Q2 2026 RPM International Inc Earnings Call

January 8, 2026

Speaker #1: Good day, and welcome to the RPM International fiscal second quarter 2026 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.

Operator: Good day, and welcome to the RPM International Fiscal Q2 2026 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one, on a touch-tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Matt Schlarb, Vice President of Investor Relations and Sustainability. Please go ahead.

Speaker #1: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one, on a touch-tone phone.

Speaker #1: To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Matt Schlarb, Vice President of Investor Relations and Sustainability.

Speaker #1: Please go ahead.

Speaker #2: Thank you, Betsy. And welcome to RPM International's conference call for the fiscal 2026 second quarter. Today's call is being recorded. Joining today's call are Frank Sullivan, RPM's Chair and CEO; Russell Gordon, Vice President and Chief Financial Officer; and Michael Laroche, Vice President and Controller and Chief Accounting Officer.

Michael Laroche: Thank you, Betsy, and welcome to RPM International's conference call for the fiscal 2026 second quarter. Today's call is being recorded. Joining today's call are Frank Sullivan, RPM's Chair and CEO; Rusty Gordon, Vice President and Chief Financial Officer; and Michael Laroche, Vice President, Controller, and Chief Accounting Officer. The call is also being webcast and can be accessed live or replayed on the RPM website at www.rpminc.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 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.

Matt Schlarb: Thank you, Betsy, and welcome to RPM International's conference call for the fiscal 2026 second quarter. Today's call is being recorded. Joining today's call are Frank Sullivan, RPM's Chair and CEO; Rusty Gordon, Vice President and Chief Financial Officer; and Michael Laroche, Vice President, Controller, and Chief Accounting Officer. The call is also being webcast and can be accessed live or replayed on the RPM website at www.rpminc.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 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.

Speaker #2: The call is also being webcast and can be accessed live or replayed on the RPM website at www.rpminc.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.

Speaker #2: For more information on these risks and uncertainties, please review RPM's reports filed with the SEC. During this conference call, references may be made to non-GAAP financial measures.

Speaker #2: 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 are on an as-adjusted basis, and all comparisons will be made to the second quarter of fiscal 2025 unless otherwise indicated.

Michael Laroche: Also, please note that our comments are on an as-adjusted basis, and all comparisons will be made to the second quarter of fiscal 2025 unless otherwise indicated. We have provided a supplemental slide presentation to support our comments on this call. It can be accessed in the Presentations and Webcasts section of the RPM website at www.rpminc.com. As a reminder, certain businesses that were previously part of the Specialty Products Group have been reallocated to other segments effective 1 June 2025. As a result, all references today reflect the updated structure, and prior year figures have been recast accordingly. There is no impact on consolidated results. Now, I will turn the call over to Frank.

Also, please note that our comments are on an as-adjusted basis, and all comparisons will be made to the second quarter of fiscal 2025 unless otherwise indicated. We have provided a supplemental slide presentation to support our comments on this call. It can be accessed in the Presentations and Webcasts section of the RPM website at www.rpminc.com. As a reminder, certain businesses that were previously part of the Specialty Products Group have been reallocated to other segments effective 1 June 2025. As a result, all references today reflect the updated structure, and prior year figures have been recast accordingly. There is no impact on consolidated results. Now, I will turn the call over to Frank.

Speaker #2: We have provided a supplemental slide presentation to support our comments on this call. It can be accessed in the Presentations and Webcast section of the RPM website at www.rpminc.com.

Speaker #2: As a reminder, certain businesses that were previously part of the Specialty Products Group have been reallocated to other segments, effective June 1, 2025. As a result, all references today reflect the updated structure, and prior year figures have been recast accordingly.

Speaker #2: There is no impact on consolidated results. Now, I will turn the call over to

Speaker #2: Frank. Thank you, Matt.

Frank Sullivan: Thank you, Matt. Today, I'll begin with an overview of our results and cover some recent actions we've taken, followed by Mike Laroche, who will cover the financials in more detail. Matt will then provide an update on cash flow, the balance sheet, and a recent acquisition, and then Rusty Gordon will conclude our prepared remarks with our outlook. As always, we'll be happy to answer your questions after our prepared remarks. Beginning on slide three, we achieved record sales during Q2, aided by our targeted growth investments. However, momentum slowed as the quarter progressed. We began the quarter with a solid September, actually better on the top line and bottom line than our Q1 results. Then the trend of longer construction project lead times became more pronounced, and DIY demand softened, particularly in late October and through November, resulting in sales declines for those months.

Frank C. Sullivan: Thank you, Matt. Today, I'll begin with an overview of our results and cover some recent actions we've taken, followed by Mike Laroche, who will cover the financials in more detail. Matt will then provide an update on cash flow, the balance sheet, and a recent acquisition, and then Rusty Gordon will conclude our prepared remarks with our outlook. As always, we'll be happy to answer your questions after our prepared remarks. Beginning on slide three, we achieved record sales during Q2, aided by our targeted growth investments. However, momentum slowed as the quarter progressed. We began the quarter with a solid September, actually better on the top line and bottom line than our Q1 results. Then the trend of longer construction project lead times became more pronounced, and DIY demand softened, particularly in late October and through November, resulting in sales declines for those months.

Speaker #3: Today, I'll begin with an overview of our results and cover some recent actions we've taken, followed by Mike Laroche, who will cover the financials in more detail.

Speaker #3: Matt will then provide an update on cash flow, the balance sheet, and a recent acquisition. Then Russell Gordon will conclude our prepared remarks with our outlook.

Speaker #3: As always, we'll be happy to answer your questions after our prepared remarks. Beginning on slide three, we achieved record sales during the second quarter.

Speaker #3: Aided by our targeted growth investments, however, momentum slowed as the quarter progressed. We began the quarter with a solid September—actually better on the top line and bottom line than our first quarter, or Q1, results.

Speaker #3: Then the trend of longer construction project lead times became more pronounced, and DIY demand softened, particularly in late October and through November, resulting in sales declines for those months.

Speaker #3: The government shutdown contributed to this slowdown, as we saw activity in certain construction sectors tied to government funding come to a near standstill and consumer confidence decline.

Frank Sullivan: The government shutdown contributed to this slowdown as we saw activity in certain construction sectors tied to government funding come to a near standstill, and consumer confidence declined. All segments generated positive sales growth for the quarter. However, this was not enough to offset higher expenses, including growth investments and costs from temporary inefficiencies as we continue to consolidate plant and warehouse facilities, resulting in a decline in margins in the quarter. To better align our SG&A structure with current market demand, we are acting quickly to execute optimization actions across the organization. In many ways, this is an acceleration of the SG&A structural realignment we have been preparing as part of a new MAP 3.0 program. Importantly, we also continue to have focused investment in our highest growth opportunities. On the following slide are some details about what we're doing.

The government shutdown contributed to this slowdown as we saw activity in certain construction sectors tied to government funding come to a near standstill, and consumer confidence declined. All segments generated positive sales growth for the quarter. However, this was not enough to offset higher expenses, including growth investments and costs from temporary inefficiencies as we continue to consolidate plant and warehouse facilities, resulting in a decline in margins in the quarter. To better align our SG&A structure with current market demand, we are acting quickly to execute optimization actions across the organization. In many ways, this is an acceleration of the SG&A structural realignment we have been preparing as part of a new MAP 3.0 program. Importantly, we also continue to have focused investment in our highest growth opportunities. On the following slide are some details about what we're doing.

Speaker #3: All segments generated positive sales growth for the quarter. However, this was not enough to offset higher expenses, including growth investments and costs from temporary inefficiencies, as we continued to consolidate plant and warehouse facilities, resulting in a decline in margins in the quarter.

Speaker #3: To better align our SG&A structure with current market demand, we are acting quickly to execute optimization actions across the organization. In many ways, this is an acceleration of the SG&A structural realignment we have been preparing as part of a new MAP 3.0 program.

Speaker #3: Importantly, we also continue to have focused investment in our highest growth opportunities. And on the following slide are some details about what we're doing.

Speaker #3: Turning to slide four, we estimate that once fully implemented, our optimization actions will yield an annual benefit of approximately $100 million. We will realize $5 million of the benefits in the third quarter, with an incremental $20 million in the fourth quarter, and the remaining $75 million in fiscal 2027.

Frank Sullivan: Turning to slide four, we estimate that once fully implemented, our optimization actions will yield an annual benefit of approximately $100 million. We will realize $5 million of the benefits in Q3, with an incremental $20 million in Q4, with the remaining $75 million in fiscal 2027. As we are currently in the process of implementing these changes, we have an estimate of the implementation cost by the time of our next earnings call in April. We are also continuing our focused investments in areas where we have seen good returns and have opportunities for continuing growth. These include high-performance buildings, business intelligence, and innovation. For high-performance buildings, we are expanding our technical sales force in areas like turnkey roofing and enhancing our system offering through acquisitions.

Turning to slide four, we estimate that once fully implemented, our optimization actions will yield an annual benefit of approximately $100 million. We will realize $5 million of the benefits in Q3, with an incremental $20 million in Q4, with the remaining $75 million in fiscal 2027. As we are currently in the process of implementing these changes, we have an estimate of the implementation cost by the time of our next earnings call in April. We are also continuing our focused investments in areas where we have seen good returns and have opportunities for continuing growth. These include high-performance buildings, business intelligence, and innovation. For high-performance buildings, we are expanding our technical sales force in areas like turnkey roofing and enhancing our system offering through acquisitions.

Speaker #3: As we are currently in the process of implementing these changes, we have an estimate of the implementation cost by the time of our next earnings call in April.

Speaker #3: We are also continuing our focused investments in areas where we have seen good returns and have opportunities for continuing growth. These include high-performance buildings, business intelligence, and innovation.

Speaker #3: For high-performance buildings, we are expanding our technical sales force in areas like turnkey roofing and enhancing our system offering through acquisitions. As an example, we purchased an expansion floor joints company, HCJ, in fiscal 2025, which, along with our other complementary RPM products, enables us to meet the demanding requirements of high-performance floors.

Frank Sullivan: As an example, we purchased an expansion floor joints company, HCJ, in fiscal 2025, which, along with our other complementary RPM products, enables us to meet the demanding requirements of high-performance floors. We expect additional acquisitions to expand our system offering, similar to the recently announced agreement to acquire Kalzip, which Matt will speak to in a few minutes. We're also investing in improved business intelligence. This includes capitalizing on The Pink Stuff's expertise and leveraging data to develop targeted marketing campaigns across multiple RPM businesses. Additionally, following several years of ERP integrations, we have been investing in business intelligence to better utilize data company-wide. It is helping to guide decisions and actions in areas such as marketing, pricing, and operations.

As an example, we purchased an expansion floor joints company, HCJ, in fiscal 2025, which, along with our other complementary RPM products, enables us to meet the demanding requirements of high-performance floors. We expect additional acquisitions to expand our system offering, similar to the recently announced agreement to acquire Kalzip, which Matt will speak to in a few minutes. We're also investing in improved business intelligence. This includes capitalizing on The Pink Stuff's expertise and leveraging data to develop targeted marketing campaigns across multiple RPM businesses. Additionally, following several years of ERP integrations, we have been investing in business intelligence to better utilize data company-wide. It is helping to guide decisions and actions in areas such as marketing, pricing, and operations.

Speaker #3: We expect additional acquisitions to expand our system offering, similar to the recently announced agreement to acquire CalZIP, which Matt will speak to in a few minutes.

Speaker #3: We're also investing in improved business intelligence. This includes capitalizing on The Pink Stuff's expertise in leveraging data to develop targeted marketing campaigns across multiple RPM businesses.

Speaker #3: Additionally, following several years of ERP integrations, we have been investing in business intelligence to better utilize data company-wide. It is helping to guide decisions and actions in areas such as marketing, pricing, and operations.

Speaker #3: Finally, innovation has been a core element of RPM's historical growth, and through investments in people and facilities like our innovation center of excellence, we have enhanced our product offering across our segments.

Frank Sullivan: Finally, innovation has been a core element of RPM's historical growth, and through investments in people and facilities like our Innovation Center of Excellence, we have enhanced our product offering across our segments. One example is AlphaGuard PUMA, which is leading waterproofing technology and can be installed at temperatures as low as minus 20 degrees Fahrenheit. Another example is Euco Tilt WB. It is a newly introduced water-based bond breaker that provides a clean separation of panels, along with other benefits in the growing tilt-up construction market. In summary, we are accelerating actions to optimize SG&A levels in response to soft market conditions while remaining focused on supporting our best growth opportunities. With our growth investments and the quality of our people, we remain well-positioned to continue outpacing our markets, particularly as markets rebound.

Finally, innovation has been a core element of RPM's historical growth, and through investments in people and facilities like our Innovation Center of Excellence, we have enhanced our product offering across our segments. One example is AlphaGuard PUMA, which is leading waterproofing technology and can be installed at temperatures as low as minus 20 degrees Fahrenheit. Another example is Euco Tilt WB. It is a newly introduced water-based bond breaker that provides a clean separation of panels, along with other benefits in the growing tilt-up construction market. In summary, we are accelerating actions to optimize SG&A levels in response to soft market conditions while remaining focused on supporting our best growth opportunities. With our growth investments and the quality of our people, we remain well-positioned to continue outpacing our markets, particularly as markets rebound.

Speaker #3: One example is AlphaGuard Puma, which is leading waterproofing technology and can be installed at temperatures as low as minus 20 degrees Fahrenheit. Another example is Yuko Tilt WB; it is a newly introduced water-based bond breaker that provides a clean separation of panels along with other benefits in the growing tilt-up construction market.

Speaker #3: In summary, we are accelerating actions to optimize SG&A levels in response to soft market conditions, while remaining focused on supporting our best growth opportunities.

Speaker #3: With our growth investments and the quality of our people, we remain well-positioned to continue outpacing our markets, particularly as markets rebound. Lastly, in addition to the actions we announced today, we're in the process of developing our MAP 3.0 program and expect to provide details and an investor day event after the conclusion of our 2026 fiscal year.

Frank Sullivan: Lastly, in addition to the actions we announced today, we're in the process of developing our MAP 3.0 program and expect to provide details at an investor day event after the conclusion of our 2026 fiscal year. I'll now turn the call over to Mike Laroche to cover the financials.

Lastly, in addition to the actions we announced today, we're in the process of developing our MAP 3.0 program and expect to provide details at an investor day event after the conclusion of our 2026 fiscal year. I'll now turn the call over to Mike Laroche to cover the financials.

Speaker #3: I'll now turn the call over to Mike Laroche to cover the next section.

Speaker #3: financials.

Speaker #4: Thank you,

Michael Laroche: Thank you, Frank. On slide five, consolidated sales increased 3.5% to a record, driven by acquisitions and engineered solutions for high-performance buildings, partially offset by continued DIY softness and longer construction project lead times, partially due to the government shutdown. Adjusted EBIT decline as top-line growth and MAP 2025 benefits were more than offset by higher SG&A expenses from growth initiatives, M&A deal costs, healthcare, and temporary inefficiencies from plant and warehouse facility consolidations. Adjusted EPS declined, driven by lower adjusted EBIT and higher interest expense resulting from higher debt levels to finance M&A activity. Geographic results are on slide six, with Europe the fastest-growing region, driven by M&A and FX. North America grew approximately 2% as an increase in high-performance building solutions was partially offset by soft demand in DIY and in Canada.

Michael J. Laroche: Thank you, Frank. On slide five, consolidated sales increased 3.5% to a record, driven by acquisitions and engineered solutions for high-performance buildings, partially offset by continued DIY softness and longer construction project lead times, partially due to the government shutdown. Adjusted EBIT decline as top-line growth and MAP 2025 benefits were more than offset by higher SG&A expenses from growth initiatives, M&A deal costs, healthcare, and temporary inefficiencies from plant and warehouse facility consolidations. Adjusted EPS declined, driven by lower adjusted EBIT and higher interest expense resulting from higher debt levels to finance M&A activity. Geographic results are on slide six, with Europe the fastest-growing region, driven by M&A and FX. North America grew approximately 2% as an increase in high-performance building solutions was partially offset by soft demand in DIY and in Canada.

Speaker #4: Frank. On slide five, consolidated sales increased 3.5% to a record, driven by acquisitions and engineered solutions for high-performance buildings. This was partially offset by continued DIY softness and longer construction project lead times, partially due to the government shutdown.

Speaker #4: Adjusted EBIT declined as top-line growth and MAP 2025 benefits were more than offset by higher SG&A expenses from growth initiatives, M&A deal costs, healthcare, and temporary inefficiencies from plant and warehouse facility consolidations.

Speaker #4: Adjusted EPS declined, driven by lower adjusted EBIT and higher interest expense resulting from higher debt levels to finance M&A activity. Geographic results are on slide six, with Europe the fastest-growing region, driven by M&A and FX.

Speaker #4: North America grew approximately 2%, as an increase in high-performance building solutions was partially offset by soft demand and DIY in Canada. In emerging markets, growth was led by Africa and the Middle East, as they continued to have success serving high-performance building and infrastructure projects.

Michael Laroche: In emerging markets, growth was led by Africa and the Middle East as they continued to have success serving high-performance building and infrastructure projects. Moving to slide seven, construction products group sales grew to a record, led by solutions for high-performance buildings. Project lead times lengthened as the quarter progressed, driven by the extended government shutdown. Additionally, weak sales in the disaster restoration business due to lower storm activity this year was a drag on growth. SG&A growth investments, temporary inefficiencies from plant consolidations, and lower fixed cost absorption at businesses with volume declines more than offset MAP 2025 benefits and led to a decline in adjusted EBIT. Next, on slide eight, performance coatings group achieved record sales with broad-based growth across its businesses. Acquisitions also contributed to the growth. Adjusted EBIT was approximately flat as higher sales and MAP 2025 benefits were offset by growth investments and unfavorable mix.

In emerging markets, growth was led by Africa and the Middle East as they continued to have success serving high-performance building and infrastructure projects. Moving to slide seven, construction products group sales grew to a record, led by solutions for high-performance buildings. Project lead times lengthened as the quarter progressed, driven by the extended government shutdown. Additionally, weak sales in the disaster restoration business due to lower storm activity this year was a drag on growth. SG&A growth investments, temporary inefficiencies from plant consolidations, and lower fixed cost absorption at businesses with volume declines more than offset MAP 2025 benefits and led to a decline in adjusted EBIT. Next, on slide eight, performance coatings group achieved record sales with broad-based growth across its businesses. Acquisitions also contributed to the growth. Adjusted EBIT was approximately flat as higher sales and MAP 2025 benefits were offset by growth investments and unfavorable mix.

Speaker #4: Moving to slide seven, Construction Products Group sales grew to a record, led by solutions for high-performance buildings. Project lead times lengthened as the quarter progressed, driven by the extended government shutdown.

Speaker #4: Additionally, weak sales in the disaster restoration business due to lower storm activity this year was a drag on growth. SG&A growth investments, temporary inefficiencies from plant consolidations, and lower fixed cost absorption at businesses with volume declines more than offset MAP 2025 benefits and led to a decline in adjusted EBIT.

Speaker #4: Next, on slide eight, Performance Coatings Group achieved record sales with broad-based growth across its businesses. Acquisitions also contributed to the growth. Adjusted EBIT was approximately flat, as higher sales and MAP 2025 benefits were offset by growth investments and unfavorable mix.

Speaker #4: Consumer group results are on slide nine. M&A and pricing to recover inflation drove the sales growth, as volumes declined due to soft DIY demand, particularly in November.

Michael Laroche: Consumer group results are on slide nine. M&A and pricing to recover inflation drove the sales growth as volumes declined due to soft DIY demand, particularly in November. Additionally, some sales were delayed as a result of software system implementations and the transition to a shared distribution center in Europe. Continued product rationalization also negatively impacted sales. Adjusted EBIT declined due to lower volumes, temporary inefficiencies from footprint consolidation, and startup of the shared distribution center in Europe. Additionally, lower demand of the color group also weighed on margins. In our cleaners business, the integration of the StarBrands group, the parent of The Pink Stuff, remains on track. However, we reversed a $12.7 million liability associated with an earnout for this acquisition. This earnout liability was originally calculated based on a probability-weighted sales forecast, and much of the value was driven by more aggressive sales scenarios.

Consumer group results are on slide nine. M&A and pricing to recover inflation drove the sales growth as volumes declined due to soft DIY demand, particularly in November. Additionally, some sales were delayed as a result of software system implementations and the transition to a shared distribution center in Europe. Continued product rationalization also negatively impacted sales. Adjusted EBIT declined due to lower volumes, temporary inefficiencies from footprint consolidation, and startup of the shared distribution center in Europe. Additionally, lower demand of the color group also weighed on margins. In our cleaners business, the integration of the StarBrands group, the parent of The Pink Stuff, remains on track. However, we reversed a $12.7 million liability associated with an earnout for this acquisition. This earnout liability was originally calculated based on a probability-weighted sales forecast, and much of the value was driven by more aggressive sales scenarios.

Speaker #4: Additionally, some sales were delayed as a result of software system implementations and the transition to a shared distribution center in Europe. Continued product rationalization also negatively impacted sales.

Speaker #4: Adjusted EBIT declined due to lower volumes, temporary inefficiencies from footprint consolidation, and startup of the shared distribution center in Europe. Additionally, lower demand of a color group also weighed on margins.

Speaker #4: In our Cleaners business, the integration of the Star Brands Group, the parent of The Pink Stuff, remains on track. However, we reversed a $12.7 million liability associated with an earnout from this acquisition.

Speaker #4: This earnout liability was originally calculated based on a probability-weighted sales forecast, and much of the value was driven by more aggressive sales scenarios. Current forecasts are more in line with our base case assumptions, and the aggressive targets needed to achieve the earnout are unlikely to be met, which is driving the reversal.

Michael Laroche: Current forecasts are more in line with our base case assumptions, and the aggressive targets needed to achieve the earnout are unlikely to be met, which is driving the reversal. This $12.7 million gain has been excluded from our adjusted EBIT. Now I'll turn the call over to Matt, who will cover the balance sheet and cash flow.

Current forecasts are more in line with our base case assumptions, and the aggressive targets needed to achieve the earnout are unlikely to be met, which is driving the reversal. This $12.7 million gain has been excluded from our adjusted EBIT. Now I'll turn the call over to Matt, who will cover the balance sheet and cash flow.

Speaker #4: This $12.7 million gain has been excluded from our adjusted EBIT. Now, I'll turn the call over to Matt, who will cover the balance sheet and cash flow.

Speaker #1: Thank you, Mike. Starting with cash flow from operations on slide 10, it was up $66.3 million in the second quarter compared to the prior year, with the increase attributable to improved working capital efficiency.

Matthew Schlarb: Thank you, Mike. Starting with cash flow from operations on slide 10, it was up $66.3 million in Q2 compared to the prior year, with the increase attributable to improved working capital efficiency. This is the second highest Q2 in the company's history and helped us pay down $127 million in debt in H1 of the year, and that's in addition to returning $169 million to shareholders through dividends and share repurchases and spending $162 million on acquisitions. We are proud that in October, we increased our dividend for the 52nd consecutive year. This is a testament to our steady cash flow, our strategically balanced business model, and focus on maintenance and repair. Equity remains strong at $1.1 billion, and combined with the strong balance sheet, we have a high level of flexibility in capital allocation decisions.

Matt Schlarb: Thank you, Mike. Starting with cash flow from operations on slide 10, it was up $66.3 million in Q2 compared to the prior year, with the increase attributable to improved working capital efficiency. This is the second highest Q2 in the company's history and helped us pay down $127 million in debt in H1 of the year, and that's in addition to returning $169 million to shareholders through dividends and share repurchases and spending $162 million on acquisitions. We are proud that in October, we increased our dividend for the 52nd consecutive year. This is a testament to our steady cash flow, our strategically balanced business model, and focus on maintenance and repair. Equity remains strong at $1.1 billion, and combined with the strong balance sheet, we have a high level of flexibility in capital allocation decisions.

Speaker #1: This is the second-highest second quarter in the company's history and helped us pay down $127 million in debt in the first half of the year, and that's in addition to returning $169 million to shareholders through dividends and share repurchases, and spending $162 million on acquisitions.

Speaker #1: We are proud that in October, we increased our dividend for the 52nd consecutive year. This is a testament to our steady cash flow and our strategically balanced business model and focus on maintenance and repair.

Speaker #1: Liquidity remained strong at $1.1 billion, and, combined with the strong balance sheet, we have a high level of flexibility in capital allocation decisions.

Speaker #1: As an example, yesterday we announced an agreement to acquire a company that will strengthen our systems offering for high-performance buildings, which Frank discussed earlier.

Matthew Schlarb: As an example, yesterday, we announced an agreement to acquire a company that will strengthen our systems offering for high-performance buildings that Frank discussed earlier. Turning to slide 11, you'll see more information on the agreement to acquire Kalzip. They are a German-based leader in metal-based roofing and facades, which is a fast-growing part of the construction market because of their durability, lower maintenance, and high performance. The incorporation of Kalzip products into our existing offerings will strengthen CPG's ability to provide building envelope systems that enhance efficiency, durability, and aesthetics, while also meeting or exceeding demanding specifications. The company had calendar year 2024 sales of approximately EUR 75 million, and the acquisition is expected to close in the fiscal Q4 of 2026. Now I'd like to turn the call over to Rusty to cover the outlook.

As an example, yesterday, we announced an agreement to acquire a company that will strengthen our systems offering for high-performance buildings that Frank discussed earlier. Turning to slide 11, you'll see more information on the agreement to acquire Kalzip. They are a German-based leader in metal-based roofing and facades, which is a fast-growing part of the construction market because of their durability, lower maintenance, and high performance. The incorporation of Kalzip products into our existing offerings will strengthen CPG's ability to provide building envelope systems that enhance efficiency, durability, and aesthetics, while also meeting or exceeding demanding specifications. The company had calendar year 2024 sales of approximately EUR 75 million, and the acquisition is expected to close in the fiscal Q4 of 2026. Now I'd like to turn the call over to Rusty to cover the outlook.

Speaker #1: Turning to slide 11, you'll see more information on the agreement to acquire CalSUP. They are a German-based leader in metal-based roofing and façades, which is a fast-growing part of the construction market because of their durability, lower maintenance, and high performance.

Speaker #1: The incorporation of CalSUP products into our existing offerings will strengthen CPG's ability to provide building envelope systems that enhance efficiency, durability, and aesthetics, while also meeting or exceeding demanding specifications.

Speaker #1: The company had calendar year 2024 sales of approximately €75 million, and the acquisition is expected to close in the fiscal fourth quarter of 2026.

Speaker #1: Now, I'd like to turn the call over to Rusty to cover the outlook.

Speaker #2: Thank you,

Russell Gordon: Thank you, Matt. Our outlook for Q3 can be found on slide 12. Market conditions are expected to remain sluggish, with soft DIY demand and continued longer lead times for construction projects. We are encouraged to see that construction pipelines remain solid, although visibility of when this pipeline converts to actual construction activity remains unclear. Despite these macro challenges, we expect to outgrow our underlying markets thanks to the targeted growth investments we have been making. We will also benefit from the implementation of SG&A-focused optimization actions, as Frank mentioned, although in Q3, that will be offset by continued healthcare inflation and M&A deal expenses. Overall, we expect consolidated sales to increase by mid-single digits in the quarter. By segment, consumers are expected to grow sales moderately more than PCG and CPG due to acquisitions.

Russell L. Gordon: Thank you, Matt. Our outlook for Q3 can be found on slide 12. Market conditions are expected to remain sluggish, with soft DIY demand and continued longer lead times for construction projects. We are encouraged to see that construction pipelines remain solid, although visibility of when this pipeline converts to actual construction activity remains unclear. Despite these macro challenges, we expect to outgrow our underlying markets thanks to the targeted growth investments we have been making. We will also benefit from the implementation of SG&A-focused optimization actions, as Frank mentioned, although in Q3, that will be offset by continued healthcare inflation and M&A deal expenses. Overall, we expect consolidated sales to increase by mid-single digits in the quarter. By segment, consumers are expected to grow sales moderately more than PCG and CPG due to acquisitions.

Speaker #2: Matt, our outlook for the third quarter can

Speaker #3: Be found on slide 12. Market conditions are expected to remain sluggish, with soft DIY demand and continued longer lead times for construction projects. We are encouraged to see that construction pipelines remain solid, although visibility of when this pipeline converts to actual construction activity remains unclear.

Speaker #3: Despite these macro challenges, we expect to outgrow our underlying markets thanks to the targeted growth investments we have been making. We will also benefit from the implementation of SG&A-focused optimization actions, as Frank mentioned.

Speaker #3: Although in the third quarter, that will be offset by continued healthcare inflation and M&A deal expenses. Overall, we expect consolidated sales to increase by mid-single digits in the quarter.

Speaker #3: By segment, Consumer is expected to grow sales moderately more than PCG and CPG due to acquisitions. We anticipate adjusted EBIT will grow mid to high single digits during the quarter.

Russell Gordon: We anticipate Adjusted EBIT will grow mid- to high-single digits during the quarter. Moving to our fourth quarter outlook on slide 13, we expect sales to grow in the mid-single digit range. With our solid construction project pipeline, we expect some of the projects that were recently delayed to convert into activity by the end of the year. Also, if weather delays some projects from the third quarter, as we saw last year, we expect most of these to be realized in the fourth quarter. We will continue to benefit from acquisitions and the targeted growth investments we have been making, along with our resilient repair and maintenance focus, and ability to sell engineered systems and solutions to high-performance buildings.

We anticipate Adjusted EBIT will grow mid- to high-single digits during the quarter. Moving to our fourth quarter outlook on slide 13, we expect sales to grow in the mid-single digit range. With our solid construction project pipeline, we expect some of the projects that were recently delayed to convert into activity by the end of the year. Also, if weather delays some projects from the third quarter, as we saw last year, we expect most of these to be realized in the fourth quarter. We will continue to benefit from acquisitions and the targeted growth investments we have been making, along with our resilient repair and maintenance focus, and ability to sell engineered systems and solutions to high-performance buildings.

Speaker #3: Moving to our fourth quarter outlook on slide 13, we expect sales to grow in the mid-single-digit range. With our solid construction project pipeline, we expect some of the projects that were recently delayed to convert into activity by the end of the year.

Speaker #3: Also, if weather delays some projects from the third quarter, as we saw last year, we expect most of these to be realized in the fourth quarter.

Speaker #3: We will continue to benefit from acquisitions and the targeted growth investments we have been making, along with our resilient repair and maintenance focus, and our ability to sell engineered systems and solutions to high-performance buildings.

Speaker #3: In the fourth quarter, we'll also see more of the incremental benefit from the SG&A-focused actions that we are currently implementing, and should more than offset higher healthcare and M&A deal expenses.

Russell Gordon: In the fourth quarter, we'll also see more of the incremental benefit from the SG&A-focused actions that we are currently implementing and should more than offset higher healthcare, and M&A deal expenses. Taking all of this into account, we anticipate adjusted EBIT in the fourth quarter will be up low to high single digits, with volume growth being the key variable. This concludes our prepared remarks, and we are now happy to answer your questions.

In the fourth quarter, we'll also see more of the incremental benefit from the SG&A-focused actions that we are currently implementing and should more than offset higher healthcare, and M&A deal expenses. Taking all of this into account, we anticipate adjusted EBIT in the fourth quarter will be up low to high single digits, with volume growth being the key variable. This concludes our prepared remarks, and we are now happy to answer your questions.

Speaker #3: Taking all of this into account, we anticipate adjusted EBIT in the fourth quarter will be up low to high single digits, with volume growth being the key variable.

Speaker #3: This concludes our prepared remarks, and we are now happy to answer your questions.

Speaker #3: Questions. We will now begin the question and answer session.

Operator: 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 any time your question has been addressed and you would like to withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. The first question today comes from Ghansham Panjabi with Baird. Please go ahead.

Speaker #4: 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.

Speaker #4: If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster.

Speaker #4: The first question today comes from Gansham Punjabi with Baird. Please go ahead.

Speaker #5: Hey guys. Good morning,

Matthew DeYoe: Hey, guys.

Ghansham Panjabi: Hey, guys.

Speaker #6: Good morning, Gansham. Happy New Year.

Ghansham Panjabi: Good morning, Ghansham.

Frank C. Sullivan: Good morning, Ghansham.

Matthew DeYoe: Happy New Year.

Ghansham Panjabi: Happy New Year.

Ghansham Panjabi: Good morning, Frank.

Speaker #6: Happy New Year. Frank.

Frank Sullivan: Happy New Year.

Frank C. Sullivan: Happy New Year.

Speaker #5: Yep. Thank you, thank you. Starting off with maybe slide three, where you have the—so I guess, you know, organic sales breakdown during the quarter, and I know it can vary quite a bit, you know, on a monthly basis depending on comps, et cetera.

Matthew DeYoe: Yep.

Ghansham Panjabi: Yep.

Ghansham Panjabi: Thank you. Thank you. So I guess starting off with maybe slide three, where you have the organic sales breakdown during the quarter. I know it can vary quite a bit on a monthly basis depending on comps, etc. But could you give us a bit more color as to how the businesses specifically performed, the three operating segments? Just trying to get a sense as to whether the deterioration was specific to construction and then also consumer, or did performance also get impacted?

Thank you. Thank you. So I guess starting off with maybe slide three, where you have the organic sales breakdown during the quarter. I know it can vary quite a bit on a monthly basis depending on comps, etc. But could you give us a bit more color as to how the businesses specifically performed, the three operating segments? Just trying to get a sense as to whether the deterioration was specific to construction and then also consumer, or did performance also get impacted?

Speaker #5: But could you give us a bit more color as to how the business is specifically performed? You know, the three operating segments—I was trying to get a sense as to whether the deterioration was specific to construction and then also consumer, or did performance also get impacted?

Speaker #6: Sure. So, if you look at, you know, this is kind of unique, and I don't expect us to do this very often in the future, but when we provided guidance on our last investor call, the latest information we had was in September, and the unique element is talking about months, which we are in this call.

Frank Sullivan: Sure. So if you look at this, this is kind of unique, and I don't expect us to do this very often in the future. But when we provided guidance on our last investor call, the latest information we had was in September. And the unique element is talking about months, which we are in this call. Actually, in September, we saw margin improvement and solid growth at the Construction Products Group and the Performance Coatings Group, and some continued weakness, which has been pretty prevalent across the whole peer group and consumer. Pretty much across the board, as we got into the back half of October and into November, we saw deterioration across all three of our segments.

Frank C. Sullivan: Sure. So if you look at this, this is kind of unique, and I don't expect us to do this very often in the future. But when we provided guidance on our last investor call, the latest information we had was in September. And the unique element is talking about months, which we are in this call. Actually, in September, we saw margin improvement and solid growth at the Construction Products Group and the Performance Coatings Group, and some continued weakness, which has been pretty prevalent across the whole peer group and consumer. Pretty much across the board, as we got into the back half of October and into November, we saw deterioration across all three of our segments.

Speaker #6: Actually, in September, we saw margin improvement and solid growth at the Construction Products Group and the Performance Coatings Group, and some continued weakness, which has been pretty prevalent across the whole peer group, in Consumer.

Speaker #6: Pretty much across the board, as we got into the back half of October and into November, we saw deterioration across all three of our—

Speaker #6: segments. Gotcha.

Ghansham Panjabi: Gotcha. And then in terms of the $100 million SG&A initiative that you outlined, how much of that should we assume is temporary versus permanent? And is that just a reappropriation of spending relative to the previous growth investments? I'm just trying to get a sense as to whether you've curtailed some of those growth investments as well, just given the change in the operating conditions.

Speaker #5: And then, in terms of the $100 million SG&A initiative that you outlined, how much of that should we assume is temporary versus permanent?

Speaker #5: And is that just a reappropriation of spending relative to the previous growth investments? I'm just trying to get a sense as to whether you have curtailed some of those growth investments as well, just given the change in the operating conditions.

Speaker #6: Sure. As you know, we've been working on a new MAP 3.0. Not sure what we're going to call it yet, and, like a lot of folks, have kind of put off longer-term forecasts in the midst of all the tariff disruptions and other elements.

Frank Sullivan: Sure. As you know, we've been working on a new MAP 3.0. Not sure what we're going to call it yet. Like a lot of folks have kind of put off longer-term forecasts in the midst of all the tariff disruptions and other elements, it's our expectation, regardless of where the markets are, that we would provide details this summer, whether it's on our July call or perhaps an investor day. We have been preparing for that with our leadership team and our board. To a certain extent, the disappointing kind of market downturn, which is hopefully temporary, accelerated some of our thinking there. The $100 million is roughly $70 million in personnel-related cuts across the globe and about $30 million in discretionary expense reductions.

Frank C. Sullivan: Sure. As you know, we've been working on a new MAP 3.0. Not sure what we're going to call it yet. Like a lot of folks have kind of put off longer-term forecasts in the midst of all the tariff disruptions and other elements, it's our expectation, regardless of where the markets are, that we would provide details this summer, whether it's on our July call or perhaps an investor day. We have been preparing for that with our leadership team and our board. To a certain extent, the disappointing kind of market downturn, which is hopefully temporary, accelerated some of our thinking there. The $100 million is roughly $70 million in personnel-related cuts across the globe and about $30 million in discretionary expense reductions.

Speaker #6: It's our expectation, regardless of where the markets are, that we would provide details this summer, whether it's on our July call or perhaps an investor day.

Speaker #6: So, we have been preparing for that with our leadership team and our board. So, to a certain extent, the disappointing kind of market downturn, which is hopefully temporary, accelerated some of our thinking there.

Speaker #6: The $100 million is roughly $70 million in personnel-related RIFs, across the globe, and about $30 million in discretionary expense.

Speaker #6: reductions. Got it.

Ghansham Panjabi: Got it. Perfect. Thank you so much.

Speaker #5: Perfect. Thank you

Speaker #5: so much.

Speaker #6: Thank

Speaker #6: you.

Frank Sullivan: Thank you.

Frank C. Sullivan: Thank you.

Speaker #4: The next

Operator: The next question comes from Matthew DeYoe with Bank of America. Please go ahead.

Speaker #4: Matthew Dale with Bank of America. My question comes from—please go ahead.

Speaker #5: Morning. Morning, Matt. So, the fiscal Q3 and Q4 guidance seems to imply much better incremental margins—maybe not great, but certainly better than where we were?

Matthew DeYoe: Morning.

Frank Sullivan: Morning, Matt.

Frank C. Sullivan: Morning, Matt.

Matthew DeYoe: The fiscal Q3 and Q4 guidance seems to imply much better incremental margins. Maybe not great, but certainly better than where we were. Can you help provide a little bit more confidence as to the rate of change of fixed cost absorption as we move through fiscal Q3 into Q4?

Speaker #5: Can you help provide a little bit more confidence as to the rate of change of fixed cost absorption as we move through fiscal Q3 and into Q4?

Speaker #6: Sure. So, a couple of things. Number one, we're rounding easier comps, and so that will certainly help us. Secondly, the structural SG&A actions that we announced today and that we are implementing as we speak will add to that leverage in ways that we weren't seeing in the first half of the year.

Frank Sullivan: Sure. So a couple of things. Number one, we're rounding easier comps, and so that will certainly help us. Secondly, the structural SG&A actions that we announced today and that we are implementing as we speak will add to that leverage in ways that we weren't seeing in the first half of the year. And then I think secondly, with some improvement in unit volume growth, which we anticipate, you'll see a reversal in absorption, which hurt us mightily in Q2 as unit volumes declined in October and November. And to the extent they improve in Q3 and Q4, that'll be a nice swing both versus Q2 and also last year.

Frank C. Sullivan: Sure. So a couple of things. Number one, we're rounding easier comps, and so that will certainly help us. Secondly, the structural SG&A actions that we announced today and that we are implementing as we speak will add to that leverage in ways that we weren't seeing in the first half of the year. And then I think secondly, with some improvement in unit volume growth, which we anticipate, you'll see a reversal in absorption, which hurt us mightily in Q2 as unit volumes declined in October and November. And to the extent they improve in Q3 and Q4, that'll be a nice swing both versus Q2 and also last year.

Speaker #6: And then, I think secondly, with some improvement in unit volume growth, which we anticipate, you'll see a reversal in absorption, which hurt us mightily in Q2 as unit volumes declined in October and November.

Speaker #6: And to the extent they improve in the third and fourth quarter, that'll be a nice swing both versus Q2 and also last year.

Speaker #5: All right.

Matthew DeYoe: All right. As I think about some of the acquisitions that are starting to layer in at a decent clip here, I mean, how should we think about EBIT accretion from this? Are these deals kind of non-EBIT accretive given D&A write-up, or is it at margin, above margin? How should we think about the layering in there?

Speaker #5: And as I think about some of the year, the acquisitions that are starting to layer in at a decent clip here—I mean, how should we think about EBIT accretion from this?

Speaker #5: Are these deals kind of like non-EBIT accretive given the DNA write-up, or is it at margin, above margin? How should we think about the layering in?

Speaker #5: there? Sure.

Frank Sullivan: Sure. It takes some time for these to get integrated into, particularly in our construction products group, where most of these have happened. One of the areas for real possible strength for us in the second half, for instance, is Pure Air. It was an HVAC reconditioning and rehabilitation project or product system that we acquired a couple of years ago. It took us longer than we thought to get properly certified in every state, and we are starting to get traction there. And so I think an 18-month to two-year cycle is the right way to think about, for instance, a Kalzip, high-margin, unique metal roofing business in Germany, both some basic core stuff that we're in in terms of metal roofing and some high-profile projects. Principally a European business, so back to that 18 to 24 months.

Frank C. Sullivan: Sure. It takes some time for these to get integrated into, particularly in our construction products group, where most of these have happened. One of the areas for real possible strength for us in the second half, for instance, is Pure Air. It was an HVAC reconditioning and rehabilitation project or product system that we acquired a couple of years ago. It took us longer than we thought to get properly certified in every state, and we are starting to get traction there. And so I think an 18-month to two-year cycle is the right way to think about, for instance, a Kalzip, high-margin, unique metal roofing business in Germany, both some basic core stuff that we're in in terms of metal roofing and some high-profile projects. Principally a European business, so back to that 18 to 24 months.

Speaker #6: It takes some time for these to get integrated into, particularly in our Construction Products Group, where most of these have happened. One of the areas for real possible strength for us in the second half, for instance, is Pure Air.

Speaker #6: It was an HVA reconditioning and rehabilitation project or product system that we acquired a couple of years ago. It took us longer than we thought to get properly certified in every state, and we are starting to get traction there.

Speaker #6: And so I think an 18-month to two-year cycle is the right way to think about, for instance, a CalZIP high-margin, unique metal roofing business in Germany—both some basic core stuff that we're in, in terms of metal roofing, and some high-profile projects, principally a European business.

Speaker #6: So, back to that 18 to 24 months, I think that's the right timeframe to think about how we can integrate that into a Tremco CPG distribution and sales effort more globally.

Frank Sullivan: I think that's the right time frame to think about how we can integrate that into a Tremco CPG distribution and sales effort more globally.

I think that's the right time frame to think about how we can integrate that into a Tremco CPG distribution and sales effort more globally.

Speaker #5: I guess I appreciate that from an operating integration perspective, but would that also kind of align with earnings accretion as well?

Matthew DeYoe: I guess I appreciate that from an operating integration perspective, but would that also kind of align with earnings accretion as well?

Speaker #6: Absolutely. So, in the early years, it's a pure air—not really accretive—and I believe as we get into calendar '26 and certainly the back half of fiscal '26, what's a relatively small acquisition will be nicely accretive.

Frank Sullivan: Absolutely. So in the early years of Pure Air, not really accretive. I believe as we get into calendar 2026, and certainly the back half of fiscal 2026, what's a relatively small acquisition will be nicely accretive.

Frank C. Sullivan: Absolutely. So in the early years of Pure Air, not really accretive. I believe as we get into calendar 2026, and certainly the back half of fiscal 2026, what's a relatively small acquisition will be nicely accretive.

Speaker #5: Understood. Thank you.

Matthew DeYoe: Understood. Thank you.

Speaker #4: The next question comes from Arun Viswanathan with RBC Capital Markets. Please go ahead.

Operator: The next question comes from Arun Viswanathan with RBC Capital Markets. Please go ahead.

Ghansham Panjabi: Good morning, Bren.

Frank C. Sullivan: Good morning, Bren.

Speaker #7: Hey, thanks for taking my question. Good morning, Brian. Good morning, Frank. Hope you guys are well. Happy New Year. I guess I just wanted to ask about maybe some of the transitory costs you guys incurred this quarter.

Arun Viswanathan: Great. Thanks for taking my question. Good morning, Frank. Hope you guys are well. Happy New Year. I guess I just wanted to ask about maybe some of the transitory costs you guys incurred this quarter. How much would you attribute maybe to the government shutdown, and as well as SG&A increased SG&A spending? How do you see that trending as you go forward? Thanks.

Speaker #7: How much would you attribute, maybe, to the government shutdown, as well as increased SG&A spending? And how do you see that trending as you go forward?

Speaker #6: Sure, Arun.

Russell Gordon: Sure, Arun. This is Rusty here. In terms of some of the transitory costs, we did get hit hard on absorption and higher conversion costs. Part of that is due to the plant shutdowns going on, and transition of facilities. We also opened up a shared distribution center in Europe with some inefficiencies at the outset, which will be resolved as we get up to speed there. So in total, we lost almost 1 percentage point in margin just on higher conversion costs. Some of that was volume-driven. Maybe $4 or 5 million of that was due to transition of facilities, whether it's shutdowns or changes in distribution. So hopefully that gives you some color.

Russell L. Gordon: Sure, Arun. This is Rusty here. In terms of some of the transitory costs, we did get hit hard on absorption and higher conversion costs. Part of that is due to the plant shutdowns going on, and transition of facilities. We also opened up a shared distribution center in Europe with some inefficiencies at the outset, which will be resolved as we get up to speed there. So in total, we lost almost 1 percentage point in margin just on higher conversion costs. Some of that was volume-driven. Maybe $4 or 5 million of that was due to transition of facilities, whether it's shutdowns or changes in distribution. So hopefully that gives you some color.

Speaker #6: This is Thanks. Rusty here. In terms of some of the transitory costs, we did get hit hard on absorption and higher conversion costs. Part of that is due to the plant shutdowns going on and transition of facilities.

Speaker #6: We also opened up a shared distribution center in Europe with some inefficiencies at the outset, which will be resolved as we get up to speed there.

Speaker #6: So, in total, we lost almost a percentage point in margin just on higher conversion costs. Some of that was volume-driven. Maybe $4 or $5 million of that was due to transition of facilities, whether it's shutdowns or changes in distribution.

Speaker #6: So hopefully that gives you some color.

Speaker #7: Great, thanks. And as you look out, maybe into the second half of fiscal '26 and into '27, what would be the run rate on some of these savings?

Matthew DeYoe: Great. Thanks. And as you look out maybe into H2 2026 and into 2027, what would be the run rate on some of this savings? I know that you will capture a portion, as you said, maybe $5 million here in Q3. But when do you expect to see the full amount of that savings kind of flowing through the P&L? Thanks.

Arun Viswanathan: Great. Thanks. And as you look out maybe into H2 2026 and into 2027, what would be the run rate on some of this savings? I know that you will capture a portion, as you said, maybe $5 million here in Q3. But when do you expect to see the full amount of that savings kind of flowing through the P&L? Thanks.

Speaker #7: I know that you will capture a portion, as you said, maybe $5 million here in the third quarter, but when do you expect to see the full amount of that savings kind of flowing through the P&L?

Speaker #6: Sure. I think the full amount will start to flow through in Q1 of '27. We are executing as we speak. That will be about a $25 million per quarter run rate.

Frank Sullivan: Sure. I think the full amount will start to flow through in Q1 of 2027. We are executing as we speak. What will be about a $25 million per quarter run rate. And we would expect most of that activity to be completed and announced internally by the end of Q3.

Frank C. Sullivan: Sure. I think the full amount will start to flow through in Q1 of 2027. We are executing as we speak. What will be about a $25 million per quarter run rate. And we would expect most of that activity to be completed and announced internally by the end of Q3.

Speaker #6: And we would expect most of that activity to be completed and announced internally by the end of Q3.

Speaker #7: Thanks a lot.

Matthew DeYoe: Thanks a lot.

Arun Viswanathan: Thanks a lot.

Speaker #4: The next question comes from John McNulty with BMO Capital Markets. Please go ahead.

Operator: The next question comes from John McNulty with BMO Capital Markets. Please go ahead.

Speaker #8: Yeah, good morning, Brian. Good morning. Maybe a question on—

John McNulty: Yeah. Good morning, John.

Speaker #6: John.

Frank Sullivan: Morning, John.

Frank C. Sullivan: Morning, John.

John McNulty: Maybe a question on the Q4 outlook because Q3 is so seemingly light, it probably doesn't matter all that much. You've got a pretty wide range, low single-digit to high single-digit growth in EBIT. And I know in some prepared remarks, you commented that it's largely contingent on volumes. Is the high end of the range assuming the world starts to feel better again, or is that just the recapturing of maybe some lost business around the government shutdowns? I guess maybe you can peel back the onion a little bit in terms of what gets you to the low end of that range and what gets you to the high end.

Speaker #8: The four Q outlook, because three Q is so seemingly light. It probably doesn't matter all that much. You've got a pretty wide range, low single-digit to high single-digit growth in EBIT.

Speaker #8: And I know in some prepared remarks, you commented that it's largely contingent on volumes. Is the high end of the range assuming the world starts to feel better again, or is that just the recapturing of maybe some lost business around the government shutdowns?

Speaker #8: I guess maybe you can peel back the onion a little bit in terms of what gets you to the low end of that range, and what gets you to the high.

Speaker #8: end. Sure.

Frank Sullivan: Sure. As for the lost business relative to government shutdown, to the extent that's real, I would expect us to see that pick up in Q3. Q4 really is about volume. We will be rounding two years of challenging consumer takeaway volume growth in consumer, so we'll be seeing easier comps there. Part of the changes that we've made with this SG&A structural realignment are in our consumer business, which is what we hope will be a positive effect to margin and the bottom line. And we have a really strong backlog in our industrial business in both CPG and PCG. If that becomes to be realized, again, you'll see us have a pretty good fourth quarter.

Frank C. Sullivan: Sure. As for the lost business relative to government shutdown, to the extent that's real, I would expect us to see that pick up in Q3. Q4 really is about volume. We will be rounding two years of challenging consumer takeaway volume growth in consumer, so we'll be seeing easier comps there. Part of the changes that we've made with this SG&A structural realignment are in our consumer business, which is what we hope will be a positive effect to margin and the bottom line. And we have a really strong backlog in our industrial business in both CPG and PCG. If that becomes to be realized, again, you'll see us have a pretty good fourth quarter.

Speaker #6: As for the lost business relative to the government shutdown—to the extent that's real—I would expect us to see that pick up in Q3.

Speaker #6: Q4 really is about volume. We will be rounding two years of challenging consumer takeaway volume growth in consumers, so we'll be seeing easier comps there.

Speaker #6: Part of the changes we've made with this SG&A structural realignment are in our consumer business, which is what we hope will be a positive effect to margin on the bottom line.

Speaker #6: And we have a really strong backlog in our industrial business in both CPG and PCG. If that becomes to be realized, again, you'll see us have a pretty good fourth quarter.

Speaker #6: But given the volatility that we're experiencing just in this quarter—a really solid, by any measure, September and then a really disappointing, by any measure, November—it makes us a little hesitant to be more specific about coming months, because that volatility seems to be continuing.

Speaker #6: But given the volatility that we're experiencing just in this quarter—a really solid, by any measure, September, and then a really disappointing, by any measure, November—it makes us a little hesitant to be more specific about coming months, because that volatility seems to be continuing.

Frank Sullivan: But given the volatility that we're experiencing just in this quarter, a really solid, by any measure, September, and then a really disappointing, by any measure, November, makes us a little hesitant to be more specific about coming months because that volatility seems to be continuing.

But given the volatility that we're experiencing just in this quarter, a really solid, by any measure, September, and then a really disappointing, by any measure, November, makes us a little hesitant to be more specific about coming months because that volatility seems to be continuing.

Speaker #8: Okay, fair enough. And then I guess, just given the general weak environment that continues—if anything, maybe it's gotten a little bit worse overall—I guess, can you speak to what you're seeing from a raw material perspective?

John McNulty: Okay. Fair enough. And then I guess, just given the general weak environment that continues, if anything, maybe it got a little bit worse overall, I guess, can you speak to what you're seeing from a raw material perspective? Are you starting to see any signs of relief? I know tariffs kind of made that a little more difficult over the last few quarters. I guess what is your outlook as you're looking forward?

Speaker #8: Are you starting to see any signs of relief? I know tariffs kind of made that a little more difficult over the last few quarters.

Speaker #8: I guess, what is your outlook as you're looking forward?

Speaker #6: Sure. I'll let Matt provide some specifics. But generally, the trends that we're seeing both in the marketplace and geopolitically suggest that that should be a tailwind for us in the second half of the year.

Frank Sullivan: Sure. I'll let Matt provide some specifics. But generally, the trends that we're seeing, both in the marketplace and geopolitically, suggest that that should be a tailwind for us in the second half of the year. Yeah. So absent tariffs, yeah, we are seeing raw material inflation coming down and even turning into deflation. But you have these pockets of inflation, and some of the categories we've talked about in the past, that continues. And these are really tariff-driven. So excuse me. Lead and metal packaging, that's up low teens. Epoxy resins are actually up high single digits. And then we have some specific categories that really can only be sourced from Asia. These are more niche products, not a huge dollar spend, but when you're facing tariffs of 20%, 30%, 50%, it can add up.

Frank C. Sullivan: Sure. I'll let Matt provide some specifics. But generally, the trends that we're seeing, both in the marketplace and geopolitically, suggest that that should be a tailwind for us in the second half of the year. Yeah. So absent tariffs, yeah, we are seeing raw material inflation coming down and even turning into deflation. But you have these pockets of inflation, and some of the categories we've talked about in the past, that continues. And these are really tariff-driven. So excuse me. Lead and metal packaging, that's up low teens. Epoxy resins are actually up high single digits. And then we have some specific categories that really can only be sourced from Asia. These are more niche products, not a huge dollar spend, but when you're facing tariffs of 20%, 30%, 50%, it can add up.

Speaker #6: year.

Speaker #8: Yeah. So

Speaker #8: Absent tariffs, yeah, we are seeing raw material inflation coming down and even turning into deflation. But you have these pockets of inflation, and some of the categories we've talked about in the past—that continues.

Speaker #8: And these are really tariff-driven. So, excuse me. Looking at metal packaging, that's up low teens. Epoxy resins are actually up high single digits. And then we have some specific categories that really can only be sourced from Asia.

Speaker #8: And these are more niche products, not a huge dollar spend. But when you're facing tariffs of 20%, 30%, 50%, it can add up.

Speaker #8: And so, all in all, technology into account, we expect a little bit of inflation in the third and fourth quarter, but that's—

Frank Sullivan: And so all in all, taking it all into account, we expect a little bit of inflation in Q3 and Q4, but that's all tariff-driven. And again, I think geopolitically and where underlying base chemicals are going, we would expect that to be a tailwind. And as we get into Q4 and certainly into fiscal 2027, we will be annualizing the impact of tariffs, for instance, on steel packaging.

And so all in all, taking it all into account, we expect a little bit of inflation in Q3 and Q4, but that's all tariff-driven. And again, I think geopolitically and where underlying base chemicals are going, we would expect that to be a tailwind. And as we get into Q4 and certainly into fiscal 2027, we will be annualizing the impact of tariffs, for instance, on steel packaging.

Speaker #8: all tariff-driven. And

Speaker #6: Again, I think geopolitically, and where underlying base chemicals are going, we would expect that to be a tailwind. And as we get into Q4 and certainly into fiscal '27, we will be annualizing the impact of tariffs, for instance, on steel packaging.

Speaker #8: Okay, got it. Fair enough. And maybe if I could slip in one last one, just on the pink stuff burnout. I know there were kind of a wide range of outcomes in terms of how much you kind of felt like you could really drive that business.

John McNulty: Okay. Got it. Fair enough. And maybe if I could slip in one last one. Just on the Pink Stuff buyout, I know there were kind of a wide range of outcomes in terms of how much you kind of felt like you could really drive that business. I guess what now are the base expectations since you took down that buyout a bit? I guess how should we be thinking about where that business can go over the next few years?

Speaker #8: I guess, what are the base expectations now, since you took down that burnout a bit? I guess, how should we be thinking about where that business can go over the next few—

Speaker #8: years? Sure.

Frank Sullivan: Sure. The Pink Stuff acquisition is on track for our base case, as Mike alluded to. The earnout was a relatively short two-year earnout, and it was based on double-digit unit volume growth. And in this environment, we are not hitting double-digit unit volume growth, and we don't expect to in calendar 2026. And so that was the basis for the reversal of the earnout.

Frank C. Sullivan: Sure. The Pink Stuff acquisition is on track for our base case, as Mike alluded to. The earnout was a relatively short two-year earnout, and it was based on double-digit unit volume growth. And in this environment, we are not hitting double-digit unit volume growth, and we don't expect to in calendar 2026. And so that was the basis for the reversal of the earnout.

Speaker #6: The Pink Stuff acquisition is on track for our base case. As Mike alluded to, the earnout was a relatively short, two-year earnout, and it was based on double-digit unit volume growth.

Speaker #6: And in this environment, we are not hitting double-digit unit volume growth, and we don't expect to in calendar '26. And so that was the basis for the reversal of the

Speaker #6: earnout. Got it.

John McNulty: Got it. Fair enough. Thanks very much, Frank.

Speaker #8: Fair enough. Thanks very much,

Speaker #8: Frank. Thank

Frank Sullivan: Thank you.

Frank C. Sullivan: Thank you.

Speaker #4: The next question comes from you, Patrick Cunningham with Citi. Please go ahead.

Operator: The next question comes from Patrick Cunningham with Citi. Please go ahead.

Speaker #4: ahead. Hi, good

Matthew DeYoe: Hi. Good morning. Just on the weakness in consumer group, how much would you attribute to underlying market softness versus some of the other things you called out, like sales delays or targeted product rationalization?

Patrick Cunningham: Hi. Good morning. Just on the weakness in consumer group, how much would you attribute to underlying market softness versus some of the other things you called out, like sales delays or targeted product rationalization?

Speaker #8: Morning. Just on the weakness in the Consumer Group, how much would you attribute to underlying market softness versus some of the other things you called out, like sales delays or targeted product rationalization?

Speaker #6: I think most of it has been underlying consumer takeaway. And again, it got weaker; it picked up a little bit in September. We had solid results across all our businesses in that month.

Frank Sullivan: I think most of it has been underlying consumer takeaway. And again, it got weaker. It picked up a little bit in September. We had solid results across all our businesses in that month, and then it got weaker in the quarter as it progressed. Understanding how much of that is government shutdown and other issues is hard to know. We are also approaching year-end for a lot of the major retailers, so there continues to be working capital inventory management levels there. As I said earlier, we will be rounding as we get into calendar 2026, two years of easier comps. And so I think we will see better results in the second half of fiscal 2026 and better results in fiscal 2027 for consumer. We don't need a roaring comeback to start seeing unit volume going in the right direction, which will accrete to our bottom line nicely.

Frank C. Sullivan: I think most of it has been underlying consumer takeaway. And again, it got weaker. It picked up a little bit in September. We had solid results across all our businesses in that month, and then it got weaker in the quarter as it progressed. Understanding how much of that is government shutdown and other issues is hard to know. We are also approaching year-end for a lot of the major retailers, so there continues to be working capital inventory management levels there. As I said earlier, we will be rounding as we get into calendar 2026, two years of easier comps. And so I think we will see better results in the second half of fiscal 2026 and better results in fiscal 2027 for consumer. We don't need a roaring comeback to start seeing unit volume going in the right direction, which will accrete to our bottom line nicely.

Speaker #6: And then it got weaker in the quarter as it progressed. Understanding how much of that is government shutdown and other issues is hard to know.

Speaker #6: We are also approaching year-end for a lot of the major retailers, so there continues to be working capital inventory management levels there. As I said earlier, we will be rounding, as we get into calendar '26, two years of easier comps.

Speaker #6: And so, I think we will see better results in the second half of fiscal '26 and better results in fiscal '27 for consumer. We don't need a roaring comeback to start seeing unit volume going in the right direction, which will accrete to our bottom line nicely.

Speaker #8: Understood. And then, just on price realization, where did price shake out in fiscal Q2? And then, has there been any tension on getting full realization in the Consumer Group, given the weak demand environment and some disinflation on the raw side?

John McNulty: Understood. Then just on price realization, where did price shake out in fiscal Q2? And has there been any tension on getting full realization in the consumer group given the weak demand environment and some disinflation on the raw side?

Patrick Cunningham: Understood. Then just on price realization, where did price shake out in fiscal Q2? And has there been any tension on getting full realization in the consumer group given the weak demand environment and some disinflation on the raw side?

Speaker #6: Price was less than 1% in Q2, and I would anticipate about the same in Q3 unless, of course, we see any material spikes. We have not had a real challenge over the last couple of years in terms of getting price where needed.

Frank Sullivan: Price was less than 1% in Q2, and I would anticipate about the same in Q3 unless, of course, we see any material spikes. We have not had a real challenge over the last couple of years in terms of getting price where needed. In consumer particular, we did bump into some price elasticity issues relative to price points at retail, and we have adjusted accordingly. That was really a spring of 2026. I'm sorry, spring of 2025 phenomenon, not Q2.

Frank C. Sullivan: Price was less than 1% in Q2, and I would anticipate about the same in Q3 unless, of course, we see any material spikes. We have not had a real challenge over the last couple of years in terms of getting price where needed. In consumer particular, we did bump into some price elasticity issues relative to price points at retail, and we have adjusted accordingly. That was really a spring of 2026. I'm sorry, spring of 2025 phenomenon, not Q2.

Speaker #6: In Consumer in particular, we did bump into some price elasticity issues relative to price points at retail, and we have adjusted accordingly. That was really a spring of '26—I'm sorry, spring of '25 phenomenon, not Q2.

Speaker #8: Understood. Thank you so much.

John McNulty: Understood. Thank you so much.

Patrick Cunningham: Understood. Thank you so much.

Speaker #6: Thank

Speaker #6: you.

Frank Sullivan: Thank you.

Frank C. Sullivan: Thank you.

Speaker #4: The next question comes

Operator: The next question comes from Mike Harrison with Seaport Research Partners. Please go ahead.

Speaker #1: Morning. Hi. Good, happy New Year. I was hoping that we could just dig in a little bit more on this impact from the software system implementation and consumer sales.

Frank Sullivan: Morning, Mike.

Frank C. Sullivan: Morning, Mike.

John McNulty: Hi. Good morning. Happy New Year. Was hoping that we could just dig in a little bit more on this impact from the software system implementation in consumer sales, and it sounds like maybe EBIT too. Is that implementation now complete, or should we still expect maybe some delays or impacts in Q3? And I guess to the extent that sales were delayed, are you realizing those sales then in Q3, or is it going to take longer for those sales to materialize?

Michael Harrison: Hi. Good morning. Happy New Year. Was hoping that we could just dig in a little bit more on this impact from the software system implementation in consumer sales, and it sounds like maybe EBIT too. Is that implementation now complete, or should we still expect maybe some delays or impacts in Q3? And I guess to the extent that sales were delayed, are you realizing those sales then in Q3, or is it going to take longer for those sales to materialize?

Speaker #1: And it sounds like maybe EBIT too. Is that implementation now complete, or should we expect maybe some delays or impacts in Q3?

Speaker #1: And I guess, to the extent that sales were delayed, are you realizing those sales then in Q3, or is it going to take longer for those sales to materialize?

Speaker #2: Yeah , Mike , this is rusty here . Yeah , that was temporary . We have resolved it was a that simple matter of new systems as a new as well warehouse in Europe .

Russell Gordon: Yeah. Mike, this is Rusty here. Yeah, that was temporary. We have resolved that. It was a simple matter of new systems as well as a new warehouse in Europe. The new system was implemented in a couple of places in consumer. But we are up and fully running. So yeah, that was a temporary situation.

Russell L. Gordon: Yeah. Mike, this is Rusty here. Yeah, that was temporary. We have resolved that. It was a simple matter of new systems as well as a new warehouse in Europe. The new system was implemented in a couple of places in consumer. But we are up and fully running. So yeah, that was a temporary situation.

Speaker #2: The new WAS system was implemented in a couple of places in Consumer, but we are up and fully running. So, yeah, that was a temporary situation.

Speaker #1: All right . And then within the Performance Coatings business , you noted broad based growth really across that business . I was hoping you could give a little more color on on what portions of the business are particularly encouraging to you as you look out over the next few quarters ?

John McNulty: All right. And then within the performance coatings business, you noted broad-based growth really across that business. I was hoping you could give a little more color on what portions of the business are particularly encouraging to you as you look out over the next few quarters.

Michael Harrison: All right. And then within the performance coatings business, you noted broad-based growth really across that business. I was hoping you could give a little more color on what portions of the business are particularly encouraging to you as you look out over the next few quarters.

Speaker #3: Sure . Our stone hard flooring business is continuing to grow nicely . Really . Industrial capital spending and onshoring fiber . Great is benefiting from a lot of the data center build out lot a of their functional systems are used in multiple areas .

Frank Sullivan: Sure. Our Stonhard flooring business is continuing to grow nicely. Really, industrial capital spending and onshoring. Fibergrate is benefiting from a lot of the data center buildout. A lot of their functional systems are used in multiple areas there. And so those are two probably strongest areas. And we're also picking up some market share, a little bit at expense of margin in our Carboline business.

Frank C. Sullivan: Sure. Our Stonhard flooring business is continuing to grow nicely. Really, industrial capital spending and onshoring. Fibergrate is benefiting from a lot of the data center buildout. A lot of their functional systems are used in multiple areas there. And so those are two probably strongest areas. And we're also picking up some market share, a little bit at expense of margin in our Carboline business.

Speaker #3: There, so those are two probably, and strongest, areas. We're also picking up some share in the market, a little bit at the expense of margin in our business.

Speaker #1: All right. Thanks very much.

Speaker #4: The question comes from Frank Mitchell with Vermian. The next research, please go ahead.

John McNulty: All right. Thanks very much.

Michael Harrison: All right. Thanks very much.

Operator: The next question comes from Frank Mitsch with Fermium Research. Please go ahead.

Speaker #5: Hey . Good morning and yes , thank you . morning and Good happy New Year . Hey , I must say I am a fan of the granularity that you provided in slide three .

Matthew DeYoe: Hey. Good morning. Yes. Thank you. Good morning and happy New Year. Hey, I must say I am a fan of the granularity that you provided in slide three. Obviously, it shows how the quarter started out pretty good, therefore leading to some optimism in terms of the quarter, fiscal second quarter, but then deteriorated in October and November. That trend does not look like to be your friend. Here we are on 8 January. How did December turn out?

Frank Mitsch: Hey. Good morning. Yes. Thank you. Good morning and happy New Year. Hey, I must say I am a fan of the granularity that you provided in slide three. Obviously, it shows how the quarter started out pretty good, therefore leading to some optimism in terms of the quarter, fiscal second quarter, but then deteriorated in October and November. That trend does not look like to be your friend. Here we are on 8 January. How did December turn out?

Speaker #5: Obviously , it shows a how the quarter started out pretty good , therefore leading know , to , you some optimism in terms of the quarter fiscal , second quarter .

Speaker #5: But then deteriorated in October and November. That trend does not look to be your friend. Here we are on January 8th.

Speaker #5: How did December turn out?

Speaker #3: Sure . Well , as I said earlier , it's not been our habit and very I'd like quickly in the earnings call to next get off this habit of talking about monthly results .

Frank Sullivan: Sure. Well, as I said earlier, it's not been our habit, and I'd like very quickly in the next earnings call to get off this habit of talking about monthly results. But December is over. And herein lies the conundrum of volatility. Our December sales were up 12.1%. Unit volume was up 7%. And so how much of that is a pickup of Q2 government shutdown-related recovery, and how much of that is underlying strength in the areas that we're continuing to invest in? It was actually across the board. So we did see a little pickup in consumer, but a significant pickup in construction products, and our roofing business. So we're off to a great start in December.

Frank C. Sullivan: Sure. Well, as I said earlier, it's not been our habit, and I'd like very quickly in the next earnings call to get off this habit of talking about monthly results. But December is over. And herein lies the conundrum of volatility. Our December sales were up 12.1%. Unit volume was up 7%. And so how much of that is a pickup of Q2 government shutdown-related recovery, and how much of that is underlying strength in the areas that we're continuing to invest in? It was actually across the board. So we did see a little pickup in consumer, but a significant pickup in construction products, and our roofing business. So we're off to a great start in December.

Speaker #3: But December is over . And herein lies the conundrum of volatility . Our December sales were up 12.1% . Unit volume was up seven , and so how much of that is a pickup of Q2 shutdown government related recovery ?

Speaker #3: And how much of that is underlying strength in the areas that we're continuing to invest in? It was actually across the board. So we did see a little pickup in consumer, but a significant pickup in construction products.

Speaker #3: And our roofing business. So we're off to a great start in December. The challenge we have is understanding what that number means, and how much of that is really a pickup of what was a temporarily weaker Q2.

Frank Sullivan: The challenge we have is understanding what that number means and how much of that is really a pickup of what was a temporarily weaker Q2, how much of that indicates that things are moving in the right direction. It's anybody's guess as to whether January and February will look like December or whether they'll look like November. And so I think that's why we have the wider range that we have in our Q3 and Q4 forecasts.

The challenge we have is understanding what that number means and how much of that is really a pickup of what was a temporarily weaker Q2, how much of that indicates that things are moving in the right direction. It's anybody's guess as to whether January and February will look like December or whether they'll look like November. And so I think that's why we have the wider range that we have in our Q3 and Q4 forecasts.

Speaker #3: Much of how that indicates that things are moving in the right direction? It's anybody's guess as to January, and whether February will look like December, or whether they'll look like November.

Speaker #3: And so I think that's why we have the wider range that we have in our Q3 and Q4 forecasts.

Speaker #5: That's Wow . that that I did not expect answer that . And and let me drill down just a little bit . I know you're not in the habit of giving monthly sales , but I'm just curious .

John McNulty: Wow. I did not expect that answer. Let me drill down just a little bit. I know you're not in the habit of giving monthly sales, but I'm just curious. It begs the question, is there anything with the year-ago result? Was there an artificially depressed December of 2024? Was there a super November of 2024? Is there anything in the year-ago comps that would have led to the negative 6 November, positive 12 December? Or this is really the kind of underlying business as you see it right now?

Frank Mitsch: Wow. I did not expect that answer. Let me drill down just a little bit. I know you're not in the habit of giving monthly sales, but I'm just curious. It begs the question, is there anything with the year-ago result? Was there an artificially depressed December of 2024? Was there a super November of 2024? Is there anything in the year-ago comps that would have led to the negative 6 November, positive 12 December? Or this is really the kind of underlying business as you see it right now?

Speaker #5: It begs the question , is there anything with the year ago result ? Was there , was there an artificially depressed December of 24 ?

Speaker #5: Was there a super November of 24 ? Is there anything in a ago comps , or is that that that would have led to the negative 6th November , positive 12th December or this is really the , you know , kind of underlying business as you see it right now .

Speaker #3: You'll recall we had a weak third quarter year. A lot of that was winter weather, so certainly we're rounding related some easier comps.

Frank Sullivan: You'll recall we had a weak third quarter last year. A lot of that was winter weather related. So certainly, we're rounding some easier comps. And I think that's a part of why we're confident in the second half, albeit within a range of generating solid sales and earnings growth in Q3 and Q4. And so that's part of the answer.

Frank C. Sullivan: You'll recall we had a weak third quarter last year. A lot of that was winter weather related. So certainly, we're rounding some easier comps. And I think that's a part of why we're confident in the second half, albeit within a range of generating solid sales and earnings growth in Q3 and Q4. And so that's part of the answer.

Speaker #3: And I think that's part of why we're confident in the second half, albeit within a range of generating solid sales and earnings in Q3 growth and Q4, so that's.

Speaker #3: Part of the answer: And.

Speaker #5: Got it. All right. Thank you so much.

Speaker #3: Frank Thank you .

Speaker #4: The next question comes from John Roberts. Please go ahead, Mizuho.

John McNulty: Gotcha. All right. Thank you so much.

Frank Mitsch: Gotcha. All right. Thank you so much.

Frank Sullivan: Thank you, Frank.

Frank C. Sullivan: Thank you, Frank.

Speaker #6: Thank you. Aside from disaster restoration, would you say that weather was not a restoration factor in either quarter or December so far?

Speaker #6: Thank you. Aside from disaster restoration, would you say that weather was not a restoration factor in either quarter or December so far? No.

Operator: The next question comes from John Roberts with Mizuho. Please go ahead.

Arun Viswanathan: Thank you. Aside from disaster restoration, would you say that weather was not a factor in either the quarter or December so far?

John Roberts: Thank you. Aside from disaster restoration, would you say that weather was not a factor in either the quarter or December so far?

Speaker #3: Weather was, I think, a factor. You know, it hit us—we got hit pretty hard across the country in the Thanksgiving, kind of late period November, with heavy snow.

Frank Sullivan: No, I think weather was a factor. We got hit pretty hard across the country in the Thanksgiving, kind of late November period with heavy snow, and that continued into December. We're certainly seeing a relief in that right now. And so I don't expect year-over-year for that to be a big issue in Q3 because we got clobbered last year. And so year-over-year, I think the trends are moving in the right direction, both versus easier comps, how we're starting the quarter, and the impact of the acceleration of our SG&A realignment, which will not necessarily impact Q3 much. It will impact Q3 in the last month, but will start to be realized more fully in Q4.

Frank C. Sullivan: No, I think weather was a factor. We got hit pretty hard across the country in the Thanksgiving, kind of late November period with heavy snow, and that continued into December. We're certainly seeing a relief in that right now. And so I don't expect year-over-year for that to be a big issue in Q3 because we got clobbered last year. And so year-over-year, I think the trends are moving in the right direction, both versus easier comps, how we're starting the quarter, and the impact of the acceleration of our SG&A realignment, which will not necessarily impact Q3 much. It will impact Q3 in the last month, but will start to be realized more fully in Q4.

Speaker #3: that And into December continued certainly . We're a seeing relief in that right now . And so I don't year over year for expect that to big Q3 , because we got be a clobbered last year .

Speaker #3: And so, year over year, I think the trends are moving in that direction, both the right, easier comps, how we're quarter starting, and the impact of the acceleration of our SGA realignment, which will necessarily not impact Q3 much.

Speaker #3: It will impact Q3 in the last month, but it will start to be realized fully more in Q4.

Speaker #6: Do you compete at all against BASF Industrial Coatings business, or any of the areas of overlap between BASF and Axalta or RPM’s industrial coatings businesses?

Arun Viswanathan: Do you compete at all against BASF's industrial coatings business or any of the areas of overlap between Axalta and AkzoNobel's industrial coatings businesses? I don't perceive there's a lot of opportunities for share gain as there's maybe some disruption across those businesses, but are there any key areas of overlap?

John Roberts: Do you compete at all against BASF's industrial coatings business or any of the areas of overlap between Axalta and AkzoNobel's industrial coatings businesses? I don't perceive there's a lot of opportunities for share gain as there's maybe some disruption across those businesses, but are there any key areas of overlap?

Speaker #6: I don't perceive there's a lot of opportunities for share gain, as there's maybe some across businesses, but there is disruption. Are there any key areas of overlap?

Speaker #3: We have a $400 million high-performance industrial coatings business, part of our That’s Performance Group. They’re really focused on wood stains and finishes.

Frank Sullivan: We have a $400 million high-performance industrial coatings business that's part of our performance coatings group. They're really focused on wood stains and finishes. We have a real nice market share in what's left of that business, cabinetry, doors, and windows in North America. That business is actually growing. We're picking up share in a couple of places. It incorporates our TCI Powder Coatings business as well as a small but growing OEM liquid metal business. So that's an area where I would expect us to continue to grow. We reorganized that into a comprehensive business from about four or five different separate pieces. That reorganization, what we're doing at the R&D center in Greensboro, which is primarily owned by our RPM OEM coatings business, is actually a bright spot for us right now despite economic problems.

Frank C. Sullivan: We have a $400 million high-performance industrial coatings business that's part of our performance coatings group. They're really focused on wood stains and finishes. We have a real nice market share in what's left of that business, cabinetry, doors, and windows in North America. That business is actually growing. We're picking up share in a couple of places. It incorporates our TCI Powder Coatings business as well as a small but growing OEM liquid metal business. So that's an area where I would expect us to continue to grow. We reorganized that into a comprehensive business from about four or five different separate pieces. That reorganization, what we're doing at the R&D center in Greensboro, which is primarily owned by our RPM OEM coatings business, is actually a bright spot for us right now despite economic problems.

Speaker #3: We have a real nice market share in, of that what's left, business. Cabinetry, doors, windows in North America, and that business is actually growing, picking up.

Speaker #3: Share in a couple of where places. It incorporates our TCI Powder Coatings business, as well as a small but growing liquid metal business.

Speaker #3: And so that's an area where I would expect us to continue to grow. We reorganized that comprehensive from about four or five different separate pieces.

Speaker #3: And that what reorganization , we're doing at the R&D center in Greensboro , which is primarily owned by our our PM OEM coatings business , is actually a bright spot for us right now , despite economic problems .

Speaker #6: Great . Thank you .

Speaker #4: The next question comes from Kevin McCarthy with Vertical Research Partners. Please go ahead.

Arun Viswanathan: Great. Thank you.

John Roberts: Great. Thank you.

Operator: The next question comes from Kevin McCarthy with Vertical Research Partners. Please go ahead.

Speaker #3: Kevin . Morning ,

Speaker #7: morning . Year Happy New to you , Good Frank . Question on on M&A . Can you talk through why you decided to pursue calcium and then more broadly look at , if I recent the acquisitions , many of them are domiciled I was Europe .

Frank Sullivan: Morning, Kevin.

Frank C. Sullivan: Morning, Kevin.

Arun Viswanathan: Good morning. Happy New Year to you, Frank. Question on M&A. Can you talk through why you decided to pursue Kalzip? And then more broadly, if I look at the recent acquisitions, many of them are domiciled in Europe. And I was wondering if you could speak to that. Is that strategic on your part or just simply a function of where you're seeing the best value or opportunities now?

Kevin McCarthy: Good morning. Happy New Year to you, Frank. Question on M&A. Can you talk through why you decided to pursue Kalzip? And then more broadly, if I look at the recent acquisitions, many of them are domiciled in Europe. And I was wondering if you could speak to that. Is that strategic on your part or just simply a function of where you're seeing the best value or opportunities now?

Speaker #7: And is that—wondering if you could speak to whether that's strategic on your part or just simply a function of where you're seeing the best value or opportunities?

Speaker #7: Now ?

Speaker #3: So the simple answer yes to both very strategic , but M&A it's in also what's available for sale at a at a value that makes sense for us .

Frank Sullivan: So the simple answer is yes to both. Very strategic, but in M&A, it's also what's available for sale at a value that makes sense for us. We sell $ tens of millions of purchase-for-resale metal roofing in the US. We have been looking for opportunities to enhance that purchase-for-resale with stuff that we own and control. Kalzip's a unique asset, German-based. Their specialty is actually a lot of high-profile projects, which we're not in. We're pretty excited about the ability to take some of their patented technology, bring it to the US, and accelerate the metal roofing elements of what some of our Tremco roofing salesmen are already selling, as well as helping to expand that metal roofing capability globally. Kalzip has had projects in Europe, Middle East, and Asia, areas where our Tremco roofing business is not really present.

Frank C. Sullivan: So the simple answer is yes to both. Very strategic, but in M&A, it's also what's available for sale at a value that makes sense for us. We sell $ tens of millions of purchase-for-resale metal roofing in the US. We have been looking for opportunities to enhance that purchase-for-resale with stuff that we own and control. Kalzip's a unique asset, German-based. Their specialty is actually a lot of high-profile projects, which we're not in. We're pretty excited about the ability to take some of their patented technology, bring it to the US, and accelerate the metal roofing elements of what some of our Tremco roofing salesmen are already selling, as well as helping to expand that metal roofing capability globally. Kalzip has had projects in Europe, Middle East, and Asia, areas where our Tremco roofing business is not really present.

Speaker #3: We we sell tens of millions of dollars . Purchase for resale metal roofing in the US . And we have been looking for opportunities to enhance that purchase for resale with stuff that we own and control a .

Speaker #3: unique asset . German Calcium is based , their specialty is actually a lot of high profile projects , which we're not in . And so about the excited ability to take some their of patented technology , bring it to the US and accelerate the metal roofing elements of what some of our tremco roofing salesmen are already selling , as well as helping to expand that metal roofing capability globally , calcium has had projects in Europe , Middle East and Asia , areas where tremco our roofing business is not really present .

Speaker #3: So we're pretty excited about it. As I earlier commented, it's a real strategic play. It's going to take us some time to take that technology and bring it into the US.

Frank Sullivan: So we're pretty excited about it. As I commented earlier, it's a real strategic play. It's going to take us some time to take that technology and bring it into the US. But when we do, the opportunities for us to add tens of millions of dollars or more in the US market, where we have our awesome sales force on top of what's about a EUR 75 million revenue business, is something we're pretty excited about.

So we're pretty excited about it. As I commented earlier, it's a real strategic play. It's going to take us some time to take that technology and bring it into the US. But when we do, the opportunities for us to add tens of millions of dollars or more in the US market, where we have our awesome sales force on top of what's about a EUR 75 million revenue business, is something we're pretty excited about.

Speaker #3: But when we do, the opportunities for us to add tens of millions of dollars or more in the U.S. market, where we have an awesome sales force on top of what's about a €75 million revenue business, is something we're pretty excited about.

Speaker #3: .

Speaker #7: good . And Very then secondly , if I may , I wanted to revisit the subject of of pricing . I think you in said response to a prior question that the price contribution was was less than 1% in the quarter , and I was somewhat surprised to hear that my recollection was that you were targeting , you know , higher contributions and acceleration into the fiscal second quarter .

Arun Viswanathan: Very good. And then secondly, if I may, I want to revisit the subject of pricing. I think you said in response to a prior question that the price contribution was less than 1% in the quarter. And I was somewhat surprised to hear that. My recollection was that you were targeting higher contributions and acceleration into the fiscal second quarter. So I was wondering if you could just unpack that and talk a little bit about where you're seeing the most and least traction, and maybe segment contributions, and whether or not you might anticipate any acceleration on price in the back half of the year.

Kevin McCarthy: Very good. And then secondly, if I may, I want to revisit the subject of pricing. I think you said in response to a prior question that the price contribution was less than 1% in the quarter. And I was somewhat surprised to hear that. My recollection was that you were targeting higher contributions and acceleration into the fiscal second quarter. So I was wondering if you could just unpack that and talk a little bit about where you're seeing the most and least traction, and maybe segment contributions, and whether or not you might anticipate any acceleration on price in the back half of the year.

Speaker #7: So I was wondering if you could just unpack that and talk a little bit about where you're seeing the most and least traction, and maybe segment contributions, and whether or not you might anticipate any acceleration on price in the back half of the year.

Speaker #7: .

Speaker #3: Again, it will be, sure, circumstantial. We're past the period of heavy inflation that drove price increases meaningfully across all of our businesses.

Frank Sullivan: Sure. Again, it'll be circumstantial. We're past the period of heavy inflation that drove price increases meaningfully across all of our businesses. And so in the quarter, less than 1%, but we got more price and consumer because that's a place where we're having the biggest challenge. Again, it's the place where metal packaging has got the biggest impact across RPM. And then selectively, for instance, around epoxy resins and a few other places, we're getting price in selected product categories, but not across the board like we were a few years ago.

Frank C. Sullivan: Sure. Again, it'll be circumstantial. We're past the period of heavy inflation that drove price increases meaningfully across all of our businesses. And so in the quarter, less than 1%, but we got more price and consumer because that's a place where we're having the biggest challenge. Again, it's the place where metal packaging has got the biggest impact across RPM. And then selectively, for instance, around epoxy resins and a few other places, we're getting price in selected product categories, but not across the board like we were a few years ago.

Speaker #3: And so in the quarter , less than 1% . But we got more pricing . Consumer , because place where that's the we're having the biggest challenge .

Speaker #3: Again, it's the place where packaging has had the biggest impact across our RPM. And then, selectively, for instance, around epoxy resins and a few other places.

Speaker #3: We're getting price and selected product categories, but not across the board like we were a few years ago.

Speaker #7: Much, very okay. Thanks.

Speaker #4: The next question comes from Mike with Wells Sison Fargo. Please go ahead.

Arun Viswanathan: Thanks very much.

Kevin McCarthy: Thanks very much.

Speaker #3: Morning , Mike .

Operator: The next question comes from Mike Sison with Wells Fargo. Please go ahead.

Speaker #8: morning . Hey . Good Happy New Year . I with guess your outlook for the third and fourth quarter for sales growth , how much are you organic expecting sales that to growth and acquisitions ?

Frank Sullivan: Morning, Mike.

Frank C. Sullivan: Morning, Mike.

Operator: Hey, good morning. Happy New Year. I guess with your outlook for Q3 and Q4 for sales growth, how much are you expecting that to be organic sales growth and acquisitions? I know you have a lot of acquisitions in there. Just curious if you had sort of a feel for how much organic growth is embedded in the Q3 and Q4 sales outlook.

Michael Sison: Hey, good morning. Happy New Year. I guess with your outlook for Q3 and Q4 for sales growth, how much are you expecting that to be organic sales growth and acquisitions? I know you have a lot of acquisitions in there. Just curious if you had sort of a feel for how much organic growth is embedded in the Q3 and Q4 sales outlook.

Speaker #8: And I know you have a lot of acquisitions in there, so just curious if you had sort of a feel for how much organic growth is embedded in the third- and fourth-quarter sales outlook?

Speaker #3: Okay. I think we're back on—there was a temporary drop there. In response to Mike's question: can you hear me?

Frank Sullivan: Okay. I think we're back on. Temporary drop there. In response to Mike Sison's question, can you hear me?

Frank C. Sullivan: Okay. I think we're back on. Temporary drop there. In response to Mike Sison's question, can you hear me?

Speaker #8: Yeah, I can hear you. That's fine.

Speaker #3: You okay. Thank you. Just to point back, I'll go to the monthly information we provided. You saw what we talked about in Q1.

Operator: Yeah, I can hear you. That's fine.

Michael Sison: Yeah, I can hear you. That's fine.

Frank Sullivan: Okay. Thank you. So I'll just point back to the monthly information we provided. You saw what we talked about in Q1. We talked about on slide three, the unit volume growth month by month, September, October, November. I just provided it for December. And it's our expectation that the focus growth investments that we are talking about drive organic growth. That's how we're going to leverage to the bottom line. And we provide quarter-by-quarter the breakout between organic growth, FX, and acquisitions. But it's our expectation that we will be seeing better organic growth in the second half as a result of the comments we've made earlier, easier comps, focus growth investments, and hopefully some improvement in market dynamics. But given the volatility we're seeing, again, it's anybody's guess as to whether January and February and subsequent months look like November or December, that we're starkly different.

Frank C. Sullivan: Okay. Thank you. So I'll just point back to the monthly information we provided. You saw what we talked about in Q1. We talked about on slide three, the unit volume growth month by month, September, October, November. I just provided it for December. And it's our expectation that the focus growth investments that we are talking about drive organic growth. That's how we're going to leverage to the bottom line. And we provide quarter-by-quarter the breakout between organic growth, FX, and acquisitions. But it's our expectation that we will be seeing better organic growth in the second half as a result of the comments we've made earlier, easier comps, focus growth investments, and hopefully some improvement in market dynamics. But given the volatility we're seeing, again, it's anybody's guess as to whether January and February and subsequent months look like November or December, that we're starkly different.

Speaker #3: We talked about on slide three . The unit volume growth month by month , September , October , November . I just provided it for December .

Speaker #3: And you know, it's our expectation that the focused growth investments that we are talking about drive organic growth. That's how we're going to leverage to the bottom line.

Speaker #3: And , you know , we provide quarter by the quarter breakout between organic growth FX and acquisitions . But it's our expectation that we will be seeing better organic growth in the second half .

Speaker #3: a As result of comments we made earlier the , easier comps , focused growth investments and some hopefully improvement in market dynamics . But given volatility the we're seeing , again , it's anybody's whether guess as to January and subsequent February and months look like November or December that were starkly different .

Speaker #3: And perhaps a little bit of an average, given the impact of the government shutdown. It's hard for us to know what that is.

Frank Sullivan: Perhaps a little bit of an average given the impact of the government shutdown. It's hard for us to know what that is, but I can tell you for us in every business, the negative impact of the shutdown was greater than zero.

Perhaps a little bit of an average given the impact of the government shutdown. It's hard for us to know what that is, but I can tell you for us in every business, the negative impact of the shutdown was greater than zero.

Speaker #3: But I can tell you, for us, in every business, the negative impact of the shutdown was greater than zero.

Speaker #8: it . Got And then I guess for the third quarter the outlook being with with mid-single digits in December , doing , you know , pretty strong .

Operator: Got it. And then I guess for Q3, with the outlook being mid-single digits, and December doing pretty strong, I mean, does that imply that January and February has tough comps and might be negative, or do you think we'll just be positive for the rest of the way?

Michael Sison: Got it. And then I guess for Q3, with the outlook being mid-single digits, and December doing pretty strong, I mean, does that imply that January and February has tough comps and might be negative, or do you think we'll just be positive for the rest of the way?

Speaker #8: I mean, does that imply that January and February have tough comps? It might be negative, or do you think we'll just be positive for the rest of the way?

Speaker #3: I think we'll be positive . But I don't know . And we will learn in January , for instance , how much of the real strength in December was picking up business in Q2 because of the government lost shutdown ?

Frank Sullivan: I think we'll be positive, but I don't know. We will learn in January, for instance, how much of the real strength in December was picking up lost business in Q2 because of the government shutdown, or how much of it is a release, for instance, of some of the good backlog that we continue to build in our construction products group and our performance coatings group. So if we had higher confidence, we'd be putting out maybe a better forecast. But given the volatility we're experiencing, it's hard to know as we sit here today.

Frank C. Sullivan: I think we'll be positive, but I don't know. We will learn in January, for instance, how much of the real strength in December was picking up lost business in Q2 because of the government shutdown, or how much of it is a release, for instance, of some of the good backlog that we continue to build in our construction products group and our performance coatings group. So if we had higher confidence, we'd be putting out maybe a better forecast. But given the volatility we're experiencing, it's hard to know as we sit here today.

Speaker #3: How much of it, or how is it a release, for instance, of some of the good backlog that we continue to have in our Build Group and our Performance Products Group?

Speaker #3: coatings And so if we had higher confidence , we'd putting out maybe a better forecast . given the But volatility , we're experiencing , it's hard to know .

Speaker #3: As we sit here today.

Speaker #8: Got it. Understood. Thank you.

Speaker #4: The next question comes from Josh Spector with UBS. Please go ahead.

Operator: Got it. Understood. Thank you.

Michael Sison: Got it. Understood. Thank you.

Speaker #3: Morning , Josh .

Operator: The next question comes from Josh Spector with UBS. Please go ahead.

Speaker #9: Hey good morning I Frank . have two quick follow ups just here . First , just going back to the transitory costs . I think last quarter you guys framed it at about 30 million and you had roughly equal buckets between healthcare .

Frank Sullivan: Morning, Josh.

Frank C. Sullivan: Morning, Josh.

Operator: Hey, good morning, Frank. I just have two quick follow-ups here. First, just going back to the transitory costs, I think last quarter you guys framed it at about $30 million, and you had roughly equal buckets between healthcare, some of the plant consolidation, and then SG&A growth. Is that the right number that was in the August quarter? And can you help us think about what that looks like over the next couple of quarters?

Joshua Spector: Hey, good morning, Frank. I just have two quick follow-ups here. First, just going back to the transitory costs, I think last quarter you guys framed it at about $30 million, and you had roughly equal buckets between healthcare, some of the plant consolidation, and then SG&A growth. Is that the right number that was in the August quarter? And can you help us think about what that looks like over the next couple of quarters?

Speaker #9: plant Some consolidation and then of the a growth that right number ? is the That was in the August quarter . help us And can you think about what that looks like over the next couple of quarters ?

Speaker #2: Sure . Yeah . Josh , looking at second quarter , healthcare was still issue . We had an , you know , probably in the 6 or 7 million range of higher healthcare costs of in terms impact , unfavorable impact on conversion costs .

Arun Viswanathan: Sure. Yeah. Josh, looking at Q2, healthcare was still an issue. We had probably in the 6 to 7 million range of higher healthcare costs. In terms of the impact, unfavorable impact on conversion costs, like I mentioned, that was about 1% of sales hitting our margins. So that's close to $20 million. And what was the third category you talked about?

Russell L. Gordon: Sure. Yeah. Josh, looking at Q2, healthcare was still an issue. We had probably in the 6 to 7 million range of higher healthcare costs. In terms of the impact, unfavorable impact on conversion costs, like I mentioned, that was about 1% of sales hitting our margins. So that's close to $20 million. And what was the third category you talked about?

Speaker #2: Mentioned, like I said, that was about our sales margins hitting 1%. So that's close to $20 million. And what was the third category you talked about?

Speaker #9: You had the plant consolidation, the investment, I think, is the third one.

Speaker #2: Yeah , the and investment is continuing . Of course , on a more selective basis , given the risk activity we're talking about .

Operator: I believe you had the plant consolidation. The SG&A investment, I think, is the third one.

Joshua Spector: I believe you had the plant consolidation. The SG&A investment, I think, is the third one.

Arun Viswanathan: Yeah. The SG&A investment is continuing, of course, on a more selective basis given the risk activity we're talking about.

Russell L. Gordon: Yeah. The SG&A investment is continuing, of course, on a more selective basis given the risk activity we're talking about.

Speaker #9: I Okay . just that last point on with the guess then SG&A , someone asked earlier about your saving costs , your investing , are you then investing less in some of the savings is that you're moving people around around there , or are cutting people you around that ?

Operator: Okay. I guess then just on that last point with the SG&A, I mean, someone asked earlier about your saving costs, your investing. Are you then investing less in some of the savings? Is that you're moving people around there, or are you cutting people around that? And I think just one other follow-up to sneak in there is that you said the cash costs, we won't know until April, I believe, but you think those costs are going to be ramping up over the next couple of months. So would there be a $60 to 70 million charge for that coming up shortly?

Joshua Spector: Okay. I guess then just on that last point with the SG&A, I mean, someone asked earlier about your saving costs, your investing. Are you then investing less in some of the savings? Is that you're moving people around there, or are you cutting people around that? And I think just one other follow-up to sneak in there is that you said the cash costs, we won't know until April, I believe, but you think those costs are going to be ramping up over the next couple of months. So would there be a $60 to 70 million charge for that coming up shortly?

Speaker #9: And I think just one other follow-up to sneak in there is that you said the cash costs—we won't know until April.

Speaker #9: I believe, but I think those costs are going to be on you over the next couple of months. So, wouldn't there be like a $6,070 million charge for that coming up shortly?

Speaker #3: the the Yeah , the details will provide in April . But two thirds of that will be realized here in the next few weeks .

Frank Sullivan: Yeah. The details we'll provide in April, but 2/3 of that will be realized here in the next few weeks. 1/3 will play out into the spring, particularly related to notice provisions and things like that in certain countries outside of the US. In terms of your earlier question, some of our expense reduction activities on a gross basis will be higher than the numbers we provided. Then we are reallocating some of those dollars into our best opportunities for growth. So certain of this is expense reduction and a structural realignment that we have been working on for some time. Given the challenging performance in October and November, we saw that as an opportunity to accelerate that.

Frank C. Sullivan: Yeah. The details we'll provide in April, but 2/3 of that will be realized here in the next few weeks. 1/3 will play out into the spring, particularly related to notice provisions and things like that in certain countries outside of the US. In terms of your earlier question, some of our expense reduction activities on a gross basis will be higher than the numbers we provided. Then we are reallocating some of those dollars into our best opportunities for growth. So certain of this is expense reduction and a structural realignment that we have been working on for some time. Given the challenging performance in October and November, we saw that as an opportunity to accelerate that.

Speaker #3: Third, we'll play into the spring, particularly as related to notice provisions and things like that in certain countries outside of the US.

Speaker #3: In terms of your earlier question, some of our reduction expense activities on a gross basis will be higher than the numbers we provided, and then we are reallocating some of those dollars into our best opportunities for growth.

Speaker #3: so certain of this is expense reduction and a structural realignment that we have been working on for some time . Given the challenging performance in October and , we November saw that opportunity to as an accelerate that and others is a of it reallocation of growth capital in our PNL from certain aren't growing to areas that areas that growing are nicely .

Frank Sullivan: Others of it is a reallocation of growth capital in our P&L from certain areas that aren't growing to areas that are growing nicely, and we intend to continue to support that.

Others of it is a reallocation of growth capital in our P&L from certain areas that aren't growing to areas that are growing nicely, and we intend to continue to support that.

Speaker #3: And we continue. We intend to continue to support that.

Speaker #9: Okay . Thank you .

Speaker #4: The question comes from David with Deutsche Begleiter Bank. Please go ahead.

Operator: Okay. Thank you.

Joshua Spector: Okay. Thank you.

Operator: The next question comes from David Begleiter with Deutsche Bank. Please go ahead.

Speaker #4: .

Speaker #10: you . Frank , staying on the cost issue Thank of the map 3.0 savings . How much is being pulled into this program ?

Arun Viswanathan: Thank you. Frank, staying on the cost issue, of the MAP 3.0 savings, how much is being pulled into this program? Is it the majority? Is it a minority? Or is it a large amount?

David Begleiter: Thank you. Frank, staying on the cost issue, of the MAP 3.0 savings, how much is being pulled into this program? Is it the majority? Is it a minority? Or is it a large amount?

Speaker #10: Is it the majority? Is it a minority, or is it a large amount?

Speaker #3: As you know, we've laid out the plans that we're executing today. On a net basis, they're expected to have about a $100 million impact, with $75 million of that being net additional to fiscal '27.

Frank Sullivan: As we've laid out, the plans that we're executing today on a net basis will have about a $100 million impact. $75 million of that will be a net additional to fiscal 2027. And then we will provide more detail, as I said, either in a July call or in a separate investor day about the details of MAP 3.0 that will incorporate manufacturing efficiency, procurement, as well as a more methodical approach to SG&A. And so it will be at least $75 million, but likely higher. But again, the details will be provided this summer.

Frank C. Sullivan: As we've laid out, the plans that we're executing today on a net basis will have about a $100 million impact. $75 million of that will be a net additional to fiscal 2027. And then we will provide more detail, as I said, either in a July call or in a separate investor day about the details of MAP 3.0 that will incorporate manufacturing efficiency, procurement, as well as a more methodical approach to SG&A. And so it will be at least $75 million, but likely higher. But again, the details will be provided this summer.

Speaker #3: And then we will provide more detail , as I either in our said , July call or in a separate Investor Day about the details of map 3.0 that will incorporate manufacturing efficiency , procurement as well as a a more methodical approach to a .

Speaker #3: And be it will so at least 75 million . likely higher But . But again , the details will will be provided . This summer

Speaker #10: of these And costs you laid out today , how much are manufacturing versus SG&A and are you closing plans ? Obviously you're firing people , but what functions are those people doing today and how are they being replaced ?

Operator: Of these costs you laid out today, how much are manufacturing versus SG&A? Are you closing plants? Obviously, you're firing people, but what functions are those people doing today, and how are they being replaced?

David Begleiter: Of these costs you laid out today, how much are manufacturing versus SG&A? Are you closing plants? Obviously, you're firing people, but what functions are those people doing today, and how are they being replaced?

Speaker #3: So, in some instances, it's a lot of reallocation—certain spending in one place to from another. Of the $100 million, probably $10 or $15 million will impact goods cost of sold.

Frank Sullivan: So in some instances, it's a reallocation of certain spending from one place to another. Of the $100 million, probably $10 or 15 million will impact cost of goods sold, but the balance of it will be in SG&A. And again, in terms of more specifics, we'll provide it in April as we are in the midst of executing right now.

Frank C. Sullivan: So in some instances, it's a reallocation of certain spending from one place to another. Of the $100 million, probably $10 or 15 million will impact cost of goods sold, but the balance of it will be in SG&A. And again, in terms of more specifics, we'll provide it in April as we are in the midst of executing right now.

Speaker #3: But the it will be an G&A . And again , in terms of more specifics , we'll in provide it April as we are in midst of the executing right now .

Speaker #10: Thank you .

Speaker #4: Next question comes from Vincent Andrews with Morgan Stanley. Please go ahead.

Operator: Thank you.

David Begleiter: Thank you.

Speaker #11: Thank you . And good morning . If I could ask on the Thanks . government . Good morning . On shutdown , can government you just talk a the on the little bit about how much of your sales are sold directly to government contractors and the different segments versus , you know , sales to traditional customers that working on are projects might be funded by by the government ?

Operator: The next question comes from Vincent Andrews with Morgan Stanley. Please go ahead.

Arun Viswanathan: Thank you. Good morning. If I could ask on the government.

Vincent Andrews: Thank you. Good morning. If I could ask on the government.

Frank Sullivan: Good morning.

Frank C. Sullivan: Good morning.

Arun Viswanathan: Thanks. Good morning. On the government shutdown, can you just talk a little bit about how much of your sales are sold directly to government contractors in the different segments versus sales to traditional customers that are working on projects that might be funded by the government? Are we talking 5% ±? Is that the order of magnitude? And so when that goes to zero, it's meaningful? Maybe we could start there.

Vincent Andrews: Thanks. Good morning. On the government shutdown, can you just talk a little bit about how much of your sales are sold directly to government contractors in the different segments versus sales to traditional customers that are working on projects that might be funded by the government? Are we talking 5% ±? Is that the order of magnitude? And so when that goes to zero, it's meaningful? Maybe we could start there.

Speaker #11: Or we talking , you know , Is that the minus . 5% plus or order of magnitude ? And so when that goes to zero , it's it's meaningful .

Speaker #11: We could, we maybe could start there.

Speaker #3: Sure. We don't sell a lot direct to the federal government. It has a lot to do with state and local spending that's tied to some government subsidies.

Frank Sullivan: Sure. We don't sell a lot direct to the federal government. A lot of it has to do with state and local spending that's tied to some government subsidies. So for instance, in schools, there are a number of state and federal programs, education particularly impacting our construction products group. Probably 20% of their revenues is tied to the education market. And so you saw both government shutdown-wise and let's call it Washington dysfunction-wise, some dynamics that froze the different funding elements of public education. We're starting to see that unfreeze, which is a good thing. And so it's more the follow-on effect of education funding and some infrastructure as opposed to any specific direct business. We don't do much, if any, direct GSA business, for instance.

Frank C. Sullivan: Sure. We don't sell a lot direct to the federal government. A lot of it has to do with state and local spending that's tied to some government subsidies. So for instance, in schools, there are a number of state and federal programs, education particularly impacting our construction products group. Probably 20% of their revenues is tied to the education market. And so you saw both government shutdown-wise and let's call it Washington dysfunction-wise, some dynamics that froze the different funding elements of public education. We're starting to see that unfreeze, which is a good thing. And so it's more the follow-on effect of education funding and some infrastructure as opposed to any specific direct business. We don't do much, if any, direct GSA business, for instance.

Speaker #3: So for instance , in schools , you know , there are a number of state and federal programs , education impacting our , particularly construction products group , probably 20% of their revenues is tied to the education market .

Speaker #3: And so you saw, both government shutdown-wise and, let's call it, Washington dysfunction-wise, some dynamics that froze the different funding elements of public education.

Speaker #3: We're starting to see that unfreeze , which is a good thing . And so it's it's more the follow on effect of education funding .

Speaker #3: And some as infrastructure, as opposed to any specific business. Direct doesn't do much, if any, direct GSA business, for instance.

Speaker #11: Okay , that's that's helpful . And then on 100 million , if the you could just help us think about how that's going to be spread across the three segments , that would that would be helpful .

Arun Viswanathan: Okay. That's helpful. Then on the $100 million, if you could just help us think about how that's going to be spread across the three segments, that would be helpful.

Vincent Andrews: Okay. That's helpful. Then on the $100 million, if you could just help us think about how that's going to be spread across the three segments, that would be helpful.

Speaker #3: Sure. We'll provide that detail in April. We are in the midst of executing, and people deserve to understand what's happening within our PM.

Frank Sullivan: Sure. We'll provide that detail in April. We are in the midst of executing, and people deserve to understand what's happening within RPM before people hear it publicly. It's pretty much that simple.

Frank C. Sullivan: Sure. We'll provide that detail in April. We are in the midst of executing, and people deserve to understand what's happening within RPM before people hear it publicly. It's pretty much that simple.

Speaker #3: People here at RPM are pretty much simple about that, publicly.

Speaker #11: Okay .

Speaker #11: Fair you

Speaker #11: you very

Speaker #3: .

Speaker #4: The next question comes from Zukauskas Jeff, JP Morgan. Please go ahead.

Arun Viswanathan: Okay. Fair enough. Thank you very much.

Vincent Andrews: Okay. Fair enough. Thank you very much.

Frank Sullivan: Thank you.

Frank C. Sullivan: Thank you.

Speaker #3: Morning , Jeff .

Operator: The next question comes from Jeffrey Zekauskas with J.P. Morgan. Please go ahead.

Speaker #12: Hi. Good morning. Happy New Year.

Speaker #3: year Happy new .

Frank Sullivan: Morning, Jeff.

Frank C. Sullivan: Morning, Jeff.

Speaker #12: Fiscal 2025, in your SG&A, growth was pretty flat. And the year, two quarters of it, it's up about 10%, which is about $50 million a quarter you speak in.

Operator: Hi. Good morning. Happy New Year.

Jeffrey J. Zekauskas: Hi. Good morning. Happy New Year.

Frank Sullivan: Happy New Year.

Frank C. Sullivan: Happy New Year.

Operator: In fiscal 2025, your SG&A growth was pretty flat. For the first two quarters of the year, it's up about 10%, which is about $50 million a quarter. Can you speak in general to what exactly has happened? When you talk about a $100 million reduction in SG&A, what are you trying to accomplish with this? What's happening to the overall rate of your SG&A growth?

Jeffrey J. Zekauskas: In fiscal 2025, your SG&A growth was pretty flat. For the first two quarters of the year, it's up about 10%, which is about $50 million a quarter. Can you speak in general to what exactly has happened? When you talk about a $100 million reduction in SG&A, what are you trying to accomplish with this? What's happening to the overall rate of your SG&A growth?

Speaker #12: Can you, in general, talk about what exactly has happened and when? And when you talk about the $100 million reduction in G&A, what are you trying to accomplish with this?

Speaker #12: What's happening to the overall known rate of your SG&A growth?

Speaker #3: Sure . I would tell you , broadly speaking , in terms of expenses , think of it I as in three categories . One is some higher corporate expenses related to health care insurance and in particular , which extraordinary M&A .

Frank Sullivan: Sure. I would tell you, broadly speaking, in terms of expenses, I think of it as in three categories. One is some higher corporate expenses related to healthcare, insurance, and, in particular, which is extraordinary, M&A. We've done a lot of M&A transactions overseas, and they have a higher cost rate versus what we do in the US. So that's part of it. The second one is some of the follow-on to the MAP initiatives in terms of finalizing plant consolidations and/or consolidating distribution and warehousing. I'll give you one example of what that is practically. The largest North American plant, actually the largest plant globally for Tremco, was in Canada. We sold that plant two years ago and have had a window to move all that production to mostly the United States. Has nothing to do with geopolitics.

Frank C. Sullivan: Sure. I would tell you, broadly speaking, in terms of expenses, I think of it as in three categories. One is some higher corporate expenses related to healthcare, insurance, and, in particular, which is extraordinary, M&A. We've done a lot of M&A transactions overseas, and they have a higher cost rate versus what we do in the US. So that's part of it. The second one is some of the follow-on to the MAP initiatives in terms of finalizing plant consolidations and/or consolidating distribution and warehousing. I'll give you one example of what that is practically. The largest North American plant, actually the largest plant globally for Tremco, was in Canada. We sold that plant two years ago and have had a window to move all that production to mostly the United States. Has nothing to do with geopolitics.

Speaker #3: We've done a lot of M&A transactions overseas, and they have a higher complete cost rate versus what we do in the U.S.

Speaker #3: And so that's part of it . The second one is some of the follow on to the map initiatives . terms of In finalizing plant consolidations and or consolidating distribution and warehousing , I'll give you one example that of what is practically the largest North American plant .

Speaker #3: Actually, the largest plant globally for Tremco was in Canada—we sold that. We planned two years ago and have had a window to move all that production to mostly the United States. Has nothing to do with geopolitics.

Speaker #3: It was a plant that was in the sticks 30 years ago, and suburban Toronto has been that surrounding plant. And so we had an opportunity to sell that for a nice price, recognizing we were getting regulatorily moved out of that space.

Frank Sullivan: It was a plant that was in the sticks 30 years ago, and suburban Toronto has been surrounding that plant. So we had an opportunity to sell that for a nice price, recognizing we were getting regulatorily moved out of that space. We are incurring duplicate inventory. We are incurring duplicate production costs as we move that mostly from Toronto to Georgia and Texas. And that should be completed by the end of March. So that is the type of duplicate conversion cost that we're seeing there. We're also seeing it in Europe and parts of the US as we consolidate distribution, all of which should make us more efficient in the future, but which right now is hurting us. And then the third category, Jeff, is what we talked about, growth investments.

It was a plant that was in the sticks 30 years ago, and suburban Toronto has been surrounding that plant. So we had an opportunity to sell that for a nice price, recognizing we were getting regulatorily moved out of that space. We are incurring duplicate inventory. We are incurring duplicate production costs as we move that mostly from Toronto to Georgia and Texas. And that should be completed by the end of March. So that is the type of duplicate conversion cost that we're seeing there. We're also seeing it in Europe and parts of the US as we consolidate distribution, all of which should make us more efficient in the future, but which right now is hurting us. And then the third category, Jeff, is what we talked about, growth investments.

Speaker #3: We are incurring duplicate inventory. We are incurring duplicate production costs as we move that mostly from Toronto to Georgia and Texas. That should all be completed by the end of March.

Speaker #3: So, that is the type of duplicate costs that we're, conversely, seeing there. We're also seeing it in Europe and parts of the US as we—the distribution.

Speaker #3: All of which should make us more consolidated and efficient in the future. Right now, though, what is hurting is— and the third category, then, Jeff, is what we've talked about: growth investments.

Speaker #3: We had a deliberate belief that we could invest in certain areas . After frustrating year and a a half of low growth , no growth growth , no growth or two years of low environment .

Frank Sullivan: We had a deliberate belief that we could invest in certain areas after a frustrating year and a half of low growth, no growth, or two years of low growth, no growth environment. That was proving true through five months. We had better growth rates in most categories than our peers. September reinforced that because sales, organic growth, and leverage to the bottom line was actually better than Q1. For some reasons we understand and some reasons we're just guessing at, that fell apart in October and November. Last comment I'll make is that the structural SG&A changes are things that we've been working on for some time. As I commented, we made the decision to put off communications on a new long-term strategic plan until this summer.

We had a deliberate belief that we could invest in certain areas after a frustrating year and a half of low growth, no growth, or two years of low growth, no growth environment. That was proving true through five months. We had better growth rates in most categories than our peers. September reinforced that because sales, organic growth, and leverage to the bottom line was actually better than Q1. For some reasons we understand and some reasons we're just guessing at, that fell apart in October and November. Last comment I'll make is that the structural SG&A changes are things that we've been working on for some time. As I commented, we made the decision to put off communications on a new long-term strategic plan until this summer.

Speaker #3: And that was proving true through five months. You know, we had better rates in growth in most categories than our peers. September reinforced that because sales, organic growth, and leverage to the bottom line was actually better than Q1.

Speaker #3: And for some reasons , we understand in some reasons we're just guessing at fell apart that in October and November . Last comment I'll make is , is that the structural G&A changes are things that we've been working on for some I time .

Speaker #3: And as commented, we made the decision to put off communications on a new long-term strategic plan until this summer. So a lot of this is work in progress.

Speaker #3: As opposed a to quick reaction to a short , hopefully a short term temporary downturn .

Frank Sullivan: A lot of this is work in progress as opposed to a quick reaction to hopefully a short-term temporary downturn.

A lot of this is work in progress as opposed to a quick reaction to hopefully a short-term temporary downturn.

Speaker #12: Okay . And thank you for that . then And quickly for your acquisition effects in fiscal Are accretive to your 26 . margins do they or trim margins .

Operator: Okay. Thank you for that. Then quickly, for your acquisition effects in fiscal 2026, are they accretive to your margins, or do they trim your margins?

Jeffrey J. Zekauskas: Okay. Thank you for that. Then quickly, for your acquisition effects in fiscal 2026, are they accretive to your margins, or do they trim your margins?

Speaker #3: So in fiscal '26, end of fiscal '25 and fiscal '26, they have hurt our margins. Most of that is transaction costs we have.

Frank Sullivan: So in fiscal 2026, end of fiscal 2025 and fiscal 2026, they have hurt our margins. Most of that is transaction costs. We have significant transaction costs, for instance, on The Pink Stuff and Ready Seal that was at the end of last fiscal year and into the first quarter. Most of these small transactions that I've talked about have been overseas in our construction products group. We're very excited about them, but they carry a relatively higher transaction cost in terms of legal fees and due diligence fees relative to the size of their revenues. Excluding transaction costs, which of course flow through our P&L, they're modestly accretive, and we expect them to be very nicely accretive in the coming years.

Frank C. Sullivan: So in fiscal 2026, end of fiscal 2025 and fiscal 2026, they have hurt our margins. Most of that is transaction costs. We have significant transaction costs, for instance, on The Pink Stuff and Ready Seal that was at the end of last fiscal year and into the first quarter. Most of these small transactions that I've talked about have been overseas in our construction products group. We're very excited about them, but they carry a relatively higher transaction cost in terms of legal fees and due diligence fees relative to the size of their revenues. Excluding transaction costs, which of course flow through our P&L, they're modestly accretive, and we expect them to be very nicely accretive in the coming years.

Speaker #3: significant You know , transaction costs , for the pink instance , on stuff and red seal . That was at the last end of fiscal year and into the first quarter , most of these small transactions that I've talked about have been overseas in our construction products group .

Speaker #3: We're very excited about them , but they carry a higher relatively transaction cost in terms of legal fees and due diligence fees the size of their revenues relative to , excluding transaction costs , course , flow through our PNL .

Speaker #3: They are, modestly, and we expect them to be very nicely accretive in the coming years. But for the first half of fiscal '26, they have, as you've heard us say, been dilutive, principally because of the high costs.

Frank Sullivan: But for H1 2026, they have hurt us and been dilutive principally because of the high costs, and we referenced that as part of the higher corporate expense.

Jeffrey J. Zekauskas: But for H1 2026, they have hurt us and been dilutive principally because of the high costs, and we referenced that as part of the higher corporate expense.

Speaker #3: And we referenced that as part of the higher corporate expense.

Speaker #12: Yep. Okay. Thank you very much.

Speaker #3: Thank . you

Speaker #4: As a reminder, if you would like to ask a question, please press star, then one, to join the question queue. The next question comes from Aleksey Efremov with KeyBanc Capital Markets.

Operator: Yep. Okay. Thank you very much.

Jeffrey J. Zekauskas: Yep. Okay. Thank you very much.

Frank Sullivan: Thank you.

Frank C. Sullivan: Thank you.

Operator: As a reminder, if you would like to ask a question, please press star, then one to join the question queue. The next question comes from Aleksey Yefremov with KeyBanc Capital Markets. Please go ahead.

Speaker #4: Please go ahead .

Speaker #3: Thanks . Good

Speaker #13: Morning. I mentioned earlier, backlogs remain healthy. So, as it stands, your backlogs today—are they the same or higher than three months ago, or have your backlogs declined?

Frank Sullivan: Thanks. Good morning.

Aleksey Yefremov: Thanks. Good morning.

Operator: I think you mentioned earlier backlogs remain healthy. So should we take it as your backlogs today are same or higher than three months ago, or have your backlogs declined?

I think you mentioned earlier backlogs remain healthy. So should we take it as your backlogs today are same or higher than three months ago, or have your backlogs declined?

Speaker #3: So our backlogs are stable in our Performance Coatings Group, and our backlogs continue to grow in the Construction Products Group.

Frank Sullivan: Our backlogs are stable in our Performance Coatings Group, and our backlogs continue to grow in the Construction Products Group.

Frank C. Sullivan: Our backlogs are stable in our Performance Coatings Group, and our backlogs continue to grow in the Construction Products Group.

Speaker #13: Got it. Facilities— and in terms of consolidations, I mean, you talked about the first half of this fiscal year. Could you give us any sense of what to expect in terms of future actions in the second half of '26 and perhaps in '27, even directionally? Are facilities consolidations going to continue at about the same pace, or at a higher or lower pace of costs related to these actions?

Operator: Got it. In terms of facilities consolidations, I mean, you talked about first half of this fiscal year. Could you give us any sense of what to expect in terms of future actions in the second half of 2026 and perhaps in 2027, even directionally, are facilities consolidations going to continue at about the same pace or higher or lower pace of costs related to these actions?

Aleksey Yefremov: Got it. In terms of facilities consolidations, I mean, you talked about first half of this fiscal year. Could you give us any sense of what to expect in terms of future actions in the second half of 2026 and perhaps in 2027, even directionally, are facilities consolidations going to continue at about the same pace or higher or lower pace of costs related to these actions?

Speaker #3: So we're developing that . And again , details on a broader , longer term approach or something we expect to publicly this communicate summer .

Frank Sullivan: We're developing that. Again, details on a broader longer-term approach are something we expect to communicate publicly this summer.

Frank C. Sullivan: We're developing that. Again, details on a broader longer-term approach are something we expect to communicate publicly this summer.

Speaker #13: Okay. Thanks a lot.

Speaker #3: Thank you .

Speaker #4: This concludes our question and answer session . I would like to turn the conference back over to Frank Sullivan , chairman and CEO , for any closing remarks .

Operator: Okay. Thanks a lot.

Aleksey Yefremov: Okay. Thanks a lot.

Frank Sullivan: Thank you.

Frank C. Sullivan: Thank you.

Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Frank Sullivan, Chairman and CEO, for any closing remarks.

Speaker #3: Thank you . And thank you for participating on today's call . We're executing an SGA structure realignment that we see as a payment on our new long down strategic term plan .

Frank Sullivan: Thank you. Thank you for participating in today's call. We're executing an SG&A structural realignment that we see as a down payment on our new long-term strategic plan. We look forward to providing details on a new MAP 3.0 later this year. In the meantime, we are focused on outgrowing our underlying markets and controlling what we can. This strategy will help us navigate the current economic challenges and volatility, and position us for outperformance as markets recover. Thank you again for your participation on our call today, and we wish everybody a happy New Year.

Frank C. Sullivan: Thank you. Thank you for participating in today's call. We're executing an SG&A structural realignment that we see as a down payment on our new long-term strategic plan. We look forward to providing details on a new MAP 3.0 later this year. In the meantime, we are focused on outgrowing our underlying markets and controlling what we can. This strategy will help us navigate the current economic challenges and volatility, and position us for outperformance as markets recover. Thank you again for your participation on our call today, and we wish everybody a happy New Year.

Speaker #3: We look forward to providing new details on a map . 3.0 later this year . In the meantime , we focused on are outgrowing our underlying markets and controlling what we can .

Speaker #3: This strategy will help us navigate the current economic challenges and volatility, and position us for outperformance as markets recover. Thank you again for your participation on our call today, and we wish everybody a Happy New Year.

Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Q2 2026 RPM International Inc Earnings Call

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