Thank you I wanted to come back to the fiscal fourth quarter outlook.
Speaker Change: So three months ago.
Speaker Change: The implied guide was for double digit EBIT growth and we're talking low single digits today and as I look at the.
Speaker Change: Some of the mitigating some of the factors that are on the negative side. One thing is tariffs and raw material inflation I think you've done an excellent job of explaining on this call how that those issues are going to be offset so theyre not going to be very big factor. So can you just kind of.
Speaker Change: Give us a rank order.
Speaker Change: Or the or the areas as to where the degradation in outlook for the fourth quarter.
Speaker Change: Has come from over the last three months.
Speaker Change: Sure part of it is just as we roll out of a.
Speaker Change: Weather impacted Q3.
Speaker Change: And we generally don't provide any guidance on months, but.
Speaker Change: I just talked about an improved modestly improved March.
Speaker Change: And so aside from the underlying dynamics.
Speaker Change: That's where we were at in the month of March.
Speaker Change: Im sitting here on April eight staring at snow on the ground.
Speaker Change: And so that's not helpful.
Speaker Change: But I think the.
Speaker Change: <unk> are what they are.
Speaker Change: In terms of been things that we've already explained Frank on this call good backlog as CPG.
Speaker Change: Same thing for PCT.
Speaker Change: And.
Speaker Change: Pretty much more of the same for consumer.
Speaker Change: I would expect that our specialty products group, just because of an easier comp.
Speaker Change: We will have positive.
Speaker Change: Our results in Q4, a lot of that is mapped driven in expense driven not necessarily.
Speaker Change: Top line growth.
Speaker Change: You mix in.
Speaker Change: The uncertainty that all of this tariff craziness is creating.
Speaker Change: And I think there's a little bit of a hedge for us in terms of.
Speaker Change: Nervousness about people being indecisive, we're not making decisions just an interesting time.
Speaker Change: And the place where we've seen that as we do as I said, we do work across all manufacturing, particularly in our construction products group, we do some good work in the automotive sector.
Speaker Change: We're seeing indecision <unk> little paralysis and decision, making there in terms of capital spending and projects, we're not seeing anything specific specific other areas that we serve.
Speaker Change: In terms of markets.
Speaker Change: Industry wise candidates the same way.
Speaker Change: Look at regionally.
Speaker Change: Europe is what it is the performance.
Speaker Change: Let's say that Cavalierly, it's been impacted by the Russian War in Ukraine, but were making significant improvements in EBIT margin. So we're generating some decent results in a no growth.
Speaker Change: In North America, Canada is decidedly slowed down in the last couple of weeks. So I would put that in the same category as maybe auto I think theres some paralysis.
Speaker Change: Or some halting in decision making.
Speaker Change: Til both they have an election and they figure out what all these tariff means so there are consequences economically outside of a pretty good analysis that our people have done of what the impact on our raw materials or our businesses would be and how we mitigate those.
Speaker Change: I think those are the two biggest areas.
Speaker Change: That I can point to as we sit here and stare at the fourth quarter.
Speaker Change: Very very helpful.
Speaker Change: I'm cautiously optimistic that in a month's time or so we will have a much better visibility in some of this paralysis may fade, we'll have a better understanding of the new world order because we clearly don't.
Speaker Change: And just lastly, corporate expenses were on the high side in the <unk>.
Speaker Change: You referenced M&A and compensation, how should we think about corporate expenses for RPM in the fourth quarter and beyond.
Rusty Gordon: Yes, Frank this is rusty here in terms of the corporate non op segment, we're running at about an average of $35 million a quarter. It was up and elevated as you noticed in Q3 because of higher acquisition costs.
Rusty Gordon: We will have higher acquisition costs two in the fourth quarter, so probably a bit elevated but.
Rusty Gordon: Hopefully not quite as high as you saw in Q3, but probably over $35 million in non op in Q4.
Frank Sullivan: Frank don't usually contradict my CEO our CFO.
Frank Sullivan: Conference calls, but I for one hope we have higher acquisition costs in Q1, Q2 and Q3.
Frank Sullivan: Yeah.
Speaker Change: Noted thank you.
Frank Sullivan: Alright.
Speaker Change: And your next question today will come from Steve Byrne with Bank of America. Please go ahead.
Frank Sullivan: Yes. Thank you.
Frank Sullivan: For your construction and performance segments is it reasonable to say that.
Frank Sullivan: The volumes that you can have visibility on in those two segments is pretty firm for the remaining eight weeks of <unk>.
Frank Sullivan: For fourth quarter.
Frank Sullivan: But if we look out over the next year.
Frank Sullivan: How would you assess the.
The level of volumes that are contracted how far out would you say you have visibility on volumes in those two segments of whether it's new construction, new commercial products or the repair and maintenance products that you have.
Frank Sullivan: What's the visibility you have on those volumes.
Frank Sullivan: Sure.
Frank Sullivan: Depending on the level.
Frank Sullivan: We track quotes we track bids and then we track awarded projects.
Frank Sullivan: And so.
Frank Sullivan: Our quote activity could go out.
Frank Sullivan: Six to nine months Youre bidding.
Frank Sullivan: <unk> is a little shorter and then obviously the contracts that you win but you haven't shipped.
Frank Sullivan: As even a smaller tighter group.
Frank Sullivan: In each case.
Frank Sullivan: We're seeing pretty good.
Frank Sullivan: Activity there.
Frank Sullivan: Sure.
Frank Sullivan: The things that you are quoting thinks that you're specifically bidding on <unk>.
Frank Sullivan: Can start to dry up and so as we sit here today, we're not seeing that but given the economic circumstances that we're in.
Frank Sullivan: <unk>.
Frank Sullivan: Again, I mentioned auto in Canada is the two areas that are noticeably.
Frank Sullivan: Slowing down in.
Frank Sullivan: In terms of putting a pause on projects and we're just seeing act in Canada, We're seeing now.
Frank Sullivan: Negative impact and almost every one of our segments.
Frank Sullivan: And so.
Frank Sullivan: Listen these tariffs will have consequences.
Frank Sullivan: With this administration that is hard to know if the game will change in a few weeks, where we're going to end up with negotiating settlements and pull a rabbit out of a hat that makes us all feel good.
Frank Sullivan: But if we're in an extended tariff trade war.
Frank Sullivan: Obviously that will have a negative impact on the economy and our business results.
And then one quick one question for you on on the consumer segment, Frank what specifically are you.
Frank Sullivan: <unk>, you're marketing to pick up share.
Frank Sullivan: And residential maintenance products.
Frank Sullivan: So in the consumer area.
Frank Sullivan: It's mostly around new product introductions, we introduced a low odor.
Frank Sullivan: Companies have been our competitors here and in Europe had been trying to introduce high performing.
Frank Sullivan: Water based aerosols.
Frank Sullivan: Part of that we have one we're very excited about it and that's just getting introduced this spring and it works.
Frank Sullivan: We introduced a Russ though.
Frank Sullivan: Product.
Frank Sullivan: Targeted at urban art.
Frank Sullivan: Pretty exciting and not anything that we would have thought to do from a marketing your social media perspective, a decade ago.
Frank Sullivan: Aside from the Pink acquisition, you heard me talk about the mean green refillable. So we're really looking at innovation in terms of packaging, we introduced five in one a year and a half ago. So theres a lot of innovation coming out of our consumer group.
Frank Sullivan: Some new.
Speaker Change: <unk> able to take a two component foam insulation product at DAP and.
Frank Sullivan: And turn it into a one component product for.
Frank Sullivan: Kind of like commercial.
Frank Sullivan: So a lot of innovation going on it's going to be introduced as new products and we feel that's what's going to drive growth in our businesses until we see a return to kind of the steady 3% to 4% base DIY.
Frank Sullivan: Take away that existed pretty consistently for quite a while and then really has been ripped side by COVID-19. When it went way up and then came way down and now we've been in about an 18 month period of slightly negative to flat consumer takeaway and it feels like we are in that same environment.
Speaker Change: Okay. Thank you.
Frank Sullivan: Thank you.
Speaker Change: And your next question today will come from electricity <unk> with Keybanc. Please go ahead.
Speaker Change: Good morning Alexia.
Speaker Change: Alexia your line may be muted.
Speaker Change: And our next question today will come from Jeff Zekauskas with J P. Morgan. Please go ahead.
Speaker Change: Hey, good morning, Jefferies Hi, good morning, Thanks very much.
Speaker Change: At the outset of the call what you'd say this you said you know 2000.
23 really should be the right comparison.
Speaker Change: What you did as you said that you could see progress and map.
Speaker Change: So its the analytical force of that.
Speaker Change: That weather conditions or.
Speaker Change: Normal.
Speaker Change: In 2025 in the February quarter, only they were adverse versus very favorable conditions in 2024.
Speaker Change: So when we think about next year, we should.
Speaker Change: We should think about this as more of a base case.
Speaker Change: Our weather conditions actually adverse versus the history and will there be a weather penalty.
Speaker Change: The fourth quarter.
Speaker Change: Versus year over year.
Speaker Change: Sure it's a great question.
Speaker Change: We are seeing globally, certainly U S.
Speaker Change: More and more severe weather events.
Speaker Change: And to the extent that that's happening.
Speaker Change: RPM has products, whether it's new <unk>, our legend brands business.
Speaker Change: They can help solve problems in those environments and particularly in our construction products group.
Speaker Change: Our developing.
Speaker Change: Versus our peers, particularly new dura and around it high performing 250 mile wind rating.
Speaker Change: High energy efficiency in terms of sustainability products that lend themselves to that environment.
Speaker Change: Last year was a particularly mild.
Speaker Change: Winter.
Speaker Change: And.
Speaker Change: When it's 60 degrees in February people go into home depot, and bias I can of spray paint and work outside.
Speaker Change: When it's 20.
Speaker Change: Six degrees in Cleveland, Ohio on April as people are tending to go buy a can of spray paint and do anything outside.
Speaker Change: People don't get on roofs, when it's snowing in it.
Speaker Change: It literally snowed in Texas, and the Carolinas. So I can't answer your question with specificity other than if we have the same kind of winter next year that we had this year it should be a comp.
Speaker Change: So you shouldnt here from us crying about a bad winter because it will be a bad winter at normal winter versus this one.
Speaker Change: If we have a very.
Speaker Change: Mild winter next year, we should have a big tailwind in.
Speaker Change: In terms of literally how people use our products and and the impact of weather on usability when a lot of your products, whether it's in construction products, our consumer are used or consumed outside.
Speaker Change: Okay, that's clear and then in terms of.
Speaker Change: Prospect.
Chinese tariffs.
Speaker Change: Like all kinds of metal fittings and building products come from China.
Speaker Change: For you and for other.
Speaker Change: Other factors in that building products area.
Speaker Change: An issue or could this.
Speaker Change: Lead to various product shortages or.
Speaker Change: Longer lead times and building things.
Speaker Change: Coming quarters or not really.
Speaker Change: Yes, it's a great question.
Speaker Change: Fasteners come out of China.
Speaker Change: And.
Speaker Change: And so at that point at this point.
Speaker Change: Things are a function of price <unk> impact of tariffs on coarse ore negotiations over who is going to eat the cost of tariffs, we're seeing that we're not a buyer of those products.
Speaker Change: Products, Jeff, but we're seeing that in some solvents and in some cases.
Speaker Change: <unk> solve and importers, who for now have decided to absorb the cost of those tariffs and other cases, we've negotiated split in which case, we got to go out.
Speaker Change: And negotiate price we're already negotiating some prices in some categories I won't provide more specifics, but in some cases those buyers where customers are sophisticated enough to say, yes, they're going to will give me your price increase 30 days or 45 days.
Speaker Change: After the impact of this tariff because of your existing inventory in which case, we get to negotiate alright, we won't have a discussion about.
Speaker Change: Relieving those.
Speaker Change: Tariff related prices for 30 or 45 days. After their ended those are the kind of negotiations that you're involved in.
The last comment I'll make is just reinforcing what I said when it comes to steal items specifically.
Speaker Change: U S steel manufacturers have been pretty predatory in terms of raising prices in front of threatened tariffs.
Speaker Change: And now real tariffs and so that's a different element of the impact of tariffs, but nonetheless causes inflation in those categories.
Speaker Change: Okay. Thank you very much.
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 Good morning, this is Adam on for Arun.
Speaker Change: Yes, if we get back up to the M&A. Good morning, if we get backed up maybe just on the <unk>.
Speaker Change: M&A stuff I was wondering if you'd be able to provide any additional commentary there I mean, I think your leverage is still pretty low.
Speaker Change: Would you guys potentially have any appetite for any larger transactions in.
And what kind of categories might you be focused on.
Speaker Change: We have an appetite for anything in our space and so we've looked at stuff.
Speaker Change: But.
Speaker Change: We have had.
<unk> had pretty good discipline on valuation and.
Speaker Change: What we are willing to pay I think thats been evidenced by quite honestly, a disappointing level of M&A activity over the last six years, it's lower than what we would have hoped for and anticipated but.
Speaker Change: I think we weren't willing to pay some of the multiples that people were paying out there.
Speaker Change: You're in your mid teen multiples.
Speaker Change: Three or four times sales for.
Speaker Change: Construction products and building materials those values did make sense to us we are seeing a meaningful reduction in multiples.
Speaker Change: And.
Speaker Change: Even a willingness to.
Speaker Change: Structured transactions.
Speaker Change: <unk>.
Speaker Change: A pretty good pipeline of M&A activity. So I would expect our next three years to be.
Speaker Change: Yes.
Speaker Change: Much more impacted by.
Speaker Change: Smart.
Speaker Change: Well valued M&A transactions than the last five or six years. So we're excited about that and as I said make subsequent example of that couple of multiple turns lower than what some of the headlines steel had a few years ago still a huge return for those owners.
Speaker Change: And structured transaction, which I hope we pay out because if we do there'll be happy we will be happy in.
Speaker Change: The return improved modestly in the accretion gets significantly better.
Speaker Change: Great. Thanks, that's really helpful. If you are looking for more detail on pink stuff.
That transaction closes if I could possibly sneak one more in.
Speaker Change: Sure inventory actions Youre, taking this quarter.
Speaker Change: Is that mostly going to be contained into this quarter do you expect any of that can be lingering into late February early March.
Speaker Change: No.
We are continuing their map initiatives.
Speaker Change: And I will tell you the work that our operating people have done through six years of map initiatives had been tremendous and we've had some outside help.
Speaker Change: But Tim Kinser leads that effort any plant goes our VP of manufacturing.
Speaker Change: Hundreds of people across our operations were much more efficient we brought our conversion costs down.
Speaker Change: And we're much more flexible and so this quarter was actually.
Speaker Change: Put aside the disappointment in terms of top line to generate $92 million of cash from ops, and a third quarter, which not too many years ago between our dividend and other things might have been a flat or negative cash generating quarter.
Speaker Change: Because of the seasonality.
Speaker Change: And also not have the inventory build.
Speaker Change: Which historically was quite candidly a function of not so much not having enough capacity, but not being as efficient with the capacity that we do have and so.
Speaker Change: It's a much improved RPM in terms of not having to have that huge January February March.
Speaker Change: Inventory build going into a spring selling season, whether thats in consumer or roofing and Thats, how we end up with a.
Speaker Change: $92 million cash from operations in our third quarter, when historically, it would be flat or negative because we're paying a dividend evenly across the year and were eating historically eating working capital in Q3 building for Q4, so hats off to the people that have done. This we tried it in the <unk>.
Speaker Change: Past not sustainably and the work that's been done in the last five or six years is real its been significant and it's sustainable.
Speaker Change: Great. Thanks for the detail.
Speaker Change: Thank you.
Speaker Change: And your next question today will come from Alexia <unk> with Keybanc. Please go ahead.
Speaker Change: Good morning.
Thanks. Good morning. This is actually Ryan on for Alexia I apologize for the technological difficulties.
Speaker Change: Just one quick one for me.
Speaker Change: In the slide deck, you guys mentioned temporary inefficiencies from plant consolidations here in <unk>.
Speaker Change: How large is this headwind anticipated to be in is this something that might leak into kind of fiscal 'twenty six.
Frank Sullivan: Yes, so as we've talked about like Frank mentioned, we've done eight plant consolidations. Some of these are really large plants and so what's happening here is we need to maintain a high level of service for our customers. So we have some temporary redundancies at these plants. So we can make sure that we can get the products out to the customers and those are.
Frank Sullivan: Temporary and so when the once those go away. They will actually result in a more efficient operating footprint for our organization, but we do have these temporary headwinds that will continue into the fourth quarter. The thing is as we've talked about also the third quarter is a seasonally slow quarter. So the impact on our financials is magnified a bit to our fourth quarter, where we will have higher volumes.
Frank Sullivan: The actual closure costs in our severance costs are adjusted out of our results as part of our map initiative and you can see that build in our footnotes.
Frank Sullivan: But the transition cost or the prep.
Frank Sullivan: Prep work to the plant that production is going to is temporary but at a higher level of expense and once we've completed the closure and have a.
Frank Sullivan: A smooth ongoing operation.
Frank Sullivan: Yes.
Frank Sullivan: And in every and are much more volume and in every instance, more volume will show up in the bottom line.
Speaker Change: Concludes our question and answer session I would now like to turn the conference back over to Mr. Frank Sullivan, Chairman and CEO for any closing remarks.
Speaker Change: Thanks, Nick.
Speaker Change: We look forward to delivering our fourth quarter results as well as providing commentary and guidance for our fiscal 2026, when we have our next investor call in July.
Speaker Change: We will look forward to delivering the details of a return to some level of profitable growth in Q4 from a balance sheet perspective cash flow an operating leverage perspective.
Speaker Change: We're really well positioned to outperform in this challenging environment and we greatly appreciate your interest and investment in RPM have a great day.
Speaker Change: Conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
Speaker Change: Yeah.
Speaker Change: [music].