Earnings Call: Q2 2021

Jan 6, 2021

Welcome to RPM International's Conference Call for the Fiscal 2021 Second Quarter. Today's call is being recorded. This call is also being webcast and can be accessed live or replayed on the RPM website at www.rpminc. Comments made on this call may include forward looking statements based on current expectations that involve risks and uncertainties, which could cause actual results to be materially different. For more information on these risks and uncertainties, please review RPM's reports filed with the SEC. During this conference call, all references may be made to non GAAP financial measures. To assist you in understanding these non GAAP terms, RPM has hosted reconciliations to the most directly comparable GAAP financial measures on the RPM website. Following today's presentation, there will be question and answer session. Please note that only financial analysts will be permitted to ask questions. At this time, I'd like to turn the call over to RPM's Chairman and CEO, Mr. Frank Sullivan, for opening remarks. Please go ahead, sir. Thank you, Denise. Happy New Year, and welcome to the RPM International Inc. Investor call for our fiscal 2021 Q2. Joining me on today's call are Rusty Gordon, RPM's Vice President and Chief Financial Matt Radicek, our Vice President of Global Tax and Treasury, who is also supporting our Investor Relations activities. I'll take a few moments to provide an overview of the factors driving our strong financial performance for the quarter and also share an update on our MAP to Growth operating improvement program. Matt will then review our Q2 financial results in detail, and then Rusty will wrap up with our formal remarks with an outlook for the Q3 of our fiscal 2021 year, after which we'll take your questions. I'm very pleased to report that we generated record sales, earnings and cash flow for our Q2. The excellent performance was achieved largely due to the efforts of our associates to grow our top line, which was achieved by 3 out of our 4 segments, Despite challenging economic conditions worldwide coupled with operational efficiency improvement activities. The MAP to Growth initiative once again generated strong leverage to the bottom line on moderate sales growth of 6%. Organic sales grew in a broad range of categories, including cleaning, disinfecting products, air purification equipment, small project paints, OEM coatings and other areas. Acquisitions also contributed to sales, including the 2nd quarter addition of Ali Industries, which is best known for its Gator brand of abrasive products. Ally's largest acquisition rebate since fiscal 2013 positively impacted both sales and earnings in the quarter, We're also demonstrating our renewed focus to invest in growth initiatives. Foreign currency translation also added to sales as international markets, particularly those in Europe, showed improvement. On an adjusted basis, our consolidated EBIT margin increased 240 basis So 13.4% during the quarter, driven by 3 of our 4 segments registering substantial EBIT margin improvements and high EBIT growth. This Our consumer business continues to lead the way driven by unprecedented consumer demand for small project paints, clogged sealants, stains and cleaners, while our other segments are finding ways to compete and win in the markets they serve. Our businesses remain focused on growth and are continuing to develop new innovative Was developed to quickly fix most common drywall damage with simple mess free repair. Another is Carboline's Pyrocrete 341, a next generation cementitious coating for passive fire protection. With enhanced application Properties and excellent durability, PyroPreek 341 positions Carboline as a market leader in passive fire protection. In addition, our construction products group recently introduced a suite of products that will keep us working this winter in temperatures as low as minus 20 degrees Fahrenheit, Including Alphaguard Puma and Vulcan EWS waterproofing coatings, which are used to protect roofs and concrete. In a challenging construction market, our Construction Products Group continues to focus on renovation as exemplified by its Spectrum Simple Seal for facade restoration. On one recent residential tower in Minnesota, a complete window replacement was estimated to cost $15,000,000 Tremco won the job by recommending its SPECTRUM simple solution, which was used to restore the facade at a cost of only $1,000,000 We expect significantly more of this restoration product project sales. Our MAP to Growth program continues to have tremendous momentum. During the Q2, we announced the closure of 2 plants, which brings our total to 25 out of the 31 plants that were originally targeted for closure at the start of the program. We're also becoming much more efficient in utilizing our manufacturing assets as our focused improvement team meetings continue to deliver cost savings One example is a dryvit manufacturing engineer recently trained in 6 Sigma principles to identify process improvements to reduce scrap and increase yields, which will result in $250,000 in annual savings. There are literally In addition, the targeted benefits from our center led procurement initiatives are ahead of plan and our administrative improvements and ERP consolidations are continuing to be As mentioned last quarter, we expect that we will reach the MAP to Growth program's planned run rate of $290,000,000 in annualized by the conclusion of this fiscal year. That said, through our culture of continuous improvement, we continue to add to our robust pipeline of Which increased 93 percent to $580,000,000 We've been strategic in managing this record cash flow using it to pay down debt, Make acquisitions and an increase in our cash reserve. At quarter end, total liquidity stood at $1,600,000,000 One final comment I'd like to make relates to my predecessor, Tom Sullivan, who is also my father and mentor, who passed away on November 30. I share this because he had a tremendous influence on shaping the RPM of today. He took over the business in 1971 after his father died At that time, RPM sales were $11,000,000 Following a 55 year career with RPM, Tom retired from our Board in 2016 When annual sales had reached nearly $5,000,000,000 His leadership ingrained practices within the organization that I'll now turn the call over to Matt Radicek, who will review our fiscal 'twenty one second quarter financial results in more detail. Thanks, Frank, and good morning, everyone. Please note that my comments will be on an as adjusted basis. During the Q2, we generated record consolidated net sales of $1,490,000,000 an increase 6% compared to the $1,400,000,000 reported during the same quarter of fiscal 2020. Organic sales increased 3.5 Foreign exchange was a tailwind that increased sales by 0.2% or 2,500,000 Adjusted diluted earnings per share were $1.06 an increase of 39.5 percent compared to $0.76 in the year ago quarter. Our consolidated adjusted earnings before interest and taxes, EBIT, increased 29.7 percent to 199.3 compared to $153,700,000 reported in the fiscal 20 22nd quarter. Turning now to our segment results. Sales in our Construction Products Group increased 0.8 percent to 503,500,000 compared to $499,500,000 a year ago. Organic sales increased 1.2% or 6,100,000 There was no impact from acquisitions. Foreign currency translation reduced sales by 0.4% or 2,100,000 Adjusted EBIT in the Construction Products Group increased 26.8 percent to $78,500,000 from adjusted EBIT of 60 at $1,900,000 reported in a year ago period. The segment was able to leverage its modest sales growth And outstanding results on the bottom line, largely due to MAP to Growth initiatives, aggressive discretionary cost cuts and proactive management to improve its product mix. This was achieved despite soft commercial and institutional The segment was able to maintain its top line by focusing on renovation and restoration projects, Expanding its position as a single source provider of building envelope systems and continuing to take market share with its industry leading construction technologies, Including its Nudura's insulated concrete forms. Sales on our Performance Coatings Group decreased 11.6 percent to 2 $158,800,000 from $292,700,000 a year ago. Organic sales declined 12 0.2% or $35,600,000 Acquisitions contributed $600,000 or 0.2 percent to sales. Foreign exchange increased sales 0.4 percent or 1 point Similar to last quarter, the Performance Coatings Group's sales continued to be impacted by COVID-nineteen restrictions that limited access Construction sites and also by weak energy markets that resulted in a deferral of industrial maintenance spending. Industrial capital spending has been restricted, especially in the energy sector, which is the largest market for our industrial corrosion control at Fireproofing Coatings Businesses. The segment was particularly challenged in emerging markets and its Carboline business was temporarily disrupted by The segment's earnings were impacted by declining sales, partially offset by MAP to Growth Savings And discretionary cost reductions. Out of all of our segments, the Performance Coatings Group has been unfavorably affected the most by the pandemic. However, it also stands to benefit significantly from the pandemic's end as its customers catch up on deferred maintenance and construction projects. The unprecedented demand for our consumer products continued this quarter, resulting in a significant increase in sales for our consumer group. They increased 21.4 percent to $547,500,000 from $450,900,000 in the for fiscal 20 22nd quarter. Organic sales increased 15.2 percent or 68,600,000 Acquisitions contributed $26,000,000 or 5.8 percent to sales. Foreign currency translation increased sales by 0.4% for $2,000,000 Adjusted EBIT in the consumer group increased 65.8 percent to $90,700,000 compared to $54,700,000 in last year's Q2. Our consumer group's outstanding performance was driven by our broad distribution and by leveraging our market leading position as homebound consumers tackled significantly more projects. From vigorous cleaning product sales, favorable translational foreign exchange and the acquisition of Ollie Industries. Raw material costs were stable overall during the quarter. However, we are currently seeing broad based inflation in a number of raw materials. High sales volumes and MAP to Growth savings were leveraged to the segment's strong bottom line. Specialty Products Group sales were $176,100,000 an increase of 11.3% compared to 158 at $2,000,000 in the year ago period. Organic sales increased 6.6 percent or 10,400,000 Acquisitions contributed 3.8 percent or $6,000,000 to sales. Foreign currency translation increased sales by 0.9 for $1,500,000 Adjusted EBIT in this segment increased 27.7 percent to 29.6 $1,000,000 this quarter compared to $23,200,000 in the Q2 of fiscal 2020. Management changes that we implemented at the Specialty Products Group have helped to turnaround results at the segment this quarter. Sales were boosted by increased And wildfire activity, which drove demand for our water restoration equipment as well as fluorescent pigments, which are used in fire retardant tracer dyes. Additionally, we continue to experience strong demand for our expanding product lineup of disinfectants, Air purification equipment and HEPA filters. Several of this segment's end markets have improved. For example, sales of its industrial wood Protection products increased as a result of improved lumber demand in the U. S. And we had expanded sales in our forestry Chemicals business in Australia and New Zealand. The segment's bottom line increased as a result of higher sales volumes, operational improvements and map to growth savings. Now, Rusty will walk you through our outlook. Thanks, Matt. As we look ahead to the fiscal 2021 Q3, we anticipate Consolidated sales growth in the mid single digit range with continued strong leverage to the bottom line from our MAP to Growth program, resulting in adjusted EBIT growth of 30% or more. Our 3rd quarter typically Relatively modest sales activity each year because it falls during the winter months when painting and construction activity slow. As a result, there is typically greater volatility in percentage terms given the unpredictable weather. Also, this seasonal reduction of activity will benefit our consumer segment, enabling it to replenish retail inventories after working to meet unprecedented demand over the last 6 months. From a segment perspective, We expect fiscal 2021 Q3 sales to be flat to negative in the construction products group. This group will We expect the sales decline to continue in the Performance Coatings Group, which serves the most challenged end markets at RPM. We expect the consumer group to continue to leverage its Market leading position into double digit sales growth due to a number of factors, including: Number 1, continuation of strong POS results number 2, more shelf re stocking after retail inventories have dropped due to unprecedented demand and number 3, Continued benefit on both the top and bottom line from the Ali acquisition, which is performing better than we anticipated. We expect positive sales growth from the Specialty Products Group to continue into the Q3 as well. New management has brought fresh ideas and processes for business development and their OEM customer base has recovered as manufacturing has picked back up from the shutdowns last spring. Additionally, RPM's cash flow has which has drawn down our consumer inventory. A portion of this working capital reduction will not be sustained since we will need to rebuild consumer group inventory. Across all of RPM, there is still much work to do to improve our manufacturing flexibility and planning processes that will help us simultaneously serve our customers while reducing the necessary safety stock levels. Sales in all four segments should be up in the fiscal 2021 4th With recent optimism surrounding the vaccines For COVID-nineteen, let me spend a moment to tell you about what life getting back to normal means for our 4 segments. For consumer, we would expect DIY activity to return to more normalized levels as people venture out of their homes, But we still anticipate elevated demand due to the expectation of continued low interest rates, Good housing turnover and expanded end user base since more DIYers have recently entered the category And our consumer pro business picking up again as contractors gain access more often to residences. We also believe that cleaning is an area of greater consumer interest as we go forward. For our CPG and PCG segments, getting back to normal will improve facility access for our contractors and likely improved construction activity from what has been a challenging 2020 calendar year. We would also expect a boomerang effect in the future as deferred maintenance catches For those who followed RPM in the last great recession, you'll recall that our former Industrial segment Experienced double digit growth in 20112012 from the catch up of deferred maintenance. For SPG, we continue to rebuild growth momentum under the new management team. Due to continued economic uncertainty related to the impacts of COVID-nineteen, we are not providing fiscal 2021 full year earnings guidance. This wraps up our formal comments. We will now be pleased to take your questions. Your first question comes from John McNulty with BMO Capital Markets. Your line is open. Yes, thanks for taking my question. First, my For sure. So I guess the first question, because we've obviously seen some inflation in some of the raw You made mention of it in some of the prepared remarks. Can you speak to the type or level of inflation you expect to See as you work through the rest of your fiscal year and also speak to the ability that you have to price it through, so that You can offset some of those headwinds in a timely fashion. Sure. So we're seeing some challenges in areas like silicones, epoxies, Metal cans and certain other raw material categories, we fully expect to Set those initially through the continuing benefits of our consolidated procurement activities, Which have been providing, I think, leverage and benefits beyond what our original MAP to Growth expectations were. And then, while we're very stable in terms of pricing now, I think it's highly likely that you'll see across our industry some price increase activities this Got it. Fair enough. And then I guess you've got a number of new growth initiatives. You've got Some grab and go programs coming on. You made mention of some of the investments even in the new paint capacity. Can you speak How programs are going at this point in terms of the growth and your expectations? And also how you're thinking about the investment needed to drive these businesses? Sure. Number 1, we are making the investment needed to drive these businesses as we speak today, we Expanded capacity in consumer in a number of categories. We're also expanding capacity in our construction products group. And we are making a not so subtle shift in our MAP to Growth activities to the growth aspect of it. I think you can see that most pronounced In our Construction Products Group, which actually had modestly positive organic growth in this quarter in a very challenged end market pretty much globally. And they have shifted to some major restoration activities. The combination of our dry Vit business, Nudura, the Tremco roofing, Tremco sealants and the spec efforts are paying big, big dividends and we would expect more of that to come particularly in any type of construction activity rebound. And so you're seeing that we mentioned a few of the new product categories today. We are keenly focused on driving organic growth in the coming years. And at the same time, I think Rusty made reference to the fact that we would expect MAP to Growth, which is exceeding our expectations, to continue to deliver additional savings as we get into fiscal 'twenty two. Your next question comes from Rosemarie Morbelli with G. Research. Your line is open. Thank you. Good morning, everyone. And again, I will join my condolences regarding Tom's passing. Frank, we are all terribly sorry, and I worked with him for many years, more than I'd like to think about. Looking at your investments, what which particular product lines are you thinking of So growing I mean, where let me rephrase this, which product lines are you investing towards additional capacity in your different businesses. Sure. In consumer, We are investing in small project paint capacity, aerosol capacity. We're also looking at gallon goods and Capacity in caulk and sealants, so pretty much across the board. We're also expanding capacity in cleaning product categories. In our Construction Products Group, we are expanding capacity in roof restoration coatings across a whole broad Spectrum of areas and we're expanding capacity in facade restoration projects. So that ranges across Nudura, DRIVIT and Tremco sealant unit product categories. We're also expanding capacity in a number of specialty products group businesses, particularly Allegiant Brands in terms of their capacity for Air Filtration and Air Handling and Restoration Equipment. About the only area that we're not expanding capacity at this point is in Performance Coatings Group given the impact of the pandemic and oil and gas prices on some of their major product categories. Do you see you need to eliminate some capacity on the Performance Coatings as some categories may not go back to the pre COVID level. We would fully expect categories to get back to pre COVID levels over the next coming years and that's been our history in the past. I will tell you we have been eliminating capacity across RPMs. We highlighted in our prerecorded For our formal remarks, we've completed the closure of 25 manufacturing facilities. And I believe by the time that we're We will exceed by a few the original 31 plant closures that we targeted in MAP to Growth. And so we're having a very deliberate reallocation of capital into growth areas and into So while we're expanding capacity by the time we're done with MAP to Growth, our net Manufacturing footprint around the globe will be smaller. Thank you. And I was wondering if you could make some comments regarding your Efforts towards adding architectural paint to your portfolio. Sure. We have commented in the past about a number of kind of unique category architectural paint opportunities that we've had across a number of our major customers. And in that, I think you will have a better sense of that this spring and this summer as we get through kind of the post COVID supply challenges across numerous areas in the consumer DIY Thank you very much. Your next question comes from Frank Mitsch with Fairman Research, your line is open. Hey, good morning and congrats on the quarter. More importantly, Frank, let me add to the condolences I mentioned before that, I thought your eulogy was one of the best I ever heard, what an amazing man in life. And on a happier note, congrats on your Browns And good luck on, I don't know if it's Saturday or Sunday, but it'd be nice to take care of the guys in Pittsburgh. You spoke a little bit about cash generation, record free Cash flow and your strategic uses, didn't hear much with respect to buybacks and when might they resurface and or What your pipeline is looking like on the M and A side? How do we think about the interplay for RPM on M and A versus buybacks? Sure. So cash generation is at record levels and it will continue that way for the foreseeable future combination of margin expansion. The capital allocation strategies we're deploying as well as just excellent Working capital improvements. For the time being, we have indicated that we had suspended our share repurchase program In favor of debt reduction, we've been able to affect some meaningful debt reduction. Going forward, The pipeline of M and A activity in our industry is pretty full and growing. So we continue to pursue Our typical small to medium size acquisition activity and I think over the next 12 to 24 months, You'll see more transactions like the Ali Industry transaction we completed in the Q2. As it relates to share repurchases, that's something that Our Board will take up in Board meetings here this winter and this spring. Got you. Obviously, The 3rd quarter to rebuild inventories. Were there did you lose any sales you think on the consumer side because you were sold out? Could the results have been better? How do we think about what could have been in that regard? Clearly, we have lost some sales relative to fill rates. It's not unique It's impacted many DIY categories. As people know, in our Q1, we had organic growth in consumer of 34 We had organic growth in the 2nd quarter in the mid teens. We continue to see strong organic growth. And certainly, There were some opportunities for us for additional growth and we've been able to fill orders at a higher rate. As Rusty commented in our and Matt commented in our prepared remarks, we see catching up on a lot of the activity in the 3rd quarter. And I think we remain very bullish about both our position in the DIY market and where the DIY market will continue in terms of pretty strong growth for the foreseeable period of time in calendar 'twenty Got you. Many thanks. Thanks, Frank. Your next Question comes from Ghansham Panjabi with Baird. Your line is open. Good morning, Ghansham. Hey, guys. Good morning. Happy New Year and Frank, my best to your family as well. Thank you. Yes. So just given that your quarter ended in November, obviously lockdowns have picked up in Europe Since then, can you just give us a sense as to how things have progressed in December? What they're tracking like in early January across your businesses? And if anything is different from I think a great question because The possibility exists for a lot of variability in our Q3, but we are off to a great start. Organic growth continues across our different businesses at the beginning of Q3. Leverage to the bottom line has been tremendous, And we would expect to meet or exceed the forecast numbers or the guidance numbers that Rusty provided And the formal comments that we made. What could interrupt that is Further lockdowns, the UK has locked down into mid February, as you know. If that is followed by lockdowns throughout Europe and then back in the United Certainly, that could disrupt what otherwise would be another very strong quarter for RPM. Got it. And then in performance in your call out for deferred maintenance in the energy sector, can you give us a sense as to how that dynamic impacted you specific To the 12% sales decline you reported in the 2nd quarter and what's reasonable in terms of the catch up phase because I assume you can't You've heard for too long. Thanks. Sure. I think the best way we can address that again was in the prepared remarks That Rusty made, we look back at calendar 2011, 2012 And we generated double digit organic growth in our Performance Coatings Group businesses and our Construction Products Group businesses on the rebound. And certainly in the Performance Coatings Group area, the negative impact, particularly in oil and gas and Energy and heavy industry spending has been as severe as it was back then. And so we would expect a meaningful rebound in those categories on any economic recovery activity. And so I think we're really well poised there. And you'll see in The benefits of the net to growth activity on our Performance Coatings Group. In this quarter, their earnings performance was negatively impacted by some unique Circumstances around the hurricanes and weather activity that impacted the Gulf and their major manufacturing So part of that earnings performance was circumstantial to the quarter. So, we're real pleased with where they are. The Construction Products Group, I think, has the opportunity to really drive our performance into fiscal 'twenty two. We are taking market share. We are introducing new product categories. We are combining prior independent businesses to attack facade restoration on a holistic basis. And so there's a lot of exciting things happening there that again we would expect to see accelerate in any type of economic recovery. Perfect. Thank you so much, Mike. Thank you. Your next question comes from Vincent Andrews with Morgan Stanley. Your line is open. Thank you and good morning everyone. If I could just follow-up on the consumer business, a couple of Are you noticing within the DIY customer that the product mix that they're purchasing is evolving To the extent that maybe there's sort of a lifecycle where people that were early in DIY were doing certain types of projects and now 6 months later they're doing different But you're seeing a new cohort come in that's sort of at the earlier stage or just sort of any evaluation of the trend You're seeing that can help us understand your confidence and sort of the sustainability of this into the next fiscal year? Sure. DIYer has expanded pretty significantly and certainly in ways that neither we or our big customers could have accomplished in normal circumstances on our And a good example of that is, our Wood Staging and Finishes business has had the same type of robust organic growth It's our small project paint business and that requires some more craftsman skills and There are larger projects, and so I think we're all pretty confident That this larger base is here to stay and that we can grow from there. The one area that was meaningfully negatively impacted was the And so that might be 20% to 25% of our Rust Oleum Small project paints and cleaner categories, but closer to 40% or 50% of our DAP toxin sealants and patch And pro contractors have been inhibited from Gaining access to residences, to the interior of residences where most of our products are applied as well as its impact on some kind of small project like commercial restoration. So we see that business coming back Strongly, once people have more confidence in putting the COVID pandemic behind us. And then the last comment I'll make are new categories that we've been testing. We have had 3 different opportunities, which are still ongoing to test New programs in architectural paint. And so you put all that together and we're pretty bullish about our consumer business through this pandemic period. Okay. If I could just ask a follow-up on the Ali acquisition. You mentioned that It's proceeding better than projected. Is that both on the top line and from a synergy perspective? Or just any incremental color you can provide that would be helpful? Yes. It's both on the top line and what we're able to do with that business. Post MAP to Growth, RPM could bring some more immediate value to businesses that we acquired. Our manufacturing and operations folks have been working with Ali And I look forward for 3 years in terms of some manufacturing capacity expansion and also some automation efficiency improvements. So we're excited about that and the ability to take advantage of the sales and marketing expertise at Rust Oleum, which I believe is as good as anybody in the entire DIY space across a new category, is pretty exciting as the Rust Oleum sales and marketing folks marrying up with the Ali folks in terms of new opportunities and new approaches. Thank you. And I'm sorry for your loss. Thank you. Your next question comes from Kevin McCarthy with Vertical Research. Frank, did you have any businesses where Price declined in the fiscal second quarter. And then looking ahead, as raw material costs come up as you described, Where would you say you're most confident in the ability to pass along those increases and where do you think it could be more challenging? Sure. We've had a period of price deflation that we benefited from as well as the benefits of our Consolidated purchasing activity, which is going quite well. We have not had Meaningful price givebacks in any category across anywhere at RPM. In terms of price increases, we've had some very modest And going forward, as I mentioned, this spring and this summer, The product categories that are most likely to be driving price increases across a number of our businesses are in packaging, especially as it relates to How things transpire in the coming months in the areas of silicones, epoxies, acetone, number of categories that are seeing price increases as we speak for the first time. It's worth keeping in mind from an RPN perspective, we wanted A few, particularly in the U. S. On FIFO accounting. So the impact of these wouldn't hit our P and L for Probably 60 to 90 days versus a lot of our peers, and we have the ability to both lead in some categories, but following others in terms of what's happening in price increases across the market. Okay. And then in terms of, I guess what I was trying to get at Frank is your ability to raise price to your customers and pass that along. Are there any Areas that you would call out where you already may be out in the market with proposed increases, for example? Yes, we do not have any price increases in the marketplace today. I anticipate price increases in the future and To pass on price is consistent with what it's always been, relatively timely in our industrial businesses and typically with a 6 to 12 month lag in our consumer DIY businesses. I think some of that will be tightened just because of where we sit with a few product categories, but we have passed on price appropriately in the past. You can see that in our margin expansion Throughout this period and I don't see anything that changes those dynamics both on the plus side, which is our ability to ultimately pass on price And on the lag side, in terms of the delay in timing that we've experienced for decades in our consumer DIY Thank you for that. And then secondly, if I may, in consumer, Frank, what is the level of inventory that you would need to replenish and what impact could that have on sales and or margins and what's Normally, the seasonally weaker quarter for the business. Sure. I would expect really strong Which would impact everybody. But we anticipate continued strong performance there and into Q4 as well. Rusty referenced working capital and consumer. Certainly, we have tens of 1,000,000 of dollars, Low tens of 1,000,000 of dollars of inventory to catch up on. And I think that's a good news story as well for the coming quarters. Thanks for the comments and Frank all the best to you and the family in 2021. Thanks Ken. Your next question comes from Josh Spector with UBS. Your line is open. Good morning. Good morning. Thanks for taking my question. Just a follow-up from a prior question quickly. Are you able to size the hurricane impact performance on the top and bottom line in the quarter at all? Well, I don't have those details. I don't know if we have them. Rusty, is that something that You might be able to comment on. Yes. In terms of unusual expenses, there was a few $1,000,000 of expenses. And in terms of sales, there was disruption from 3 hurricanes that have passed either right through Lake Charles are nearby in the second quarter. So that did disrupt not just our plant, but our customers In the Gulf region. So, yes, there was some sales impact that definitely played into The decline you saw at TCG? Yes, that's why I mentioned in my comments it was circumstantial of the quarter and Actually, despite the very challenged end markets, the MAP to Growth benefits on the PCG segment are pretty pronounced, and I think you'll see those in the Okay. Yes, I guess I'm trying to think about around this is you had 12% declines in performance in both last in both of the last two quarters. Is there a way to think about like what The exit rate was or what the normalized demand was as we start to look at the next quarter and think about the recovery over the next couple of quarters? I think you'll see the positive results as we get into our fiscal 'twenty two, in part because they'll be But I do think with any economic recovery, there's a significant amount of pent up Maintenance and Heavy Industry Spend that we'll be the beneficiaries of. Okay. Thanks, guys. And I guess the last comment I'll make is if you look at what we expect in Q3 and Q4 out of that segment, I think you'll get a better sense of the positive impact of MAP to Growth, even as revenues continue to be down year over year or flat. And it will give you a better sense from the margin profile of what type of leverage we would have when positive sales results return. Okay. I appreciate that. That's helpful. Just one last quick one, if I can, just on MAP to Growth and the Savings that you expect to realize. I mean, you reiterated your run rate savings Are you able to quantify how much savings you expect to be utilized in fiscal 2021 versus fiscal 2022 at this point? Again, I'll defer that to Rusty other than to say that we're highly confident that some of our ability to The acute timing has been impacted by the COVID pandemic, but we're highly confident that as we get into fiscal 'twenty two, we'll continue to benefit And Josh, as we said on the last call, we expect $100,000,000 or more of MAP savings To favorably impact FY 2021. Okay. Thank you. Sure. Your next question comes from Arun Viswanathan with RBC Capital. Your line is open. Good morning, Irene. Great. Good morning, Frank. Thanks for taking my question and my condolences to you as well. I guess I just wanted to first ask about the consumer segment, The margin performance, if you think about it, Q1 'twenty one to Q2 'twenty one, you had about Close to a 500 basis point margin drop off in EBIT percent. Obviously, There's a lot going on in there, but how would you kind of characterize that performance? Do you feel that the consumer segment was potentially Impacted by some of those stockouts and do you see margins kind of recovering to higher levels in subsequent quarters? Sure. Let me address that broadly and then Rusty can address it in some detail. But all of our businesses, particularly our consumer businesses are seasonal. And I think if you look year over year, we're continuing to see significant margin expansion. But obviously, from one subsequent quarter as we get into our Q4 and Q1, which are absolutely our seasonal highs And our Q2 and Q3 are meaningfully less in revenues and there's a fixed level of expense. So that's what's driving the margin differential. Quarters over subsequent quarter, but we've continued to experience significant year over year margin improvement and we would expect that to continue. And I think Rusty could add a little more detail to that. Yes, that's correct, Frank. Yes, as we get into cooler months in the fall, sales typically fall off as they normally do. So the fact that we had stronger sales and more leverage on fixed costs Would naturally lead to a higher margin in Q1 than Q2. But when I look year over year, consumer is up 4.50 basis Agreed. Thanks for that detail. And then on construction products, you guys alluded to potential Do you believe that there is inorganic additions you have to make to your portfolio To capitalize on that or could you potentially capture that share through some of these investments you've described as well? So I believe we can and are capturing that share through the activities that we've taken as There will be inorganic opportunities in that category, broader opportunities that may appear, but On a pretty regular basis, product lines that we can acquire and expand across our distribution base. But fundamentally, what happened in our By going from our former 6 groups into the 4 groups and 4 segments, We have consolidated a number of businesses more completely into a more comprehensive construction products group. And so while we operated across The globe with maybe 5 or 6 different business units, we are now operating in North America and in Europe as a Tremco Construction Products Group. And pulling together, for instance, Tremco sealants, the Nudura and the driver businesses and approaching the market on an integrated basis is opening up opportunities And we're also seeing some facade restoration that is driving organic growth that we were not experiencing the way we were organized in the past. So the biggest part of it has to do with reorganizing into a more integrated $2,000,000,000 construction products group, which from a market perspective is the Tremco Construction Products Group on a pretty integrated basis. We have exceptional leadership there And we continue to take market share, whether it's in admixtures, shifting from different business units into a more integrated approach to the marketplace, Something we're really excited about. There will be organic there will be inorganic acquisition opportunities to And then real Lastly, on the raw material front, do you foresee any categories, things specifically like MMA and or where you potentially could face some supply chain disruptions or availability issues That you're concerned about or do you feel okay with the overall level of inventory that you have in your nonmaterial procurement? So we have, over the last few quarters and months, faced some challenges in certain packaging areas and We have faced some challenges in silicones. A lot of those Categories in terms of availability are being cleaned up. So I don't think we have the same concerns going forward as we've had over the last couple of quarters And so I think that's certainly an observant comment about what's happened in Your next question comes from Mike Harrison with Seaport Global. Your line is open. Thank you and our condolences to you and your family, Frank. You mentioned the management change that occurred in the specialty segment and talked about some new ideas, new processes around business development. Can you give a little more color On what changes have been made there and your confidence in sustainability of improving results in that business? Sure. We have a new segment leader who's been in charge of that group for just about 2 years and Ronnie Holman, who's done a great job. Ronnie started Enel as a leader of our R and D effort in a $15,000,000 wood coatings business that was acquired by RPM probably 30 years ago and helped grow our OEM coatings businesses to nearly $300,000,000 and is now in charge of this larger group. We have new leadership at DayGlobe. We have new leadership coming at our Mantros Hauser business. We have reorganized and new leadership across our valve tech and Leadership changes there that consolidated accounting administration, not only from a cost perspective, but to take Those administrative functions away from essentially business leaders that are refocused on growth. We have also changed our mentality at RPM under my father Tom and his partner Jim Carman for decades. We just We've had a lot of success both with our teams and the good work of some consultants in the MAP to Growth program. I mentioned Because something that we would not have done in the past, we are doing today. We hired Mackenzie to work with our Dayglow team and our Mantra Sauser Specialty food business teams focused on market sizing and market opportunities. So the shift that I mentioned earlier in terms of really Our businesses on growth as well as sustaining and implementing the NAFTA growth cultural changes with And I think the thing that we're most excited about big picture, our primary Goal on MAP to Growth was to get efficiencies that were there to have to change our culture, To be focused not only on growth but on efficiency, but do it in a way that did not meaningfully negatively impact our entrepreneurial culture. And so far, we have been able to do that and it's paying dividends. I think people are going to see that in the coming quarters across our pan, particularly in the construction products group and particularly in our specialty products group. All right. That's very helpful. And then also wanted to ask about the online Sales portal or your online sales effort, that was an area that you were kind of struggling with last Season, I was wondering if you've made some changes or progress in those online sales that should enable you to better leverage Potential demand to the bottom line as we get into the busier season in 2021. Sure. And Again, Rusty may have some more detail. I could tell you, particularly in our consumer group, our ability to service online ordering has improved dramatically. And we have seen significant improvement and huge percentage gains, but they're on a small base, about improvement in our ability to fulfill and meaningful, meaningful growth in some of our big box customers and in more on traditional online Our growth in online sales It's not quite double, but it's probably up close to 80% this year. And your question is very Because we are focusing a lot of our operating improvement team initiatives in the area of So I think we're going to continue to improve that this year because you're right, the landscape has shifted. Your next question comes from Mike Simpson with Wells Fargo. Your line is open. Hey, Michael. Hey, guys. My condolences to you, Frank, as well. And I just wanted to say, I always enjoyed meeting with Tom during the solid days back in the end. Those were always fun meetings. But Just one quick question. The first half of 'twenty one free cash flow was above $500,000,000 and It looks like you'll generate some free cash flow in the second half of the year. So is this sort of $600,000,000 plus Free cash flow potential, kind of the right run rate that RPM can generate on an ongoing basis Going forward? Yes, big picture and again details, I'll turn it over to Rusty. But big picture, I think we have gotten RPM to a new level of cash generation, both in terms of working capital requirements on On a go forward basis as well as our margin profiles and we're excited about that. I think Rusty can provide more details Sure. Yes, you might remember, Mike, on Investor Day, We showed a slide that said our cash from operations, our target was $872,000,000 I believe. And if you look over the last 12 months, we're running over $800,000,000 of cash flow from operations For the trailing 12 months. So we're pretty close to that. If you look at the dividend and the capital spending, This year we'll do over $140,000,000 of capital spending. I think the dividend is pushing close to $200,000,000 So to answer your question on free cash flow, at the rate we're running, yes, we're certainly over $400,000,000 of free cash Hello. It's hard to take the last 12 months as any guide for what normal is because of the pandemic. For example, we have deferred some government payments for about $25,000,000 including the payroll tax. We have drawn down inventories, but other businesses that we've discussed are suffering So it's tough to use the last 12 months as a guide, but we appear to be Tracking towards that math target. Your next question comes from Steve Byrne with Bank of America. Your line is open. Good morning, Steve. Yes. Thank you. Can you quantify how much discretionary spending cuts were in the quarter and what portion of that might reverse? Yes, I'll defer that detail to Rusty again. But big picture, we have had some Meaningful reductions in discretionary spending that's associated with the pandemic that will come back. I can tell you that, you'll see, and this is part of our guidance, a more normal spend in our consumer group in terms of advertising a Motion in the 3rd Q4 in the spring. So that's already coming back and part of our outlook. And while some of it will return, part of it was just lucky in terms of coinciding with our MAP to Growth activities because Across a number of our businesses, there will be a kind of a new level of discretionary spend that will be below Probably even where we originally targeted in MAP to Growth. Yes. Insurance, the biggest Yes, spend is travel costs. So we're probably saving somewhere North of $10,000,000 a quarter in travel costs. And like Frank said, with the new world we're in today, we're finding that We can accomplish a lot of things without travel, with video conferencing. So I don't think necessarily all of that will come back. In the spring, we talked about medical costs going down because nobody went to the doctor. That's been back to normal this year. So that's another area you might be interested in. And Frank, you brought up MAP to Growth in that response. I just wanted to drill into that on a couple of fronts. One being, how much of that $300,000,000 target or maybe what you can say how much of The savings you've achieved so far will turn that to growth. Would you say those are risen from lower raw material costs? Ross, you can check me on this. I would say, I don't know, dollars 50,000,000 or $60,000,000 is maybe lower raw material costs The balance is from our specific activities and that certainly is part of A centralized procurement function that in combination with lower loss has Exceeded our expectations. And then the other area that we've commented on was our original target for Manufacturing operations between plant consolidation and efficiency gains was $75,000,000 and will exceed $100,000,000 in that category. Yes. I think the question might be about the commodity cycle assumption in NAND. And we assumed $145,000,000 of Procurement savings and we said, I believe, dollars 65,000,000 in Wave 3 would be related to the commodity cycle. And then just one last one for you, Frank. As you close out this MAP to Growth initiative, is it reasonable to think that you Mike, introduce kind of the next plan, anything that you have learned from this initiative that Might lead you down a new path of productivity initiatives. Sure. I think we'll be in a better position to address that with some specifics in July when we talk about Guidance for fiscal 'twenty two and kind of maybe a longer term post MAP to Growth outlook. But clearly, there are elements of the MAP The MS168 element of manufacturer Our ability to be a more strategic partner to large global suppliers and what we're doing on the sales front as well or something that we'll be able to talk about. And we've been able to put in procedures, This is a little in the weeds, but what came out of MAP to Growth was a very detailed what we call PGT, which is MPGT, which is the I'm sorry, MPST, which is the MAP Project Savings Tracker. And so we've been able to track literally thousands of categories of savings across procurement, across SG and A and Efficiency, and we are taking some of those disciplines into a growth Process as well and we'll be able to talk more about that both in terms of what we're doing and the impact it's having this summer. And your last question comes from Sopa Kuuk with JPMorgan, your line is open. I'm also old enough I have two questions, 1 on the consumer segment and 1 on the on Construction segment. In the Consumer segment, is there a way to quantify just in ball What the benefit of COVID related sales may have been in the quarter, like whether it's something that's like $10,000,000 or something that's mid single digits Is there any way to think about it? Well, I'd Ross, you might have a better answer than I do. The only thing I can Tell you is historically, solid organic growth in consumer has been in the 5% or 6% range. So clearly, a 34% organic growth in the 1st quarter and mid teens organic growth in Q2 It's extraordinary relative to historic levels. Yes, I think the best way to think about it, Silk, is to look at the comp I think that would be probably the best way to think about it. Right. And at least to the sort of type of follow-up question on consumer, and that is Loans have been out on thinking about like the year ahead on a calendar basis. And I think your view is that the U. S. Home improvement Mark, it may be down, I don't know, 5% or 7% in calendar 2021. Is That way you see it and it's sort of like you said like a similar alignment for RPM And for the consumer business specifically? Yes. First of all, that is not how we see it. We would expect to see continued Full digit growth in the first part of calendar or 1st 4 or 5 months of calendar 2021. And then I expect from what we're To see positive growth rates for the balance of the year. And Lowe's perspective that you referenced is not Universal across our customer base. We have some significant customers that see continued expansion in the DIY market, albeit at a lower pace. Okay. That's helpful. And my question on the construction segment is The margin improvement in the construction segment has been pretty high with the map program, even though the sales growth has been slow. And the Q4 is typically the largest quarter for the construction segment, and The comparisons are relatively easy, as you pointed out. And so do you think that, that business in the Q4 can approach margins that are something at 20%. If you all just had good volume growth. Sure. I'm going to give you a dodge on that question for two reasons. Number 1, we really aren't providing detail on our Q4, and And we'll do so in April. But secondly, it's really going to be hard to tell. We had we should have some easier comps, particularly in April and As you see in this quarter, the leverage to the bottom line out of our construction products group is pretty extraordinary. And I I would expect that leverage to continue at least directionally in what you're talking about when they start to post organic growth that's in the mid single digits, which recovery is coming. Okay. Thanks very much. Thanks, Silke. And now I'd like to turn the call back over to Mr. Sullivan for closing remarks. Thank you. As always, I'm grateful for the hard work and dedication of our associates around the world. It's through their efforts that we found ways to safely operate our businesses, Meet our customers' needs, develop new innovative solutions and serve the communities in which we operate. I also greatly appreciate our shareholders for their We remain focused on generating long term value for you. We learned over decades that the market Values growth over efficiency and what we've learned in MAP to Growth is that we can do both and we expect to continue to do both. Finally, to everyone on the call, I wish you and your families a happy and healthy New Year. We look forward to updating you on our fiscal 2021 Third Quarter Results in April. Thank you for your investment in RPM and for joining our conference call this morning. Have a great day.