Q1 2020 Earnings Call
Welcome to the RPM Internationals conference call for the fiscal 2021st quarter.
Today's call is being recorded.
This call is also being webcast and can be accessed slide or weekly.
Yeah website at Www Dot RPM I see dot com.
Comments made on this call may include forward looking statements based on current expectations that involve risks and uncertainties, which could cause actual results to be materially different.
For more information on that's risk uncertainties. Please review Rpms report filed with the FCC.
During this conference call My first yes, maybe made to non-GAAP financial measures.
To assist you in understanding this non-GAAP termed RPM has posted reconciliations to the most directly comparable GAAP financial measures on the RPM website.
Following today's presentation, there will be a question and answer session.
At which time, if you wish to ask a question you'll need to press Star then one on your telephone.
Please note that only financial analyst well be permitted to ask questions.
At this time I like to turn the call over to RPM, Chairman and CEO Mr. Frank Solomon for opening remarks. Please go ahead Sir.
Thank you held up good morning, and welcome to the RPM International like Investor call for our fiscal 2021st quarter ended August 30, 129 team on the call with me today are Rusty Gordon RPM, as Vice President and Chief Financial Officer, and Matt Ratajczak, Our Vice President Global tax and Treasury, who is leading our investor.
Relations function.
I'll provide some high level commentary on our first quarter results and an update on or 2020 map. The growth operating improvement plan then Matt will review the first quarter numbers in more detail Rusty will wrap up our prepared remarks with our outlook for the remainder of fiscal 2020, after which we'll be happy to answer your questions.
The benefits of our 2020 map the growth operating improvement plan, which really began to take hold.
What are of last year carried over into the first quarter of fiscal 2020 and generated significant earnings leverage.
Initiatives, the pro particularly beneficial included actions to rationalize our manufacturing and distribution footprint improved production processes and strengthen our supplier relationships through center led procurement.
In particular during the first quarter, we announced the closure of three additional plants, which brings our total to 15.
Out of 31, which are targeted for the total program. Additionally, we continue to streamline our workforce with approximately 80 additional reductions which brings our total over the course of restructuring to slightly more than 600.
On a consolidated basis, we realized 2020 map the gross savings in the first quarter the totaled $26 million 7 million for manufacturing and operations 7 million for procurement and 12 million from DNA, all of which flowed through our piano.
These efforts resulted in an increased adjusted EBIT of 25.3% and adjusted diluted earnings per share of 25% over the prior year quarter, which exceeds our guidance. Despite modest sales growth in the quarter, which we had anticipated. This was a direct result of three factors number.
For one the decision to exit low margin product line to and businesses as we pursue a value value over volume strategy in certain businesses.
For the fiscal 2020 year this will reduce revenues by approximately $40 million in total.
Also we had an expert extremely wet June that slowed painting, and construction activity, which particularly impacted our consumer segment and our construction products group.
And sluggish international markets, particularly in Europe , coupled with unfavorable foreign exchange impact on a transactional and transit translational basis.
I should note that the improvement in EBIT margin not just contained to one or two segments, but were spread across the entire enterprise, which demonstrates the breadth and effectiveness of our 2020 map the growth operating improvement program across RPM.
We continue to have a positive outlook on the outcomes of restructuring program and as a result repurchased approximately $100 million of our common shares during the quarter. This was a day. In addition to the 200 million we repurchased during fiscal 2019, when combined with a 200 million Caf redemption of our convertible notes in November of 2018.
We are approximately halfway to our 2020 map to growth goal of repurchasing a billion dollars of our stock.
I'll now turn the call over to Matt write a check for more detailed review of our financial result in the quarter.
Thanks, Frank and good morning, everyone before walking through our financial review I'd like to remind you of two changes that we communicated our last earnings release on July 20 seconds.
First beginning this quarter there was a changing classification of shipping costs paid to third party shippers. We recast these cost for best DNA and the cost of goods sold.
This change puts us in line with how our peers and most other manufacturers classify shipping costs.
Thats investors with a better point of comparison, it does not impact EBIT.
Second we realigned the business and a four reportable operating segments from our previous three operating segments.
New operating segments are the construction products group.
Performance coatings group consumer group, especially products group.
The goals of this change are twofold positioned the business for accelerate growth and also provide investors with greater visibility into the company, while providing better comparability among our peers.
Starting with this first quarter, we're reporting our results are this for segment structure.
We are providing comparable fiscal 2019 financials that have been recast to reflect both the changing classification shipping costs and the effect of the segment realignment.
Next I'll walk through our financial results for the quarter. Please note that my comments will be on an as adjusted basis.
During the quarter, we achieved record consolidated net sales of 1.47 billion compared to the 1.46 billion reported during the first quarter fiscal 2019.
Danek sales growth was nearly flat acquisitions contributed 2.3% to sales for 34.1 million of foreign exchange.
Was once again, a headwind that reduced sales by 1.3% were 19.5 million.
As Frank indicated our strong bottom line performance was primarily driven by our operating improvement initiatives, which generates significant earnings leverage.
Also contributed the bottom line with some margin recovery, resulting from last year's price increases.
A material costs were up slightly than we experienced increased costs for labor.
First quarter EBIT increased 25.3% to 192.6 million diluted EPS increased 25% to 95 cents per diluted share, 76% centsper diluted share a year ago.
The combination of our share repurchases and last year's convertible bond retirement resultant five cents per diluted share accretion for the quarter.
Now turning to our segments.
Sales, our construction products group increased 3.6% to $536.1 million. During this year's first quarter, primarily driven by acquisition growth of 4.4%, resulting from the Dura Anshul transactions.
Organic growth added 0.7%, while foreign exchange reduced sales by 1.5%.
This segment also benefited from strong performance for our basement waterproofing solutions business as well as recovering our Brazilian operation, which generated significant sales growth.
Impacting our north American businesses, and the segment, where labor shortages and June additions that delayed construction activity.
Additionally, sales were discontinued in certain product lines and geographies as a result of strategic decisions to exit low margin high risk working capital operations.
Segment, EBIT increased 23.1% or 16.3 million to 86.9 million.
Improvement in EBIT was substantially driven by savings from our restructuring program, including management Delayering plant rationalization and improved manufacturing disciplines.
Sales in our performance coatings group were 297.2 million.
Organic growth was 0.4%.
Acquisitions added 1.8%, while foreign exchange reduced sales by 1.9%.
By modest sales growth savings from our 2020 map the growth plan provided significant earnings leverage in the segment.
EBIT increased 31% to $36.9 million during the first quarter fiscal 2020.
The performance coatings group generate the highest earnings growth out of all of our segments. During this quarter driven by reduction in its operating footprint and strategic decisions to exit low margin businesses.
The second also benefited from management delayering as executes a reorganization towards the global brand management structure.
And the consumer group sales were $479.3 million during the first quarter fiscal 2020.
Organic sales increased 0.1% while acquisition growth contributed 1.3%.
Foreign currency translation reduced sales by 1%.
Segment sales were dampened by four factors first a difficult comparison of the prior year due to load ins.
A soft economy in the UK related to Brexit.
Third rainy weather in June .
For the FERC promotional activity, but big box retailers.
EBIT was 61.7 million an increase of 18.6% over the prior year.
Consumer groups improvement in EBIT was largely due to a favorable year over year comparison, resulting from 10 million and associated costs from legal settlements during the first quarter of fiscal 2019.
Additionally segment results in the first quarter were impacted by confluence of factors.
Part of our map the growth program, which we kicked off over one year ago, we reduced head count and rationalize our manufacturing footprint.
These initiatives, let the Bottomline savings.
However, greater than expected market share gains at the end of that why 19, let elevated cost incurred by outsourcing production in order to service this increased demand.
As a result, we're investing in new equipment, improving production method and leveraging our internal manufacturing network to provide increased capacity and produce more efficiently.
Specialty products group experienced sluggish demand on the OEM manufacturing and international markets get serves which impacted the topline.
Segment sales were 160 point.
First quarter fiscal 2020.
Organic sales decreased 4.3% and foreign currency translation reduced sales by 0.8%. However on the bottom line EBIT margin improved by 230 basis points during the quarter and EBIT increased by $2.2 million were 8.5% to 28.6 million.
This was due to good cost discipline manufacturing yield improvements and restructuring activities from our 2020 map to growth program.
Next a few comments on cash flow on our effective income tax rate.
During the fiscal 2021st quarter cash generated from operations was 145.1 million compared to cash used for operations of 7.1 million a year ago.
This increase was due to improved earnings and margin improvement initiatives as well as a carryover impact from the prior year removal of certain early cash payment discounts, which effectively shipped approximately 100 million and receipts from the fourth quarter of fiscal 2019 to the first quarter fiscal 2020, which we discussed on previous earnings release.
Lastly, as expected our effective income tax rate for the quarter was higher this year versus the prior years first quarter, which was impacted by more favorable discrete tax benefits.
Higher effective tax rate resulted in lower diluted EPS of five cents as compared to last year's first quarter.
I'll now turn the call over to Rusty for details on our are at our outlook for the remainder of fiscal 2020.
Thanks, Matt.
As we look ahead to the second quarter fiscal 2020, we expect to generate consolidated sales growth of 2% to 3%.
We expect to leverage the sales growth to the bottom line for an estimated 20% to 24% adjusted EBIT growth, resulting in adjusted diluted EPS in the low to mid 70 cents range.
Looking ahead to our fiscal 2023rd and fourth quarters, it's important to note the seasonality in our business historically, our third quarter provides our most modest results each year because it falls during the winter months of December through February when painting and construction activity slow.
We.
Due to cold and snowy weather.
Our fourth quarter results are generally stronger as work begins to accelerate on painting and construction projects.
Given our first quarter results and our expectations for the remainder of the fiscal year, we affirmed that fiscal 2020 full year guidance. We provided on July 22nd 2019.
Revenue growth is anticipated to be at the low end of our previously disclosed range of 2.5% to 4%.
Despite the tightening of our revenue growth assumption, we expect to leverage the positive momentum of the 2020 map to growth operating improvement plan to our bottom line results.
Therefore, we are maintaining our adjusted EBIT growth guidance in the 20% to 24% range as previously reported in July .
We expect this to result in adjusted diluted EPS between $3.30 share and $3.42 a share for the full year of fiscal 2020.
This concludes our formal comments at this point, we will be pleased to take your questions.
Thank you we will now begin the question and answer session.
We have a question. Please press Star then one on your Touchtone phone.
If you wish to be remark from the Q. Please press the pound site Taski.
If you are using a speaker phone you may need to pickup.
Before proceeding the numbers.
Once again, if you have a question. Please press Star then one on your touched telecom.
Sure.
We have a question from John Mcnulty from BMO.
Good morning, John .
Yes. Good morning. Thanks, Thanks, Frank for taking my question and congratulations on solid results.
I guess a couple of questions. The first one would be in the consumer business sounds like some of the new business that you'd want to has has been big enough, where you actually had to outsource some of the some of the production for that at least I guess, how long do you expect that to last before you kind of right size the business to the to the growth that you've won and and how should we think about the cost pressures.
You are seeing and when they start to subside there sure.
You will start to see a meaningful improvement in the second quarter and we're seeing it as we speak.
The first quarter results for consumer are not indicative of what theyre doing now or what they will be doing for the balance of the year. We had two issues number one was signet significant market share gains throughout the year starting in the first quarter last year with the wood stains and finishes pick up and then the second issue.
I candidly with some self inflicted wounds.
That resulted in some.
Manufacturing issues. When you are closing plants and you are as we are across RPM instituting common manufacturing measurements and disciplines.
Pretty aggressively across your businesses.
And you've got a business in this case rust oleum that was operating near capacity, we caused some hiccups so.
So that resulted in outsourcing.
At significantly higher costs, most of that is behind us and we will be spending.
This year and into early next somewhere around $30 million and additional paint, making and filling capacity to continue to meet the demands in the marketplace. So.
Those are issues that negatively impacted our first quarter that really have a good story underneath them and you will see.
Somewhat higher sales growth.
And leverage to the bottom line on the EBIT line and consumer that's more consistent with the leverage you're seeing across RPM on a consolidated basis starting in Q2.
Got it that's that's helpful. And then the and then with regard to Michael solve and I know he started with you I guess now a few months ago, I guess any first impressions or thoughts on new opportunities around around the map to growth program from it.
Sure So Mike Solomons off to a great start just to remind folks see started officially in June .
We have regularly scheduled board meetings, starting this afternoon and tomorrow and our annual meeting of stockholders, who will be presenting.
To our board and he'll be present, our stockholders meeting.
And.
He is identifying.
Some different areas.
And also completing the build out of the internal team that we need to.
To continue the operating improvement and continuous improvement initiatives that we've undertaken at RPM. So I would expect us to see a phase out of what has been a significant.
Month by month in quarter by quarter third party consulting costs as we get into calendar 2020.
He is off to a great start.
Great and then maybe just one last question it sounds like on the raw material front. It was maybe a little bit more benign than it had been in the prior couple of quarters, but not necessarily a surge in improvement I guess, how are you thinking about raw materials as we look out through the rest of the year given that it looks like a lot of commodity prices really have rolled over recently.
Sure we are seeing some relief in major categories.
And thats, partly reflected in our numbers.
We have continued to see.
Some.
Tariff and metal can impact.
Those things should ease again I would remind people that were on a FIFO basis, so you're looking at raw material issues.
We are dealing with 60 or 90 days ago that are showing up in our results. Today. So it is a much more benign environment than it's been over the past two years.
The biggest part of the gross margin improvement and raw material improvement had been from the centralized procurement effort that we have undertaken in earnest.
Great. Thanks, a lot for the color.
Thanks, John .
Our next question comes from Brac from Miss from Fermium Research.
Good morning, Frank.
Hi, guys it disease on for Frank I as these.
Hi.
First question I was hoping that you get some of the underlying expectations of the construction markets that underpin the EBIT and EPS forecasts.
So the the construction products group.
As a newly configured group over the past year under the leadership, Paul who boom and his team are off to a great start.
And I think the.
The results.
In the top line, which were up 3.6% will.
Reflect well when other.
Similar companies public compared to September 30 results, but we are exiting product lines and businesses that are lower margin, so thats, having a negative effect.
The flip side is the integration of drive it and new dura into the construction products group of Euclid and Tremco is kickstarting.
Some growth in efficiency, there and Paul has assembled a really good team and we're really excited about what we're seeing there I think when you look at Q1 and you're going to see more the same in Q2.
The former industrial segment of RPM.
Which was our lowest margin business is now reporting is our performance coatings group and our construction products group and you're seeing significant margin improvement in both and.
The opportunities in both of those segments.
Consolidate.
Some former independent businesses save some cost.
Take a more global growth approach to their markets is pretty exciting.
Okay. Thank you for them.
You elaborate you've got some of the trends through the month.
This past quarter can you just some detailed by region just that demand trends, you're seeing you saw through September .
I guess, the only comment I would make about our start to the second quarter is the the geographic trends are changing Europe is not any better UK Brexit situation if anything is worse.
Latin America, some mixed bag, Brazil is recovering nicely.
After nearly three years of challenges on the flip side, Argentina, which is smaller for us but still.
An area, where we have business in both industrial and consumer markets is a mass so thats a mixed bag.
The last comment I'll make is if June was September we would have had a better first quarter.
The Sun Shining and if you're in our consumer business or our construction products business. That's a good thing it's only one month out of the quarter.
But it certainly helped us.
And it is part of the reason why we feel like in our forecast you'll see some slightly better sales numbers year over year in Q2 than we saw in Q1.
Perfect. Thank you very much.
Thanks disease.
We have a question from Rosemarie Morbelli from GE research.
Thank you good morning, everyone.
Good morning, Frank I was wondering if you could give us some details on the different underlying markets usually make comments generally.
That particular subject today you didnt. So if you could debts would be helpful. Sure I just commented a little bit geographically.
Two aziza.
But in general the.
Geographic situation has not changed.
The solid growth that we've been experiencing in North America for the last couple of years is still positive, but slowing down so we're seeing a little bit slowdown in the construction markets, especially big projects. It impacts our construction products business somewhat less than some of our competitors because we tend to have broader focus.
On our distribution that serves small to medium sized projects.
Industrial capital spending seems to be slowing a little bit and then the other comment I would make is with the strength of the dollar foreign exchange, both transactional and translational work.
We're a headwind in Q1, and we anticipate that in Q2 as well.
While the Gulf function the large construction project.
Certainly your main focus is on maintenance.
So could you touch on the maintenance entitlement in terms of moving drawn council access right. This is not geographic markets and market.
Absolutely and as I said, the construction products group had revenues up in the first quarter, 3.6% and that was despite.
The rainiest June in recent memory, which negatively impacted tremco roofing drive it some some pretty sizable businesses and our construction products group. So you'll see I think some better growth numbers in the fall in part related to weather and.
I think theres good excitement there were.
Taking some market share in certain places and the consolidation of drive any new Dura ended the construction products group.
His opening up those product line and businesses to the broader salesforce and distribution.
Of Tremco sealants, and Tremco roofing, so there's some good synergy market synergy.
With this combination as well that I think will benefit us.
For the balance of fiscal 2000.
And then if I may two questions on the anticipated savings on 290 million. Your way ahead and plenty 19 ahead does.
Expectations.
Are you seeing.
Are you seeing additional savings now that too.
You know behind I mean, not behind that job done with 29 team and then.
Just about perhaps your broad meetings.
Should we expect to additional dividend increase and can you remind us dividend policy.
Sure.
To answer both those questions. The the did first that the.
The dividend policy.
We've increased our dividend for 45 consecutive years.
And our board meets day Tomorrow. It is highly likely that we will increase our cash dividend to shareholders for our 46 consecutive year I think it will be somewhat more modest than what we've done over the last three or four years, where our dividend increases have been in the seven or 8% range.
In part, reflecting the significant return of capital to our shareholders over the last nine months with our share repurchase program and so but I think it's highly likely that we will continue our dividend.
Consecutive dividend increases its a hallmark of RPM that we would hope to continue for a long time and your second question Rosemarie.
Any change in the target of 290 million in savings now that the stress. So yes 2019 was ahead of schedule now what we're highly confident.
Shaving the $290 million of savings that we projected for our map to growth program and disclose publicly on November 20, Eightth of last year and we remain ahead of that curve.
But as we communicated in the last quarter.
It's likely that are absolute goals will be achieved 12 months or so later than we anticipated because of the lower growth levels that we and everybody around us are experiencing but the massive growth program is continuing to build.
We are building in our what's called a PMO.
So building new projects and we have good momentum and one of our challenges to keep that momentum up for the next 18 months.
Thank you.
Thank you.
We have a question from Steve Byrne from Bank of America.
Morning, Steve.
Frank.
You had put out a 16% EBIT margin target.
As part of this map to growth program.
At this point, how would you assess your level of confidence on on hitting that.
Maybe the timing of that and whether you.
Gain any confidence in the last couple of quarters about potentially some new initiatives that you might engage in restructuring.
Sure.
So as I commented on earlier question.
Our absolute goals the $1 billion in EBIT and the related EBIT margin goal are probably 12 months out.
In terms of.
Where we had originally projected mostly because of the slower growth, but the map to growth initiatives themselves are ahead of schedule.
We have a firm just as one example, a different from and looking at our indirect spend.
And we're hopeful that that effort.
We'll we'll add.
Maybe somewhere in that $10 million to $20 million range Thats relatively new.
But we are chasing from a procurement perspective, not only are significant raw materials.
Paper Cups, and pencils, if we can save money on it and so we're continuing to find things that we can add to the pipeline and maintain the momentum of savings.
And then just a couple of high level question is on your consumer segment.
Versus where you were a year and a half ago before the.
Sure when lows.
Exclusivity deal went through how would you assess your your business with each of those two big box retailers now and how much of your consumer business.
Sold through e-commerce .
Couple of questions number one I think that our consumer business really good leadership and we're continuing to do really well across all our customers are channels and caulks and sealants patch repair products.
And the wood stains and finishes program is going well and our.
Our relationships are strong as I commented earlier, we had some self inflicted hiccups in manufacturing.
When you are aggressively pursuing to things that we're pursuing we're going to we're going to stub our toe here and there and it's for the right reasons and so we have corrected that that caused us to do some outsourcing which hurt our margins.
In terms of customers I think were solid with all our customers. The only specific comment I'll make is a year ago or a year and a half go we had commented and the.
Big strategic.
Issue of a competitor that that resulted in about a $22 million loss of business.
Lows as of the beginning of this summer we picked up 16 to 18 million of that loss business back at rust Oleum.
So we're continuing to focus on serving our customers in the primary areas that are our expertise and strength, which is small project pain spray paint wood stains and finishes patch repair caulks and sealants I mentioned that you know that but.
Those are our focus we wake up every day and think about innovation and how to serve customers in those markets. While we're competing with some major players who are principally architectural paint.
Folks, which is not a space that we're much involved it.
And the E Commerce for you Frank Yes ecommerce.
I would tell you in our consumer segment, it's probably 15 or $20 million.
And it's it's our largest pieces with our largest customer.
We do some.
Through some online retailers.
Interestingly enough for instance, we actually sell some spray paint online.
The nature of spray paint in terms of unit costs in terms of shipping of a flammable. Good would not suggest that that's going to be a big category.
But if there are orders at major customers were through some ecommerce folks will fill up.
Thank you.
The next question comes from Vincent Andrews from Morgan Stanley .
Hi, This is Steve hands on for Ensign quick question, maybe cash generation.
You can you maybe just lay out how you're thinking about free cash generation in 2020, I know theres 100 million kind of timing issue last year, but.
How do we think about the year over year kind of growth and free cash generation.
Sure. So as you saw.
We had a.
Different fourth quarter cash generation at the end of fiscal 19 than we had done prior year, we had changed.
Some of our approach in terms with suppliers as well as internally and so what we ended up with with just a function of timing and you saw that our first quarter, where we had very strong cash generation.
In Q1, some of that was just good strong execution and a big chunk of that was timing difference between fourth quarter and first quarter.
Over the life of the map to growth program.
We expect to see 230 million and I think more.
Of reductions in working capital.
Versus the original base and you will see stronger cash generation, both as we become more efficient on the plant floor more efficient working capital.
And.
Have higher margins and so we're on track for that.
The hiccups to that at fiscal 20 are the significant cash costs of outside consulting firms, which will start to wind down after January one and an extraordinary amount between.
ERP implementations and some PPD I would guess about 70 or $80 million of extra capex that as we get through map the growth will will not be repeating and so those are temporary and.
Other than that our projections for improved cash flow are on target.
Okay. Thank you and then maybe just a quick follow up there was a comment about deferred promotional activity some of the big boxes I guess.
Just maybe give a little bit more color on that and.
What was behind that officials can be a timing paying or.
Just a timing issue.
Between.
Q4, and Q1 in Q2, and some of that relates to weather issues.
And.
Some of that relates to.
Some of the manufacturing hiccups, we had in our ability to.
Pursue maybe some more aggressive sell ins debt that we deferred because of those issues, which are now behind us.
Okay. Thanks.
The next question comes from Kevin Mccarthy from vertical research.
Yes, good morning morning, Kevin.
Frank I think Q.
You alluded to $30 million of spending on capacity and your answer to the prior question. It sounded like theres going to be some temporarily elevated capex I guess my simple question, we will be what is your capital budget for fiscal 2020 and to the extent that you have.
Visibility.
How do you see that evolving going forward.
Sure Kevin this is roughly here.
In terms of fiscal 20 were expecting capex to be about 180 million at about half of that is related to map to growth.
So, there's probably about $90 million base capex and of the 90 million related to map to growth.
Probably nearly half of that maybe 40 million or so is related to ERP consolidation that we're doing as we go down from 75 instances before and then the rest is production related as we consolidate production and we have other cost reduction project.
Going on that.
Capital investment as well.
Okay, so that level does not seem dramatically different.
What you had previously contemplated is that correct. So the these these spends that you're referencing are essentially part of the plan is that a fair takeaway, yes, that's right.
Should be.
Exactly what we said in July .
Very good and then my second question I guess to come back to consumer in the prepared remarks, I think you reference for headwinds there load ins the United Kingdom June weather, and then some promotional activity related to the big boxes.
Obviously June weather's behind you can you can you flush out the other three issues and maybe.
Help clarify for us.
Whether all of those are behind you or whether there are any lingering effects into the current quarter if any.
I will tell you you should see better sales results modestly better and the current quarter.
The.
The weather issue is not a problem in September and that's good and we can see consumer takeaway, we can season, our construction products group.
The European issue and the Brexit issue, we're not changing.
There's not as much foreign exchange impact and consumer is or isn't our performance coatings group or construction products group, but it exists that's not changing and.
The hiccups that we had from a manufacturing perspective are mostly behind us so from a cost perspective.
We won't be incurring the same.
Challenges that we had in Q1.
Okay. Thank you very much that Kevin.
The next question comes from Jeff Caucus from JP Morgan.
Morning, stopping spring.
This is Chuck yes good.
We are average prices up between one and wanted to half percent from the quarter.
More like 2% across RPM.
Two person and.
U.S. interest rates have come down.
You think that that's going to make a difference to the construction sector that is do you think even though you've got a little bit of slowing do you expect that to lift and its growth pattern or do you think because we're at such a low level of interest rates to begin with it doesn't really make much difference.
I.
We're not economists here, but I think from our perspective the upside to.
Us.
The next year that we're not counting on and this would be true for a lot of businesses would be the elimination of lot of the distractions around trade wars and tear ups and.
There are things that could be corrected politically if they're corrected.
When you look at our first quarter and I think you'll see similar results in Q2, the leverage that we're putting on our bottom line to modest sales growth is pretty solid.
If we can find a way and economic health would certainly be welcome to generate another two or 3% of sales growth you'd really see that bottom line, saying that's not in our forecast we're not counting on it.
But there is a scenario in which some of the economic disruptions out there globally.
Get resolved or get better and that could certainly pickup the housing market and the construction markets and.
We're hopeful that that will happen, but it's not in our forecast for the year.
I realized that you had all kinds of weather events in the quarter on but was there organic volume growth in any of your businesses this quarter.
I think the the area, where we had the best organic growth was in our construction products group when you carve out.
The.
Revenues that they are.
Eliminating and on a consolidated basis.
We are.
Going to shed about $40 million the revenues this year.
But our.
Corrosion control coatings business is having a rock solid year.
We just picked up the contract for the Eiffel tower, which will be a.
A nice piece of business for maybe as much as nine months.
We are taken market share in a lot of places there.
The TBS business.
Our construction products group, which is a below grade and in many instances residential level.
Our proofing is having high single digit revenue growth and so theres a number of areas where.
We are doing well the Cox sealants patch repair products business hit organic growth of nearly 10% really good business, there and some of its market share some of its a combination of.
Kind of small contractor as well as PCI wise, so theres a lot of patches of good growth. The flip side is our specialty products group.
You're not going to see and the rest of the year a lot of leverage to the bottom line.
Nearly 18% EBIT margins, we don't have an EBIT margin problem. There we have a growth problem and we are addressing that with some select investments and in some cases some leadership changes.
Okay, great. Thank you so much thank you.
We have a question from Mike season from Wells Fargo.
Mike.
Hey, guys nice nice start to the year.
Yes, Frank when you when you look at your outlook for sales in 2020.
Given the environment still doesn't seem easy, but if you do that the low end, 2.5% pretty good achievement there, but can you maybe walk through some of the components. I know you have you'll have some pricing there you'll have some acquisitions FX will be a negative and just wanted to get a clear feel for what your volume outlook will be this year.
So I think you'll see some better volume growth in consumer versus what we reflected in the first quarter.
As I commented earlier.
We're seeing some nice pick ups in some of the now being integrated construction products group companies like new Dura and drive it and so I think for the balance of this year.
We can pick up some revenue growth just by expanding the specification and sales and distribution more broadly for those businesses.
That doesn't last forever, but thats still going on and then we'll have pockets in our performance coatings group like or Carboline business to continue to put up solid numbers.
And so those are the things that make us feel like will hit the bottom end to that the other thing that's worth noting is most of the acquisition activity that we reported in Q1 and that will impact Q2 starts to be annualized. So at this stage there isn't much in the way of acquisition activity planned for the second half of the year.
Got it and then when you when you think about acquisitions going forward this environment.
Maybe talk about the backlog or their project power acquisition pipeline it might be challenging in this environment to understand what you're buying in terms of earnings power.
Sure. It's just give me your thoughts on what you think of how you think about acquisitions.
Going forward.
So our.
Small to medium sized acquisition program is generally alive and well.
I will tell you that our pipeline is little thinner than it's been for awhile.
In part because we've got most of the leaders of RPM focused on executing on our map the growth program and so we're working on that.
And.
I think that will continue to be an important part of adding revenues and leveraging it to our bottom line in the coming years, but.
As I commented a minute ago. The second half of this year will likely not have much acquisition impact because of how we are annualizing transactions that were done last year and I think a small all in acquisition activity that we hope to see pickup.
Great. Thank you. Thank you.
The next question comes through Kevin Hocevar from Northcoast research.
Hey, good morning, everybody.
Good morning.
Frank I think you mentioned that map to growth added $26 million to EBIT in the first quarter, but looks like EBIT grew 39 million in total so what would you say is that other 13 million of EBIT growth is.
Good organic growth was pretty flat so.
But he mentioned price was positive so that price raws. If you have some acquisitions is the acquisitions, adding.
What would you say drove the the balance of that.
EBIT growth sure if you carve out our map to growth savings.
EBIT would've been up this is Rob because you can't be exact but EBIT would have been up an 8% to 10% range on basically a 1%.
Gain in revenues, so pretty solid and I could get to combination.
Yes.
Price.
Cost mix, which has been negative for two years and is now finally moving in the right direction on the gross margin line.
The impact of acquisitions are small, but they certainly contribute some and then the reason it's it's.
Not exactly a precise number is.
Our businesses have demonstrated really good ash DNA.
Discipline and leverage and so measuring how much of that would have.
Happened without map the growth per se or how much of its mapped to growth as a judgment call. So I think the way I would look at it internally the way I do look at internally is that.
EBIT would have been up in the 8% to 10% range, excluding the map to growth the balance of that's the map to growth range pretty good pretty good leverage still on what's very modest revenue growth and.
We will keep plugging away.
Yes.
Perfect and then on the.
Last quarter, you gave some sales guidance by segment with mid single digit growth expected in construction and consumer and low single digit in performance in specialty curious if theres any update there given you lowered.
I guess move to the low end of the sales expectation range for the year.
Hey, just what you're seeing.
Last several months does that change at all or are those still good expectations for the year.
Sure. Kevin This is rusty I would say one major change.
With that the impact of Brexit and the strengthening US dollar U.S. dollar I read yesterday that a two year high against foreign currencies, including the euro for that matter and.
The FX impact on sales.
Definitely looks like more of a headwind than we anticipated as we started off the year.
Jimmy.
Let me answer that by segment a little bit.
I think you'll see as we highlighted I think you'll see.
Somewhat better sales results in consumer not only for Q2, but for the balance of the year versus Q1.
I think you'll see.
Better sales results and our construction products group so both of those kind of low to mid sales growth.
Our performance coatings group is going to be kind of flat to low for the balance of the year. Some of that as a result of very deliberate decisions to exit or discontinue product lines of businesses. Most of those are kind of far away relatively small overseas businesses. They don't have the margins that we'd like to see.
And then the most challenged.
Segment, we have for the balance of the year will be our specialty products group and that case I think we're seeing.
Flat to slightly down revenues for the reasons Rusty mentioned foreign exchange will be a hit.
They are annualizing tougher comps.
But we've got some growth issues and some of those businesses high margin really solid businesses.
We have new leader leadership team at day low.
New leadership, and our TC business I could go down the list and some selected investments so you're going to see the most challenged revenue segment for us to be specialty products, all great businesses, all high margin and hopefully you'll begin to see the benefits of the changes that we're making.
In the fourth quarter and in fiscal 2001.
Okay, great. Thank you very much.
Thank you.
We have no further questions at this time I would like to turn the call back to Mr. Sullivan for final remarks.
Great Thanks filled up.
I'd like to remind everybody that tomorrow afternoon.
Two o'clock.
At the Crowne Plaza in Middle Burke.
His rpms annual meeting of stockholders.
We regularly welcome 800 to a 1000 individual shareholders and a handful of institutional shareholders to our annual meeting.
And lastly, I'd like to close by recognizing the RPM associates around the world.
We're doing a great job on executing on our map the growth program and when we get through this program the entrepreneurial spirit and culture of RPM combined with the operational excellence and.
This improvement culture that we are instituting.
It's going to be hugely successful both in the marketplace for our shareholders.
Thank you very much for your time in the call today, we'll look forward to providing you our second quarter results in early January of 2021 have a great day.
Ladies and gentlemen. This concludes today's conference. We thank you for participating you may now disconnect.