Earnings Call: Q3 2021

Apr 7, 2021

Welcome to RPM International's Conference Call for the Fiscal 2021 Third Quarter. Today's call is being recorded. This call is also being webcast and can be accessed live or replayed on the RPM Q2. 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 20 Comparable GAAP Financial Measures on the RPM website. Following today's presentation, there will be a question and answer session. Questions. At this time, I would like to turn the call over to RPM's Chairman and CEO, Mr. Frank Sullivan, for opening remarks. Release. Please go ahead, sir. Thank you, Michelle. Good morning, and welcome to the RPM International Inc. Investor Call for our fiscal 2021 Q3 ended February 28, 2021. Joining me on the call today are Rusty Gordon, RPM's Vice President and Chief Financial Officer and Matt Radicek, our Vice President of Global Tax and Treasury, teen vaccine shot. I've encouraged our associates to get vaccinated and I recommend the same to everyone listening to this call. It's the only way we can all do our part to end the pandemic and return to normalcy and reinvigorate the global economy. I'll start today's call by summarizing the factors that drove our strong financial performance for the quarter and how we were able to overcome the disruption caused Rusty Gordon will conclude our formal remarks with the outlook for our Q4. As you'll recall, in mid February, a 2018. In anticipation of severe transportation gridlock, the potential of losing multiple shipping days in North America, which makes up 70% of our revenue 2020 and the desire to make transparent communications with our investors, we lowered our Q3 guidance on February 18. Q3 is our seasonally low quarter and historically generates only 5% to 10% of our annual earnings. So So the magnitude of relatively small changes in earnings becomes magnified. However, in the end through the extraordinary measures of our Associates as well as the fact that plants, distribution centers and transportation network resumed operations more quickly than we anticipated, quarter. Sales grew 8.1% with 4.9% being due to organic initiatives, 2.1% Latin America showed growth in local currencies, but was flat when its results were translated back into U. S. Dollars. Much like last quarter, 3 of our Q2, the last year's Q3 when our adjusted EBIT increased 30.4%. On a segment basis, our Specialty Products Group led the way with organic growth of 13.4 percent in the quarter and produced a second consecutive quarter of double digit top line and bottom line growth. Our consumer group also generated double digit organic growth as it continued to benefit from strong DIY structure, which encompasses about 15% of RPM's consolidated sales, and its strong performance in repair and renovation. Results in our Performance Coatings Group declined due to difficult conditions in its primary end markets. 2 acquisitions in March. These include the TUVCOAT line of rubberized non stick coatings used for aquatic applications, 2019, which is a great strategic fit with our recreational marine products group and Bison Innovative Products, footprint as we add capacity. For example, to meet the consumer segment, its explosive growth for its products, we are installing Packaging and Blending Equipment at Plants in our Performance Coatings and Specialty Products Groups. This is in addition to capital spending at our consumer segment facilities, cautions and sealants in our repair categories. Other investments in our operations include new presses and injection molding equipment to meet surging orders 2019 outlook for our Nudura ICF products and wall systems and the construction of a new liquid applied root coatings plant. I'd now like to discuss our MAP to Growth restructuring program, which continues to pay dividends. During the quarter and so far in the Q4, We announced the closure of 2 plants, which brings our total to 27 of the 31 plants that we originally targeted 2nd fiscal quarter. As discussed last quarter, we continue to be more efficient in utilizing our manufacturing assets to generate cost saving opportunities. The benefits of our center led procurement initiatives are becoming even more evident 2019 and the current inflationary raw material environment. Rusty Gordon will provide more color on this when he walks through our Q4 outlook. 2019. Lastly, in the G and A area, we continue to consolidate IT systems and accounting and finance operations. At the end of our fiscal year May 31, 2021, we expect to exceed the original MAPTA Growth Program's planned run rate $290,000,000 in annualized savings. The program's learnings of continuous improvement and efficiency have become ingrained in our culture, As we sustain the efficiency gains achieved through MAP to Growth, we are now shifting more focus and resources towards top line growth through internal investments and acquisitions. Our goal is to return to the exceptional revenue growth rates that have been one of the hallmarks of RPM success since its founding in 1947. I'll now turn the call over to Matt Radicek for a detailed review of our financial results the Q3 of fiscal 2021. Thanks, Frank, and good morning, everyone. Note that my comments will be on an as adjusted basis. During the Q3, we generated consolidated net sales of $1,270,000,000 an increase of 8.1% compared to the 1,170,000,000 Q2. As Frank mentioned, organic sales growth was 4.9 percent Q4 $58,000,000 Acquisitions contributed 2.1 percent to sales or 24,500,000 This was strong top line growth during the Q3, which typically generates our most modest results each year because it falls during the winter months 2018, an increase of 65.2 percent compared to $0.23 in the year ago quarter. Our consolidated adjusted EBIT reported in the fiscal 2023rd quarter. These excellent results were largely due to initiatives under our MAP to Growth restructuring program and our ability to leverage higher sales to the bottom line. Turning now to our segments. Sales in our construction products group were strong and increased 6.4 percent to $396,000,000 Growth was primarily organic at 5.4 percent or 20 point $3,000,000 Foreign currency translation increased sales by 1% or 3,600,000 construction and restoration projects, leading to solid sales growth during the quarter. Our roofing business performed well, 2019. As did our Nudura Insulated Concrete Forms, or ICFs, which are experiencing accelerated long term adoption as a wall system 2nd quarter. As the lumber supply has tightened and prices have skyrocketed, the ICS also provide the benefits of improved energy efficiency and structural integrity. Adjusted EBIT in the Construction Products Group increased 206.4 percent to 18,500,000 2nd quarter from $6,000,000 during last year's Q3. The group generated 3 10 basis points of adjusted EBIT margin growth due to MAP to Growth savings 2020 and the favorable leverage of sales volume increases. The segment's European businesses continue to improve as a result of ongoing restructuring and better product mix. During the quarter, challenging market trends persisted for our Performance Coatings Group, 2018. Including weak energy demand that impacted industrial coatings and COVID-nineteen protocols that continue to restrict access Facilities for Plumbing System Installations. Sales in this segment were 226,500,000 an 11.4% decrease from the $255,700,000 reported during last year's Q3. 2nd fiscal quarter. Organic sales decreased 12.7 percent or $32,400,000 Foreign exchange provided a tailwind of 1.3% Q3.2 million. Segment adjusted EBIT decreased 41.6 percent to 14,100,000 $24,200,000 during last year's Q3. Lower sales volumes and pricing pressures resulted in earnings deleveraging, which It was offset in part by discretionary cost cuts and net to gross savings. As vaccines are administered and the impact of the pandemic diminishes, In the consumer group, sales were robust, increasing 19.8 percent to 477,700,000 Organic sales increased 12.7 percent or $50,400,000 and acquisitions increased sales by 6.1% 24,500,000. Foreign currency translation increased sales by 1% or 4,100,000 broad distribution and market leadership in causts, sealants, cleaners, abrasives and small project paints. Similar to the U. S, the segment's international results were equally robust in Europe and Canada. Adjusted EBIT in the consumer group was $47,800,000 an increase of 48.6% over the prior year. 21 Q3 net sales increased 14.7 percent to 2nd fiscal quarter. In particular, our restoration equipment business, driven by extreme weather events in North America, 2020. Experienced excellent top line growth as did our businesses serving the furniture, outdoor recreational equipment, 2nd fiscal 2020. Favorable foreign currency translation added 1.3% to sales. Adjusted EBIT was $25,300,000 during the quarter, an increase of 44.2% compared to adjusted EBIT of $17,500,000 in last year's quarter. The Specialty Products Group was able to drive MAP to gross savings and operating leverage from higher sales volumes Next, a few comments on our liquidity. Our year to date cash flow from operations improved by 270 $700,000 or 71 percent over last fiscal year to a record of $651,900,000 2. As a result of continued better working capital management, where all components of working capital improved as compared to the prior year and margin improvement from our MAP 2nd quarter. At the quarter's end, our total liquidity was $1,400,000,000 Our net leverage ratio as calculated under our bank agreements 2019 was 2.13 on February 28, 2021, which was a significant improvement as compared to 2.90 a year ago. Our balance sheet remains strong and we've strategically deployed our record cash flow to reduce debt. Simultaneously, we are completing acquisitions and making investments to I'll now turn the call over to Rusty for our outlook for the remainder of fiscal 2021. Thanks, Matt. The 4th quarter is seasonally our strongest and started off well in March. However, several macroeconomic factors are creating inflationary and supply pressures on some of our product categories. These factors include supplier refineries operating at lower levels due to low fuel demand, We expect that these increased costs will be reflected in our results for the Q4 of fiscal 2021 And more significantly during fiscal 2022. We are moving aggressively to offset these increased tax costs with commensurate selling price increases. Fortunately, due to our MAPS growth program, we are in much better position to weather these challenges than we were 3 years ago when the last inflationary cycle occurred. With a stronger partnership with necessary raw materials and control costs to whatever extent possible. In addition, our improved center led processes Number 2, the resumption of travel and the recent rebound in energy markets give us optimism Our industrial protective coatings business in our Performance Coatings group may have bottomed out as they start to lap Group for its Legend Brands Restoration Equipment and Solutions, which resulted from the property damage caused 2019 by winter storm Yuri. While it disrupted many of our other businesses, the storm provided revenues 2.9% natural disaster. As we look ahead to our Q4 and beyond, There is currently a great deal of volatility around input costs and uncertainty regarding material availability. While our Q3 earnings did not reflect recent material cost spikes due to our FIFO inventory methodology, Inflation will likely be significant in our Q4 and into the Q1 of fiscal 2022. We have been and are in the process of implementing appropriate price increases and changes in terms, There is also much uncertainty related to the breadth and speed at which global economies reopen 21 Q4 sales to increase by double digits compared to the fiscal 2020 Q4. Last year's Q4 should prove to be an easier revenue comparison because it was heavily impacted by the onset of the pandemic. 2019. Our earnings comparison versus last year on the other hand will be more challenging because of raw material inflation Adjusted EBIT for our 4 operating segments in total is expected to increase by more than 20%. Presentation. Your first question comes from Frank Tynich from Sirmium Research. Your line is open. Good morning, Frank. Yes. Good morning, Frank, as well, and congrats on your second shot. And Between raw materials and pricing, you're going to have it fully offset by the end of the fiscal Q1 of 'twenty two. I'm just curious if you could offer kind of qualitative comments Or quantitative comments in terms of what percent raw material inflation you think you're facing here in the fiscal 4th quarter And in the fiscal Q1, how significant are these headwinds? So I think a couple of things are happening. Number 1, we were seeing Inflationary increases at the end of calendar 2020 and the beginning of calendar 2021 that were structural. Those were Impact, it is, I think everyone in this phone knows or call knows, by the winter storm and its impact. We are seeing temporarily certain raw materials like epoxies that are more than double in cost what they were year ago. That's true across a number of categories. And so that aside, we think that you're It's not just raw material costs, it's transportation costs of all types, rail, over the road truck, Ocean freight, not a big issue for us, but ocean freight. And it's also labor costs. You're seeing higher labor costs in factories and distribution centers, And to a certain extent across the organization, labor costs are particularly interesting over the last year. To a certain extent, we're competing with the government. Some of our distribution centers, we would have seasonal part time workers decided that if they could get paid more by staying at home, they would. We've had to replace many of those with full time workforce that has a higher benefit expense. So inflation in total is going to be mid to high single digits throughout the year. That's structural. That does not include some of the That's very helpful. So you're going to be placing that throughout the year, but by the time you come within 6 months or less than 6 months, actually, That's correct. We will see some gross margin deterioration in our Q4, particularly in our consumer business. 2020 which will be a combination of 2 things. 1, cost price mix and 2, the fact that in consumer in Q1 we'll be Rounding a Q1 performance last year where organic growth was up 34% and we do not expect to improvement after Q1. With the strong sales leverage and the continued benefits of MAP to Growth, we should see EBIT margin improvement modestly in Q4 at the operating level, as Rusty said, and then continuing in fiscal 2021. I'm sorry. Very helpful. Fiscal 2022. 2022. Yes. Got you. That's very helpful. Thanks so much. Thank you, Frank. Your next question will come from Rosemarie Morbelli from G. Research. Your line is open. Thank So Frank, can you talk about the trends you are seeing at the big box and other retailer Performance Products, but people on the other hand are going back to work, so they will be less do it yourself. 2019. And is professional painters and others enough to affect to go a potential decline on the DIY in 2022. So in general, we're seeing still solid consumer take In the summer and the fall, we were looking at 30% organic growth rates. Consumer takeaway in the Q3 was more in the 2020. So I would expect as we indicated a minute ago that we'll see some gross margin challenges and quite candidly some very difficult comparisons In the first half of next year and really starting in April May, I would expect us to be flat to slightly down relative to the comparisons that we'll be facing. The flip side is, as we sit here, we are starting to see positive sales and earning contribution from our Performance Coatings Group, really the first positive results in the top and bottom 2019. From those more industrial focused businesses and industries that we've seen in more than a year. And as you can see in our results, the specialty products group is roaring and the construction products group is roaring And the dynamics of their underlying markets suggest that that will continue for some time in both segments. And Frank, You talked about going back to RPM historical revenue growth. Can you remind us of what the you have had a lot of acquisitions during that particular time frame. So can you remind us what the organic growth tours historically. Well, historically, Rosemary, and this goes back to the beginning of our MAP to Growth program. We had a 15 or 20 year compounded annual growth rate of about 6%. I'd say about half of that was from acquisitions. But when you look at where we were after our last restructuring in the $99,000 $2,000 range, From 2,003 for about a decade, our organic growth averaged about 5% or 6%. So very impressive numbers And we think we're going to get back to that. In fact, we are back to that as we speak. And I will tell you our Q4, our current view is we expect revenue growth somewhere in the 15% to 20% range. And we I think we're well poised for good growth in fiscal 'twenty two And the underlying fiscal dynamics will support perhaps even stronger growth, although I I think it remains to be seen what actually comes out of Washington in terms of a big infrastructure bill and also when and how quickly Europe 2nd year. We're continuing to see some modest challenges in Europe with these COVID lockdowns across some of the major countries that we operate in, while the United States seems to be picking up and that pickup is gaining momentum. And if I may, that Q4 just following up on one of your comments, that Q4 revenue growth of 15 20%. How much is from FX and acquisition? How much organic do you anticipate? I don't have that specific number. I would tell you in general, less than a quarter of it is from price And the balance will be mostly from organic growth. I would guess, we look In this quarter and acquisition activity. 2%. Yes, 2%. So you would expect another 2% And your next question will come from Ghansham Panjabi from Baird. Your line is open. Good morning, Ghansham. Good morning, Frank. Good morning, everybody. Thanks for fitting me in. So Frank, in your press release and your comments, you talked about 2nd. Just given the journey you've been on and not to growth, being better equipped to handle the current raw material environment, can you just give us some more detail in terms What exactly that means? And then also how has your pricing strategy just broadly changed since the last inflation cycle which was 3 years ago? Sure. So I'll hit you. You're going to steal my concluding comments, Ghansham, with that question, which is a good one. Our MAP to Growth program has fundamentally changed RPM. And it's not just about saving or achieving the 290,000,000 In savings, in fact at May 31, 2021, we'll be at roughly a $300,000,000 run rate and we expect $50,000,000 of MAP savings to benefit incrementally fiscal 2022. But It really has and in a relatively short period of time begun to engrain continuous 2nd quarter. The work that our teams have done in Procurement has been extraordinary. We went from a loose collaboration to a centralized procurement activity. Mike Sullivan, who took over as Chief Restructuring Officer from Steve Canoe and Tim Kinser and Gordie Hyde and their teams have done extraordinary work. Then the other thing that has fundamentally transformed RPM is the work Rusty Gordon, Scott Copeland, Lonnie D'Russo, who is our IT Director and his teams, we have developed systems For tracking savings and efficiency programs out of the MAP to Growth initiative, And so that is something we call MPST. We have adopted that. We started a year ago. We got We have a consolidated effort to look much more aggressively and much more proactively at cost price mix. So what we've been able to do in terms of utilizing information across RPM on a centralized basis To communicate better, share best practices and really have more real time data in which to make decisions is dramatically different from what RPM was 3 years ago, and we expect to continue to build on that. The last comment I'll make is that we have The procurement effort has really established us as a good partner to some of our major raw material suppliers in ways that we were not before. And we have substantially more and different raw materials under global contracts than we did 3 years ago. And that has been very fortuitous in how that has helped us in this challenging raw material cost increase environment, but at least as we speak now also the raw material availability environment. So it's pretty exciting because there'll be more to come around the kind of the cultural change that we've affected in MAP to Growth, And that concludes my prepared remarks. And also for my second question, going back to 3Q and your original guidance Before you had that release on Feb 18th, construction came in well above what you I think what you'd originally seen there. I know it's a small quarter, but Can you just give us a sense as to where exactly the upside came from and what drove that specific to 3Q? So I have commented before on this. Paul Umemoom, who leads our construction products group and his team are doing extraordinary work. 2nd quarter. And it's a combination of 2 things that kind of that came together at the right time. 1 is an effort to bring together and this 2 different parts of Tremco, some of which operated relatively independently in our euclideochemical business into a much more integrated kind of holistic approach to the market. So while we call it the RPM Construction Products Group, they're going to market globally is Tremco Construction Products Group. And so that integration on to common IT platforms, We are getting some comments specification efforts, is really paying big dividends. You overlay that with the benefits of MAP 2 growth. And you're seeing a really good combination of market beating top line performance and the leverage to the bottom line. And that's continuing to see it continue Q4 and boy, I would expect it to continue for the next couple of years. We have some more work to do, But the enthusiasm amongst our people in the Tremco Construction Products Group and the extraordinary work they're doing is just fantastic And you can see it in the marketplace. And the last comment I'll make as I ramble on here is there has been a decided shift there towards more renovation As opposed to new construction, new construction is still probably 30% of the construction products group, if not more, We've become more renovation focused, which has really served us well. Infrastructure spending, A big boom in construction activity will only serve to help accelerate the performance that we're seeing. And your next question will come from Steve Byrne from Bank of America. Your line is open. Good morning, Steve. Good morning, Frank? So you made a comment about as MAPFOGROSS is winding down, you're going to Start shifting your investment internally. And I'm curious to hear your outlook for the key revenue growth drivers over these next couple of years. How would you rank these buckets, the potential 2nd quarter. Share gains from cross selling and integrating the commercial more outside of the U. S. And the third one being M and A. Sure. And a great question in terms of where we're going and how we're thinking about growth. First of all, in our investor presentation. We outlined kind of what we think is the addressable markets globally for our 4 segments and it comes up to about $134,000,000,000 Half of that relates to our Construction Products Group. So given the comments I just made and the opportunities we see there, I would expect that to be probably our fastest growing group, particularly in light of the extraordinary year in which consumer has had. We are also in the early stages of cross selling, if you will, between our construction products group and consumer group, particularly where there's an interest with some of our big box customers in some of the construction products groups, waterproofing, roofing, Coatings and sealant products as well as concrete patch repair products. So there's opportunities there. We have as part of MAP to Growth, this was not part of the original plan, but we had added to it, brought in Mackenzie to really help kick 2nd quarter. We had underinvested in our Specialty Products Group for a long time in part Because most of those businesses were part of the SPHC, expect this bankruptcy solution challenge, and so we're being managed for cash. 2nd quarter. And I think you're seeing the early results of both our focus on growth in those businesses in the Specialty Products Group And some leadership changes that were affected by Ronnie Coleman, who's the leader of that group. And so there's some exciting opportunities there that We'll be in a position to talk about more in July and in October as they come to fruition, we get comfortable about what we want to disclose publicly. And then lastly, we're better able to integrate bolt on acquisitions than we ever have. Having said that, all of our bolt on acquisition activity is really done with a focus on growth. How can we take a unique product line or a unique technology So the combination is pretty exciting for us and it's a there's a pretty good M and A pipeline, albeit pretty good And maybe just to drill in on one of those, Frank. The intermediary on your construction products are those contractors that do the renovation work and you obviously have good relationships with them. How do you develop those in new regions and grow ex U. S? Or do you need Acquisitions to give you kind of a footprint in a new region that you can then grow relationships. Sure. I think the best example in the near term that you'd start to pay off is in Europe. So if we had a disparate collection of construction chemical businesses in the U. S. When you look at Europe between Flow Creek and Drive It, which is headquartered in Poland, our Eelbrook business and our Tremco business. They all operated independently. And under the leadership of Melissa Schober, who's doing a great job over there, has been with us for quite a while 2020 and leads the construction Tremco Construction Products Group efforts in Europe. We have integrated those businesses. We're going to market more as Tremco Construction products group. And it's been a real fixer up job. And I think we're getting towards the end stages of the fixer up part in construction products group team. And then they'll quickly be able to shift to a focus on growth. Hopefully, we'll be lucky on the timing Because Europe is certainly behind the United States relative to opening up an activity, principally related to these recurring National shutdowns in some of our major markets like Germany and France and Italy. We're actually doing pretty well in the UK. And then outside of that, we've got really exciting growth in places like Europe and Asia, but it's on very Thank you. And your next question will come from Jeff Tsakakos from JPMorgan. Your line is open. Hi. Thanks for taking my questions. Good morning, Jocca. Good morning, Jeff. Hi. By my calculation to offset your raw material inflation, you'd need about a 3% increase And 3% is normally tough to get in the middle of a calendar year in that Things really readjust themselves at the beginning of the year. Is 3% roughly the right number? And is the reason that you're Confident that you can achieve that is that customers really need product and so they're willing to be more flexible in price terms. So I think that just to reflect the comments we made earlier, We anticipate structural changes in inflation in our markets throughout our P and L that's going to be high single digits. And we have gone out with price increases that are in the 6% to 8% range. We went out Some of our businesses went out early in anticipation. These are industrial businesses and looking at the changes at the end of the calendar year And beginning of this new calendar year with 3% to 5% price increases. And as we sit here today, those aren't enough and they're going out again. And in certain categories, I mentioned epoxies, we've increased prices on certain of our product lines by 14%. That's in light of epoxy prices which we think are temporary which have more than doubled. They'll certainly come down from their current highs, but they will be substantially higher than they were a year ago. And that from our perspective is A structural change in most all of our raw materials from acrylic resins to epoxy resins to All types of polymers and polyols. It's just been an extraordinary period of time In terms of spikes, but really in terms of inflation, corrugate, packaging, transportation costs all going up. And so we'll have maybe better information in July in terms of where we are. And the last comment I'll make to your question is, we've been I think both good and fortunate in our ability not To have to short and or not be able to supply, we have Continued work to do on working capital. We've been a heavy working capital company. We've generated In excess of $200,000,000 of cash flow, positive cash flow from improvements in working capital, but whether it was raw material or inventory, Whether it was new contracts, so far we've been able to manage through these circumstances, I think pretty well. Okay. And then for my follow-up, do you think volumes in consumer products are going to grow in fiscal 2022? Or do you think they're going to shrink Or be flat or roughly how do you see it? Sure. As I commented earlier on the call, starting in April May and certainly Through the first and second quarter, we anticipate consumer volume flat or slightly down. We think it will be picking up in the second half of next year and that's in light of, for instance, a Q1 of fiscal 'twenty organic growth of 34%, which is a mountain we don't expect to beat in the Q1 of this year. We do have some market share gains. We do have Some new product introductions, to the extent that there is acquisition activity that could end up resulting in year over year higher 2nd quarter. But on an organic basis, starting in April, I think we anticipate flat to slightly down results in our consumer segment That seems a little more pessimistic than you were 3 months ago. Is that true? No, it's not true. I think, yes, 3 months ago, anytime first of all, we didn't talk too much about fiscal 'twenty two, But I can tell you, we have made numerous references to the fact that we were not going to top a 34% organic growth in the Q1. And I believed it 6 months ago and I believed it 3 months ago and I believe it today. And I wouldn't say we're pessimistic. We will be meaningfully above the record results of where we were in our consumer business in fiscal 2019. And so there has expansion broadly at the market of more confident DIYers and we're excited about that. Your next question comes from John McNulty from BMO Capital Markets. Your line is open. So a question first on Nudora. It sounds like that business is kind of really turning the corner and some of it may have been on I guess from your perspective, is it a function of, okay, you're cheaper now or more cost competitive against lumber, but if If and when lumber eventually comes back down to earth, you give some of that back or is it more, hey, look, you've gotten a lot of Contractors a lot more comfortable with it and maybe this high lumber prices kind of facilitated that. But because of that, it's resulted in a little bit more of a secular shift and now with that greater comfort level you can kind of see the growth continue to emerge from that. How should we be thinking about that? Very much the latter John. I specification. ICF with contractors is initially a challenging sell because For better or for worse, in some types it helps us, contractors, architects, engineers are hesitant to change from systems that work. And when we get people that convert to ICF, they love it. It is less labor intensive in many instances. It provides The most durable sidewall in the market today, bar none. And it's highly energy efficient. And so we have been focusing efforts through our Tremco Construction Products Group again on an integrated basis, utilizing the sales force of 200 plus people in the Tremco waterproofing and sealant business to really drive sales in Nudura. The lumber price situation was some added We're very excited about that and we're also excited about the ability to deliver a more integrated wall. Nudura independently was bought and part of DRiVIT. Today, they're all part of our Tremco Construction Products Group. So our specifications around Nudura are not just for an ICF wall system, therefore the Tremco sealants in all the joints, Therefore, DRIVIT or new brick or other siding that we're involved in. And so the opportunity there is very, very exciting. It's mostly residential and the opportunity to drive it in light commercial institutional markets like schools is huge. Got it. No, makes that definitely makes sense. And then could you give us a little bit of color in terms of the M and A pipeline? It sounds like you've made a couple opportunistic acquisitions just this past quarter. How should we be thinking about that going forward? Because it does look like Admittedly, some of the pricing starts to is starting to creep up at this point. I guess, how are you looking at the opportunities and the value of those opportunities as you're Sure. The M and A pipeline is really strong. We commented that we completed 2 acquisitions just This past month, Bison, which is a great addition to our fiber grade business and I think also has some Applicability to other parts of RPM. That's a patented level floor leveling system that we can use with grading So we're very excited about both of those. You've got management teams that are going to stay and run those even though we'll be pulling them in 2 RMS-one hundred and sixty eight manufacturing process and our centralized procurement activities. So there's more of that out there in general in our space. There are a lot of bigger transactions out there and I'll just repeat What I've said in the past, I don't see us paying 15 or 16 times EBITDA for anything. And so to the extent that there's large transactions and people are willing to pay those relatively peak multiples In a period of time where there are peak earnings, that will not likely be RPM. But if there are some larger transactions that we can get done What we believe to be a reasonable multiple with a reasonable IRR, we certainly wouldn't preclude looking at them. Got it. Makes sense. Thanks very much for the color. Thank you. Your next question tune comes from Vincent Andrews from Morgan Stanley. Your line is open. Good morning, Vincent. Thank you and good morning, Frank. I just wanted to ask A couple of things. One, you mentioned COVID restrictions are still holding things back in Performance Coatings. Just wondering if now that Texas has pretty much opened up and Florida has pretty much opened up, like when you know the big geographies, when you look at your results in those states, Are you seeing that with those restrictions lifted that the performance of those underlying businesses is really snapping back or and how is that comparing to what you're seeing in Sure. I commented earlier on the call that as we sit here today in the spring, We're seeing positive results for the first time in the year on the top line and bottom line of those businesses. I think we'll have better color in July Because the biggest reason is that we're starting to annualize really difficult I'm sorry, really poor results. We've had in our carboline business in particular given their exposure to oil and gas and heavy industry 10%, 12% sales declines pretty consistently. Stoneheart business and our floor and polymer flooring business Has been flat to slightly down. Their backlog is bigger than ever. And so we're very hopeful that You're going to see some nice robust growth there. But we'll have better color for you in July to really look back over 3 or 4 months And determine, right, how much of this is a pickup in demand and good robust organic growth versus how much of this is, hey, we look great because last year was terrible. Okay. Fair enough. I look forward to that. And just as a follow-up, in specialty products, you mentioned that you did benefit from the weather disruption Created some demand for you. Is that continuing given that that yearly was in the middle of the last month of the quarter, is that continuing into the fiscal Q4? And from an order of magnitude perspective, that's something that we really need to be thinking about when we model these quarters for next fiscal year in terms of just having tough comps? Well, I think that's it is continuing into the Q4 and I think that's true of our Legend Brands business. But we have New leadership in a number of places over the last 2 years. We've been really looking to drive growth. If you look at our margin profile on how it's improving in specialty products in the last two quarters. I think you'll see comparable improvement in Q4. That's in our aglow fluorescent color and colorant business. It's in our MRT business, which is our marine coatings and some of the Specialty Products there. It's pretty exciting in terms of what the work we're doing there and some of the leadership changes that we've affected is doing for that segment. So, we'll have much tougher comps next year in Q3 and Q4 in Legend Brands, But I think the specialty segment is poised for some pretty solid growth in the top and bottom line for the coming year. Okay, great. And congrats on that second shot. Yes, thank you. I encourage everybody to go get theirs. Your next question will come from Kevin McCarthy from Radical Research. Your line is open. Good morning, Kevin. Good morning. How are you? Frank, in Washington, D. C, I imagine there'll be a lot of conversations and perhaps some horses traded before we know what a 2nd fiscal 2020. That said, I'm tempted to ask 2 things. A, what were your preliminary thoughts on the bill as it was unveiled and then B, to the extent we might have a little bit better visibility at this juncture, Is there anything you feel that you will be doing differently in terms of capital allocation or operating strategy ahead of such substantial fiscal stimulus. Sure. Without being too much of a politician, I think we're going to have an infrastructure bill. I'm hopeful that it'll be More bipartisan than the most recent COVID bill. And I Say that because if it's more bipartisan, whether it's larger or smaller, it will be more focused on bridges and highways And so I do think we'll be a beneficiary of that and I think whatever benefit comes out of that will be in addition to the growth that we're experiencing at our construction products 2. Now. Okay. And then second, maybe a little bit more of a housekeeping question, but As it relates to winter storm, Yuri, you talked about catching up in the final week of February. You also talked about some benefits flowing through into your Legend Brands business. If we kind of roll up all the puts and takes, was Yuri a material Positive or negative in February and what do you think the answer to that question would be for March as well? Sure. Certainly for our Legend Brands business, it was a positive in terms of driving their Air handling equipment and dehumidification equipment and stuff that they work with all their major customers in helping homeowners and light commercial For our team as a whole, I would call it Net neutral. I think we panicked a little bit with literally 2 days of trucks not coming in and trucks not going out and At least one of our more significant consumer plants closed and not knowing when all that would change. I think we recovered most of it. So I would say in the quarter it's net neutral as you think about what RPM's comparison might be for next year With the exception of the Legend Brands Business. Okay. Thank you very much. Next question comes from Arun Viswanathan from RBC Capital Markets. Your line is open. Good morning, everyone. Good morning, Frank. Thanks for taking my question here. I guess, first off, just on the pricing outlook, could you just Can you elaborate on maybe by business segment if possible what you feel the pricing outlook is? 2. I'm just curious, volumes obviously in consumer are still relatively robust. On the other hand, maybe industrial, I. E. Performance is a little bit weaker and does that kind of portend for weaker pricing prospects over the next couple of months. How should we think about kind of pricing by 2019. I don't know that we would provide price raw materials in general. And so I would anticipate Again, we're not going to recover the spike from Erie. It's crazy. And you'll see that in our Q4. And again, 2020. In some cases, it's more than doubling in price. But we think there's a underlying inflation that's high single digits across categories. We've gone out with a 14% price increase and it's sticking. The other aspect of this I think that's important to understand is you're Trying to manage your supply chain. And so if you want to get product to meet customer demands and serve your customers, Then you're going to have to work with your suppliers on product availability and what their costs are doing and what they're doing with their prices in order to get raw materials to serve our customers. And so that's certainly part of what's driving some of our price increases as well. Okay, that's helpful. And then, just as a quick follow-up. So then when you think about subsequent quarters, ultimately, it sounds I expect that if raws moderate that you should see some margin expansion I. E. Hold on to that price Sure. I think there's as I mentioned, there's $50,000,000 of expected Final incremental benefits of our MAP to Growth program in fiscal 2022. Most of that is in the manufacturing and procurement areas. And so I would hope that after as I commented earlier, after our Q1, You'll start to see that gross margin improvement. We're keenly focused on that in terms of our conversion costs, as well as that And from a political perspective, United States spent $3,000,000,000,000 on COVID relief and stimulus in calendar 2020. We're going to spend already $2,000,000,000,000 more in calendar I think the bigger concern we ought to have broadly is, are we in for a return of some level of inflation And what does that do to interest rates? I'm not an economist, but we don't see anything that suggests That we're going to go backwards in raw materials structurally. We're certainly going to come down from some of the crazy spikes that we've seen in Certain raw materials. Again, I don't anticipate that epoxy resins will be 100% or 150% higher To the contrary of your question, our price increase activity is anticipating some significant reductions of the real crazy 2. Okay, that's helpful. And sorry, one more quick one. So just on the M and A side, I know that you said that The valuations may be a little bit high now, especially for the larger deals. But given the changes in your strategy through MAP And potentially integrating prior acquisitions. Do you foresee greater synergy opportunities, I guess, With future acquisitions or is there any color you could shed on what you expect to drive out of the Bison or other acquisitions that you completed recently? Sure. I think that if we looked at bigger deals for the most part, they would have and particularly if they're at higher valuations than we paid in the past, 2. They would have to come with meaningful synergies. And versus 20 years ago, my father would go out and totally freestanding businesses that don't have a connection necessarily for in some level of integration within an RPM within one of our 4 segments. Great. Thanks. And your next question will come from Mike Harrison from Seaport Global securities. Your line is open. Hi, good morning. Good morning, Mike. Wondering if Just to follow-up on some of the acquisition discussion. When you acquired the Ali business, looks like it had annual sales of around $75,000,000 And this quarter, it sounds like around $24,000,000 $25,000,000 in what I would think is a seasonally weaker quarter. So can you talk about how you've been able to leverage Ali and the Gator brand relative to your expectations And where we should think about that revenue run rate as we get into the spring and summer heavier season here? Sure. The Ali family has built a great business with a great brand, a great adjacent product line for our consumer segment And so we're excited to have it. Our first challenge there was kind of into the COVID period with A shutdown of Valley for a few weeks and a lot of catching up and really some supply issues. And we have worked very aggressively both in terms of investment and outsourcing in a few categories to correct that It's just a great business. And to the extent, particularly in conjunction with the sales and marketing teams at Rust Oleum To go into some of our big accounts on a joint basis is something that we're excited about. So we would expect to see that business grow at high single digit or low double digit growth organically. We're thrilled to have them as part of RPM, But we did have a 2 or 3 month unanticipated supply disruption relative to how COVID impacted that business after we acquired All right. And then also in the consumer business, you had noted that Europe and Canada were pretty robust. I believe that the DIY demand trajectory was a little bit different In those international markets than what you saw with the strength in the U. S. In April May. So So how should we think about the comps of that international consumer business and maybe the pace of DIY demand over the next couple of quarters there? Sure. We do a couple of $100,000,000 of DIY business in Europe, disproportionately in the UK. And so there has been more business activity in the UK. For instance, this recent shutdown wasn't applied As previously the business activity as earlier U. K. Activities were and we've had a surprising to me, But really great execution by our leadership team there of a significant increase in e commerce business, Literally paint products and accessories direct to consumers and that's growing. I think it's one of the areas broadly in the DIY markets And to me, again, surprisingly somewhat in the paint markets. One of the positive outcomes of all this It's really accelerated consumer and customer interest in buying some of our products via e commerce and direct ship And your next question will come from Josh Spector from UBS. Your line is open. Good morning, Josh. Hey, good morning, Frank. Hi, everyone. Thanks for squeezing me in. Just a quick one on price again. When you talked about how you're going capture of the higher raw materials. You talked about changes in terms as something you could work with. Can you just give us an example of how that would work and how that would close the price raw gap? Sure. Without getting into specifics, really the terms are part of price increase adjustments and so it's It's really an account by account situation. It's a function of when the price increase goes effective, it's a function of A customer saying, can we change terms here or there? I don't know that that means a lot We're the biggest slug of our receivables because we have a program with MUFG on the payable side that's So that's an area where terms have benefited from us. You can see that in our payables. So it's really throughout the supply chain. And anytime you're talking price increases, you're talking Okay, thanks. That's helpful. And just quickly, you talked about M and A for cash deployment. How about buybacks? And now that you've initiated buybacks Again, or started doing them. Initially, you had targets to do a certain amount over a period of time. I think there's maybe $500,000,000 left in that target. Specific time frame, we have an open ended repurchase program that's active again. Like everybody, our reaction in the spring of last year was to run the cash and plan for the worst. And I think our people managed through that pretty well and our performance Actually turned out to be better than we first feared in the March, April and May period a year ago. And so with our Board's approval, we reinitiated our repurchase program in January. And so quite quickly with a Board meeting at the end of January, we repurchased about $25,000,000 of stock in the quarter. So that was over essentially a 2 month period and certainly subject to Various levels of where our stock price is, we intend to continue at different levels purchasing our stock on a go forward basis. But I don't we certainly will not purchase the next $500,000,000 of stock as quickly as we affected the first, Which I think was about 18 months. I would expect it to take us multiple years. Okay. Thank you. 2. Your next question comes from Kevin Hocevar from Northcoast Research. Your line is open. Hey, good morning, everybody. Thanks for squeezing me in here. Your ability to produce at all, have you had to take any client downtime or reduce shifts or anything like that? Just curious if it's impacted Your production capabilities at all. The answer is yes, thankfully not on a sustained or meaningful basis. We've had situations where we would have to stop production and or wait for raw materials. And we have Pursue certain raw materials and certain chemicals direct through distribution under contracts. In our industry, They're starting the good news is they're starting to roll off. But at the end of February and into early March, we in our industry were We've met with about 30 plus force majeure triggers by primary raw material suppliers Some of the biggest chemical suppliers in the world and most of those are starting to be to roll off, which is a really good sign. But we have not had any sustained outages Due to raw material disruptions, but we have had some spot outages here and there that have been temporary. Okay. And then on the roofing side of the business, I know you've got a nice presence in liquid applied roofing with AlphaGuard. And I believe that this is It sounds like you're even expanding capacity on this. And I know it tends to be a lower cost alternative to fully tearing off and replacing the roof, which I'd have to imagine this environment is pretty appealing. So curious, how that product line in particular is how building owners are Adjusting to the environment, are you seeing a lot more adoption of folks that might have previously done a full term replace with routine membranes using liquid applied instead. So just kind of curious how that's holding up in this environment? Absolutely. We're in the process of a $20,000,000 capital expansion in terms of our roof restoration coatings. 2. And I think we've made a we've been the leader. I say headway, but we've been the leader in driving roof restoration coatings As a way to extend the life of a typical end of useful life 30 or 40 year old roof of all types, EPM, rubber roofing and other things. The ability to extend that for anywhere from 10 years in the short end to 20 years in the long end at a 2nd fraction of the cost of ripping something off and replacing it. And so the benefits of not filling up landfills, The benefits to building owners at lower costs and actually And re roofing or roof restoration process that also is shorter time wise and duration are all positives that are now starting to be picked up in the marketplace. And of course, we have competitors that are chasing that market as well, but that's continuing to grow for us at double digits. And we're continuing to invest in expanding our capacity there. Okay, great. Thank you. Thank you. I have no further questions in queue. I turn the call back over to Mr. Sullivan for closing remarks. Yes. Thanks, Michelle. And Gotcha. Grabbed most of my concluding comments, but I did want to just reemphasize that Our people have executed our 2020 MAP to Growth operating improvement program extraordinarily well, But the real benefits of the MAP to Growth program have been to transition and really transform RPM in a lot of ways that will serve us well into future. It's a program that will formally end at May 31, 2021, 5 months Longer than we anticipated because of COVID. We are working on kind of what's next and look forward to communicating Some of the details of that to our investors in July or perhaps October. I mentioned a lot of people that are driving that success 2 people that have been paramount to the success of that program are Steve Knueb and Paul Hugenboom. Steve, As many of you know, passed away a couple of years ago, but he was the primary architect of this and was a big, big passionate So with that, I'd like to thank you all for your participation in our investor call today. I want to thank our associates for their tremendous 2. Efforts and dedication in what's been the most volatile environment that any of us have ever operated in and then volatility continues. And thank our investors for their investment in RPM. And we very much look forward to talking about the details of the conclusion of our Q4 2020 1 full year when we talk to investors and release earnings in July and also provide you more detail 2019 outlook and some of the longer term MAP to Growth 2.0 ideas we have 2019. Thank you, everyone. This will conclude today's press call. You may now disconnect.