Earnings Call: Q4 2020

Jul 27, 2020

Welcome to the RPM International's conference call for the fiscal 2020 fourth quarter year end. 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.com. Comments made on this call may include Forward looking statements based on current expectations that involve risks and uncertainties, which could cause actual results to be materially different. For more information on these risks and uncertainties, please review RPM's reports filed with the SEC. During this conference call, requirements made to non GAAP financial measures to assist you in understanding these non GAAP terms, RPM has posted reconciliations to the most directly comparable GAAP financial measures on the RPM website. Following today's presentation there will be a question and answer session. Please note that only financial analysts will be permitted to ask questions. At this time, I would now like to turn the call over to RPM's Chairman and CEO, Mr. Frank Sullivan, for opening remarks. Please go ahead. Thank you, Sarah. Good morning, and welcome to the RPM International Inc. Investor call for our fiscal 2024th quarter and year ended May 31, 2020. On the call with me today are Rusty Gordon, RPM's vice president and chief financial officer and Matt Ratich our Vice President of Global Tax And Treasury, who is also taking on the responsibilities for our investor relations activity. On the call today, I'll provide an overview of our performance for the quarter and an update on our MAP to Growth operating improvement program. Matt will follow me with a review of our fourth quarter financial results and then Rusty will wrap up our formal remarks with our outlook for fiscal 2021. After that, we'll be pleased to take your questions. Leading up to the coronavirus pandemic, our business was trending towards a quarter and year of record sales and record adjusted earnings. However, as expected, our 4th quarter consolidated results were impacted by the economic fallout created by the pandemic, construction activities of many of our customers around the world. At various times during the quarter, we had more than 10 manufacturing facilities closed along with multiple other sales offices and distribution centers due to government mandated closures mostly outside of the United States and for disinfecting and cleaning facilities related to health and safety protocols. During the pandemic, we have taken decisive action to restrict travel limit access to our facilities and establish safety protocols and allow those who could effectively perform their jobs remotely to do so. Through it all, we have remained focused on protecting the health and well-being of our associates and their families and are playing a role in inhibiting the spread of the coronavirus in the communities in which we operate. Thanks to our associate's efforts to follow our comprehensive health and safe protocols, nearly all of our manufacturing facilities and distribution centers have been open and operational since our fiscal year end. The COVID-nineteen generated challenges during the quarter resulted in an 8.9% decline in our consolidated sales. Which was better than the On a geographic basis, our sales were essentially flat in the U. S. Where construction and hardware channels were generally deemed essential but were down 25% in international markets where many of our businesses were ordered closed by government mandate. The primary driver of our better than expected top line results was the growing demand throughout the quarter in the Cocks, sealants, repair products, wood stains, and specialty cleaners. Consumer had additional and repair projects because of the stay at home orders across our country. They were able to purchase the products they needed through e commerce portals grew dramatically during the quarter, as well as our retail partners and our broad distribution base of DIY store were among the businesses that were considered essential to the economy and were able to remain open and operational. The performance of our Consumer segment relative to our other segments highlights the long, highlighted value of RPM's diverse operating company portfolio where weakness in one segment is often offset by strength in another. Our 4th quarter adjusted diluted earnings per share of $1.13, while below last year's all time high results still represent our 2nd best 4th quarter drop in sales illustrating our quick response of our MAP to Growth operating improvement program. Coronavirus safety protocols such as limits on travel and facility access slowed some of the planned activities that were part of which were nearing their end, particularly including plant closures and ERP consolidations. However, in response to the economic downturn created by this pandemic, we quickly took proactive measures to accelerate the MAP to Growth cost reduction initiatives with a focus on delayering management and other areas of administration. As a result, we may remain on track to achieving or exceeding our original annual cost savings of $290,000,000. During the fourth quarter we announced the closure 3 plants, which brings our total to 22 out of the 31 plants who were originally targeted for closure and consolidation at the beginning of the MAP to Growth program. As we mentioned last quarter, due to the pandemic induced delays in executing some of our restructuring initiatives, we will be extending the timeline to achieving our original MAP to Growth objectives. This includes our goal of repurchasing $1,000,000,000 of our stock, which was more than halfway completed, but suspended in mid March as a response to the pandemic and its economic impact. There is still too much uncertainty at this point to set a new target date and we gain more visibility into business conditions, we will communicate our new MAP initiatives and growth timeline in the coming quarter. Expenses were dramatically down in our non operating segment due to the coronavirus pandemic medical costs were lower due to lower volumes. Management incentives on long term programs were reversed. Travel was banned and the use of outside Sultants was curtailed. We will continue to be aggressive in managing all costs, expenses and areas of the business within our control to drive performance and being created by the pandemic, we have focused on generating strong cash flow and maintaining liquidity. At year end, we reported record operating cash of $550,000,000 as a result of good working capital management and margin improvement initiatives from our MAP to Growth program. Our procurement team formed as part of the MAP program has recently done an incredible job of improving payables by negotiating better terms with our suppliers which will continue to benefit cash flow in the coming quarters. At May 31, 2020, our total liquidity including cash and committed revolving credit facilities stood at $1,280,100,000. I'll now turn the call over to Matt Radachek who will review our financial results for fiscal 2020 fourth quarter on an adjusted basis. Thanks Frank, and good morning, everyone. Please note that my comments will be on an adjusted basis, as Frank noted, During the fourth quarter, we generated consolidated net sales of $1,460,000,000, a decrease of $1,000,000,000 reported during the same period of fiscal 2019. Organic sales declined 7.9% or $126,600,000. Acquisitions contributed 0.7 percent of sales or 10,700,000. Foreign exchange was a headwind that reduced sales by 1.7 percent or $26,500,000. Adjusted diluted earnings per share were $1.13, a decrease of 8.9% compared to the record 1.24 last year's fourth quarter. Our consolidated adjusted earnings before interest and taxes, EBIT decreased 11.5% to $213,600,000 compared to $241,400,000 reported in the fiscal 2019 fourth quarter. Turning now to our segments. Sales in our Construction Products group were down 15.6 percent to $472,400,000 compared to $559,600,000 a year ago. Organic sales declined 13.9% or 77,900,000. Acquisitions contributed 0.7percentor4.1000000 to sales. Foreign currency translation reduced sales by 2.4 percent or 13,400,000. Adjusted EBIT in the segment was down 12.1 percent to $77,300,000 compared to adjusted EBIT of $87,900,000 during last year's fourth quarter. The segment's strength was its US roofing business. It experienced limited interruption from the pandemic in most roofing projects, which are completed outdoors and do not require entry into customers' facilities, we're able to proceed The season for roofing applications was broad when schools closed early, allowing us to meet demand from this customer base. The segment performed better in the U. S. However, in certain international markets where construction was not considered essential, the segment experienced significant sales declines. International results were further challenged by currency headwinds. While the segment sales declined during the quarter, earnings declined at a lesser rate due largely to the success of the MAP to Growth program, which included the closure of 2 manufacturing plants proactive measures taken to cut expenses. Sales in our Performance Coatings group were down 20.2% to 235 $100,000 compared to the $294,500,000 we reported during last year's fourth quarter. Organic sales declined 18.3 percent or $54,000,000. Acquisitions added 0.2% to sales or $500,000 of foreign exchange was a headwind of 2 percent or $5,900,000. Segment adjusted EBIT was down 31.9% to $23,700,000 compared to $34,700,000 reported during last year's fourth quarter. The segment quickly responded to the economic downturn created by COVID 19 by delayering management and aggressively reducing fixed cost particularly in areas of the business that serve the energy industry as well as other affected sectors. Similar to our Construction Products segment, The Performance Coatings Group also performed better in the U. S. And Internationally. Although segment sales declined, earnings did not decrease as much as would be expected on a detrimental basis due to operating improvements from our MAP to Growth program. In the Consumer Group, sales were strong, increasing 6.7 percent to $616,200,000 from $577,500,000 during last year's fourth quarter. Organic sales increased 7.7 percent or $44,600,000. Foreign currency translation reduced sales by 1 $104,500,000 compared to $108,800,000 in the prior year period. While U. S. Sales were up 12% international market struggled due to more stringent lockdown orders on manufacturing and retail. Overall, the consumer group sales results for quarter were excellent given they are in comparison to a very strong 4th quarter last year when we made large market share gains. Our associates went to extraordinary lengths to deliver products to our customers in spite of supply chain challenges. The bottom line was impacted by higher operating is for safety measures and equipment as well as distribution costs due to increased e commerce orders. All that were required to fund Australian Manufacturing Facility group sales were $135,200,000 during the fiscal 2024 quarter compared to sales of $169,700,000 the prior year period, which was a decline of 20.3 percent. Organic sales decreased 23.1 percent or 39,300,000 Acquisitions contributed 3.6 percent or $6,100,000 to sales. Foreign currency translation reduced sales by 0.8 percent or $1,400,000. Adjusted EBITDA segment was down 72 percent to $7,300,000 in the fiscal 24th quarter compared to $26,200,000 in the fourth quarter of fiscal 2019. Overall, the segment accounted for 9% of the quarter's consolidated sales. A number of the segments businesses serve OEM markets that have struggled during the pandemic. Such as furniture and marine distributors that were closed for an extended period of time in the U. S, because they were not classified as being essential industries. I'll now turn the frictions caused our 21 first quarter since our sales have begun to trend better. As a result, our outlook for the first quarter is to resume the growth and earnings leverage more typical of the results seen in recent quarters with sales to be up in the low single digits and adjusted EBIT growth of 20% or more compared to the prior year. For the full year of fiscal 2021 we anticipate our construction products group and Performance Coatings group could experience sales declines for the 1st 3 quarters and then turned positive in the fourth quarter. Our consumer group should continue its sales momentum into fiscal 2021, The Specialty Products group is expected to face negative sales comparisons during the 1st 2 quarters which should turn positive a second round of lockdowns related to COVID-nineteen. Due to the continued economic uncertainty around the length and severity of the pandemic, we are not providing earnings guidance for the full year of fiscal 2021 at this time. While the pandemic continues, we remain focused on our core. The well-being of our employees and their families and growing the business where we quarter, we are keeping our foot on the gas and executing our MAP to Growth program. In a world of uncertainty and unknowns, we have focused on managing the areas of have bought into this program which has proven very beneficial in driving efficiency, increasing our cash flow and making us more competitive. We have just started to make progress on inventory reduction and the benefits from ERP consolidations and associated administrative savings are in our final wave of for future operational efficiencies, With so much change going on at RPM, let me spend a moment on things that are not changing. We will maintain our entrepreneurial culture which is one of our core in this uncertain and volatile environment. We will continue to invest in innovation to maintain industry leading organic growth. We will continue to and have served us well during past economic downturns. We will be focused on cash and selective in acquisition activity, while maintaining a preference for debt reduction in lieu of share repurchases. We look forward to continuing This concludes As Our first question comes from the line of Mike Sison with Wells Fargo. Your line is now open. You guys all sound healthy, so that's great. In terms of your first quarter outlook, I'm having a little bit of hard time visualizing a low single digit growth. Can you make can maybe walk through how much improvement you see in some of the segments? And is it really just another strong quarter for consumer products to really get there? So that's a great question, particularly in light of all the volatility that everybody is seeing. And so we'll make some comments like we did in April by providing some insight into our months. I look forward to getting back to not doing that. I'm just talking about quarters and years. But because of the volatility, I think it's appropriate. So our June results grew double digit, and that was across most of our businesses. And it's a combination of continuing good consumer takeaway in our consumer segment and businesses. I think solid performance in our industrial, particularly construction related businesses, some of which clearly was a pent up work from April May that was interrupted. Our July results seem to be flat year over year. And that's a mix between our segments and our geographies as rusty in the we've had either flat or solid results in the U. S. And, different results in different parts of the world. I think what's obvious in our results in the fourth quarter and in our forecast for Q1 is the MAP to Growth program working. We are still building momentum. We have more work to do. And in an environment where we're able to put up, solid low to mid single digit revenue growth, you'll see really solid EBIT leverage to our bottom line. So I think the biggest concern we have is volatility around like everybody around what might happen in coming months relative to reactions to the coronavirus Health pandemic. But other than that, we're in pretty good shape in the MAP to Growth programs delivering, when we have solid revenue growth. Got it. Great. And a quick follow-up. How much MAP to Growth did contributed in the fourth quarter. And I mean, I think if you look at the growth for the first quarters and really think about how that strong EBIT growth. Is that really the primary driver there? Or are there other maybe factors coming in lower raw materials, pricing and such to get that impressive growth in the first quarter? Sure. Yes, the MAP program continues to build momentum, Mike. This is Rusty here. In the third quarter, we said we had MAP Savings year over year incremental in the low $20,000,000 range. And we were probably closer in the mid-twenty $1,000,000 range in the fourth quarter of fiscal 2020. Great. Thank you. Thanks. Thank you. Our next question comes from the line of John McNulty with CMO Capital Markets. Your line is now open. Yes, thanks for taking my question. Maybe maybe a little bit deeper on the map to growth side. It sounds like you got more progress done maybe this past quarter than than maybe you had originally hoped for. I guess how should we be thinking about the savings rate as we run into 2021? How much incrementally do you think you can pull out given there still are some COVID related restrictions, but it does look like you've maybe pulled some levers in other areas. So the in November of 2018, we laid out a 3 pronged wave and roughly each wave on a ongoing sustained basis was generating about $100,000,000. And we have that as a goal for our third wave, which starts on June 1, which started on June 1. And I think when we're completed with this, we will exceed the original $290,000,000 forecast by a few tens of 1,000,000 of dollars. But some of the progress in the 3rd wave will be delayed because of getting into plants has been a challenge, particularly with outside consultants. Some of the ERP stuff, has been delayed. The 3rd wave, especially the back end of it, really will impact fiscal 2022. And really solid performance in fiscal 2020 should provide us with a pretty strong leverage to the bottom line in fiscal 2021 as we highlighted. Obviously, it is revenue dependent. Because a big slug of our savings that's working really well and better than originally anticipated is in the manufacturing and continuous improvement efforts as well as broadly, our procurement activities. And they're working really well, but from an accounting perspective, we had this conversation with a different analyst on a prior call. Those savings get capitalized into inventory. And they flow through our P and L when we sell that inventory. So any amount of sales will bode well for our bottom line. Obviously, if we bump into some future reduced revenues because of this pandemic, then the impact of our savings, particularly in the gross margin, will be delayed. Got it. That's hugely helpful. And then I guess Second thing would be, it sounds like Europe or certainly the international markets really, really took a tough time in your fiscal fourth quarter. Now that it looks like some of the European economies have kind of reopened and actually it seems like maybe they're making up for lost time. I guess can you give us some color as to how those markets are playing out for you and kind of what your expectations are there? Sure. The European market is slowly recovering. It was very difficult in Q4, as you mentioned, because we had government mandated shutdowns in the U. K. In different parts of Europe and throughout Latin America. Also in the couple of plants we have in India. With re openings in the UK, we're seeing the same type of strong DIY demand that we are in the U. S. That is true to a lesser extent, but still positive in Continental Europe and the consumer side. We're seeing sequential improvement in our industrial businesses, our Construction Products Group And Performance Coatings Group, Specialty Products So we're seeing sequential improvement certainly from April May into June necessarily year over year strength because of the strong performance we had last year. Our year, while we're not providing guidance, will really be a good one or a great one based upon our performance in these coming quarters as the 4th quarter for us and everybody, but particularly given our May 31 year end, we'll have some pretty ordinary year over year growth, given the impact of the coronavirus and global shutdowns in the fourth quarter we just reported. Got it. That's helpful. And maybe if I can ask one just a quick last question. I know in the last 12 to 18 months or so, you've gained a lot of share. You've won a bunch of new counts. I guess, can you speak to kind of the progression of that? And if you're still continuing to see wins or if the COVID issues have maybe kind of put some of that on hold and and that may be more of a future dynamic to be thinking about? I think we're holding our own. The supply chain issues challenging for everybody. Our fill rates into our customers are at lower levels than they've ever been. I think we're equal to or similar to our peer competitors. But there have been some disruptions in packaging and canned supplies that are going to continue and some rising costs there. There have been some distribution disruptions. And so that's a challenge. But what is happening at RPM is continuing and it's very exciting and it's nascent in a couple areas. So for instance, the partnership, from a market facing perspective, between our construction products group and our consumer group, is having some exciting wins. You can find the Tremco, Vulcan, Urethane sealants in Menards. You can find Tremco branded 5 gallon pails of unique Tremco roof coating materials in Home Depot in Texas. And these are fledgling opportunities for us to take some of our industrial construction chemical brand and construction sealants and products and coatings and waterproofing products into some of our stronger home center channels. And so the opportunity for market share gains and growth there is pretty exciting for us. We're in the early stages there. But it's exciting. We, just got into a Walmart with a grab and go house paint program, which is a first for us through rustoleum. And so that is nascent, but also exciting. So the opportunities for us to continue to grow in those areas, continue to receive our focus and we're working hard to make them successful. Great. Thanks very much for the color. Congratulations guys. Thanks, John. Thank you. Our next question comes from the line of Frank Mitsch with Fermium Research. Your line is now open. Good morning, Frank. Hey, good morning, Frank as well. Listen, if you talk about the fiscal first quarter, which is also a terrific start, you're guiding sales up low single digits, June up double digits to Y flat, that implies August, will be down upper single digits You've alluded to strong performance last year, but what else are you seeing that at this point you're calling for August to be down upper single digit. In terms of sales? Yes. I am, I'm not sure that that's exactly accurate, but It's just volatile, Frank. It's we've never seen volatility like this from one geography to another. I think there's some nervousness not only by us, but by others about some of these rising COVID cases and what government responses might be. So it's hard to dicked. This was the most difficult planning year we've ever experienced. And so it behooved us to plan conservatively and focus on the things, as Rusty said, that we can control, in terms of executing our MAP initiatives controlling costs and focusing on cash flow. And so I that's my reference to the difference between a good year and a great year is is in light of the things that we can't control and we're doing well. If revenues are better than we anticipate, we'll have a really solid year. If revenues are where we are concerned about, we'll still do relatively well because of the things part of it's just luck. I think we're fortunate to be in the midst of a operating improvement program that's delivering good results, while the whole world is dealing with the consequences of the health pandemic. If I if I understand your answer correctly, you're taking a bit of a swag at August. It is not a fay to complete at this point that it's going to be down upper single digits, you're just, you've obviously got a lot of uncertainty or as you look at your order book, you pretty much can dial it in that, that that's what it's going to turn out to be, because obviously June was very solid. July slowed down. And so you're just projecting that trend or I mean, I'm just trying to get your level of certainty around August being as difficult as your as your guidance suggests? We don't have a level of certainty about future months and not to be negative. I think our trends right now are good. But like everybody, I think, our visibility, our trust and our ability to forecast forward which for us is usually a 2 quarters. So you're looking at anywhere from 4 to 6 months is as low as it's ever been. And so, that's the best answer I can give you. That's fair. That's very fair. And then, just one last question. You obviously mentioned how e commerce played a much bigger role in the fiscal fourth quarter given that the future may be quite a bit different than past practices. Is that impacting your thinking longer term on how you distribute your materials and shift resources around? And are there any kind of guiding lessons that post pandemic will change the way RPM operates? I don't think it changes the way we rate it will continue aren't the most naturally purchased on online because of shipping issues or flammability issues or weight to value issues. But our volume with home depot.com doubled. Our volume on Amazon doubled Now that the UK is picking back up, we have an MRO business over there called WOTCO that was a catalog kind of business that went to online and consumers are finding that. And that business is increasing dramatically. And so I think the big takeaway for us here that we're excited about, but time will tell, and this isn't unique to RPM. The stay at home orders, in the United States and it seems true in the UK as well has created a greater number of confident DIYers. This isn't just about paint, but wood stains and finishes that tend to be more craft work and require more, skill. Those volumes are up pretty dramatically. And so across a number of DIY categories, I think one of the interesting outcomes is understanding is there a larger more confident DIY base than there would have been otherwise. And we hope that's true and we'll find out. That's a very interesting take. I hadn't considered that. Thank you. Our next question comes from the line of Rosemarie with G. Research. Your line is now open. Good morning. Thank you. Good afternoon. Good morning, everyone. Following up on the e commerce part, Frank, If I understand properly, it is mostly on the retail side, on the consumer side, And could you share with us the size of that e commerce? I wouldn't do it specifically, but collectively across RPM, tens of 1,000,000 of dollars. And so the percent year over year growth is very impressive. The percent of our consolidated sales is not a lot. And is that particular business? Does it have a similar margin to your other businesses? Or does it have a higher level? A higher margin level? It's hard to know. In the fourth quarter, it had lower margins because distribution costs were greater and we had some ramp up costs there. And so long term, the pricing model and the gross margins aren't a lot different, but the distribution costs are higher. And so there's a lot to learn there in terms of efficiency. It also is higher because again, the volume on a relative basis is relatively low. Okay. That is helpful. Thank you. So you are focusing on innovations Could you talk about new products still coming out this year or maybe coming out next year? And you mentioned the Walmart grabbing Go paying program. Does that mean that you are getting into our textual program or is it something else? It means that we have a native program of wall paint at Walmart and are certainly learning. Okay. And what are the type of innovations or new projects are coming through the pipeline? Sure. This is Rusty. One product which we're excited about is rustoleum Home This is a flooring transformation product. It's a 2 step coating process where you could put this coating over old laminate floors or wood floors and create a brand new look and we're very excited about that. Another one on our construction product side is our PM or or Puma range of products, for Tremco used in both roofing and deck coatings. We have AlphaGuard Puma and, Vulcan EWS for protection of Concrete. This is a waterproof coding that can be applied as low as negative 20 Degrees Fahrenheit. It uses polyurethane metacrylate technology There's great adhesion characteristics, elongation characteristics and is very durable. So, those are a couple of examples. And I'll add one thing for fiscal 2021. We actually manufacture some of those resins in a factory in Germany. And we export those to the U. S. For some of the more unique Tremco roofing coating products. And in fiscal 2021, we have cut back where appropriate on our CapEx. One of the major capital spends will go forward is a $20,000,000 to $30,000,000 spend on a new roof coatings factory relative to the growth there and also bringing our capability to produce those unique residents to the U. S. Thank you very much. And if I may sneak in 1 more, you are expecting a difficult quarter for the 1st 9 months for in Performance Coatings. I can see Performance Coatings. I can see the seasonality for construction in Q2 and Q3. But could you give us more details on the first quarter? Because it based on how you phrased it, it sounds as though Q1 will also be a difficult quarter for construction. And yet, we are still in the mix of things? Sure. I'll just repeat the comments I made and hope to get to a point where we're not providing monthly comments But our, June month was double digit in consolidated sales And not every business was up, but most all of our businesses were up year over year, including in our construction products group, We think some of the strong growth is literally the carryover of April and May projects that were delayed or halted. And July revenues, on a consolidated basis are generally flat. And so there'll be some variability, we think, from month to month in the coming months and quarters. And that's the best we have right now. Obviously, we'll provide a good detail on our first quarter when we report those results in October. All right. Thank you very much. Our next question comes from the line of Steve Byrne with Bank of America. Your line is now open. Good morning, Steve. Good morning. Frank, what fraction of your revenue would you say is coming from DIYers now and the strength that you saw in June, do you think that's pulling demand from forward? Or do you think it's just an expansion of this DIY base that you're referring to is a more confident DIY wires. Do you think that those DI wires remain customers down the road or that business flips back to the way it used to get done? Sure. And so our consumer business is, call it roughly $2,000,000,000, our consumer segment. And, probably, 25% of that is Cox sealants patch repair products. Those product lines are probably 50% to 60% consumer and 40% to 50% pro. Our especially coatings, our small project paints, the cleaning products, those tend to be more 75%, 80% consumer and let's say, 20%, 25% pro. So hopefully that gives you a breakout, there. The hardware store channel, home center store channel, major retailers were not interrupted by the shutdown orders in the United States. All of them to various degrees continue to operate. And so the strength we're seeing in the summer is a continuation of what we saw in the fourth quarter. And it is higher demand for DIY products And we believe a growing base of, confident DIYers, that certainly will help us and help I think to hold DIY segment in the future to what degree we'll find out. And wanted to ask you a little bit about just operating in this pandemic environment. Were there learnings that you took away from this over the last few months that are now impacting your outlook for MAP to Growth? Are there are there new opportunities that you're seeing to drive cost cuts? And what provoked the question was the comment of now, you know, delayed management and performance coatings. It sounds like some headcount reductions, and can you quantify that? Sure. I'll make a few comments. Number 1, everybody's learned a lot of lessons. We, have a significant chunk of our employees working from home. And I would bet we're learning that maybe 25% to 30% of our functions and our individuals are capable of working remotely on a more permanent basis. And so that has a lot of consequences for in some cases, cost, in other cases travel. And so our T and E costs were down dramatically in Q4. That wasn't unique to RPM. So there's a lot of learning there about going forward, what level of travel and entertainment expense do you return to? And I don't know the answer to that question, but I'm pretty certain it's not 100% of what it used to be. So those are just some broad comments. On the MAP to Growth program, we're continuing to gain momentum. My guess is when we're done, the 31 consolidated plants will be a few more. How much of that was, would have happened in MAP to Growth versus how much of that is a combination of MAP to Growth and what we've learned in that process and a reaction to COVID-nineteen impact on the economies. It's hard to tell. Same thing in SG and A. Our SG and A costs will continue to come down. And we're learning some lessons there. Answers to the economic circumstances we're operating in. And the headcount reduction in Performance Coatings? So yes, there's a there across RPM, there are levels of temporary expense reductions. So T and E is a good example. We had various levels of salary reductions, the highest of which was mined at 30% that started in on May 1, those salary reductions as the year goes on and we meet or exceed our goals will be rescinded. So those expenses will come back to the P and L. We've had some furloughs and plants, but we have also had a larger than MAP to Growth anticipated permanent headcount reduction in a number of businesses. In our Performance Coatings group, they are the most economically sensitive out of $1,000,000,000 roughly in revenues, $250,000,000 roughly is tied directly or indirectly to oil and gas. And so they will continue to be of all of our groups. They will continue to be the most challenged on the top line for fiscal 2021. Thank you, Frank. Our next question comes from the line of Arun Viswanathan with RBC Capital Markets. Your line is now open. Good morning, Arun. Good morning, Frank. Thanks for taking my question and congrats on the great results here. So I guess, yes, just first on that point in Consumer, you've described a pretty robust environment on the DIY side. I guess, maybe just reiterate, I guess, how long you think this will last and why? And if so, if you still see, to growth there? Is there any investments you're going to have to make in the supply chain? I'm just kind of recalling the troubles you had a couple of years ago on the DAP side Do you foresee anything like that happening? Is there any kind of increased capacity you'd have to consider putting in any of the product lines? Sure. So it's been very challenging. Again, not just unique to us, but across DIY product lines demand's up. I think, that's new DIY wires. Demand's up year over year because people recall last year, it was a somewhat of a wet start to the first quarter. And we've had pretty spectacular weather across the United States. So that's driving demand. Supply chain challenges from some of our own distribution issues, freight problems, some of our customers pick up freight and that's been we've had challenges there. Some of our suppliers most recently in, in metal cans have had their own COVID related shutdowns that have impacted supply. So When your supply chain spend a decade or more and RPM got on board maybe later than we should have, but we've been pursuing it very aggressively for 2 years. Efficiency and you get hit with big spikes in demand and, and then also temporary shutdowns in distribution centers and So everybody's managing through all those things. We are 90% done with a capacity expansion for instance, in spray paint. And the European company that has been the principal supplier of that equipment is refusing to send any of their technicians to the United States. So we've got some really good big investments in some capacity increases that are on the verge of hitting the marketplace. And we're excited about that, but it's just one more example of how the COVID pandemic has disrupted plans. Okay. And I guess, is there any kind of raw material outlook that we should be aware of? Have you seen any kind of deflation that would be beneficial to your margins? We've seen some deflation in oil based solvents and different raw materials there. We've seen particularly starting in the fourth quarter, some inflation a little pickup in TiO2 costs, pickup in packaging costs, we are have heightened, alert to some of the packaging, particularly metal can situations relative to some shutdowns and some announced capacity constraints there. So even that continues to be volatile. It's one of the reasons that we had there were 2 issues in our consumer group in the fourth quarter. 1 was some higher raw material costs and the other was higher distribution costs related to the e commerce growth, as well as disruptions in the supply chain around distribution and freight All of those things should settle down over time, unless we end up with another round of shutdowns or government directed actions related to coronavirus. Great. And then lastly, I just want to go back to your comments around uses of cash. Again, you have made some improvement there. I guess, as part of MAP to Growth, reducing working capital and harvesting a little bit more cash. And I understand the environment is very uncertain right now and that's likely led to your decision to kind of put some of the buybacks on hold. But when you see kind of getting back to that program, And I guess if it's not too soon, what would you be doing, I guess, with the cash that you're going to generate this year? Sure. We, as you saw, we had a record, cash from operations generation for fiscal 2020. And while some of that was a result of declines in revenues in Q4, a huge chunk of it was just the benefits of our MAP to Growth program and focus on that, There is more to come. We're making improvements in working capital, but we're still at laggard versus our peers. And there's a lot of attention on A preference for capital allocation will be funding our operations. For instance, I mentioned the capacity expansion that we're close to completing in our consumer group and the new capacity expansion that we're just starting in our construction products group. We will continue to look at acquisitions on a selected basis. I think where we could find the right fits, that are at a good value. We will continue to execute on those and there are opportunities there. That could pick up towards the end of the calendar year depending on private owner perceptions of political outlook and what that might mean for capital gains taxes or a state planning issue. So that's something we're paying attention to. But again, we intend to be very selective there And then we'll have a preference for the time being over debt reduction for the share repurchase program until there's, I think, a little more stability in our outlook and a little more confidence that the disruptions of the coronavirus pandemic are mostly behind us. And so I suspect we'll look at that very closely with our board throughout fiscal 2021. Thank you. Our next question comes from the line of Kevin McCarthy with Vertical Research. Good morning, Frank. How are you? Good. Thank you. I'm curious to hear your thoughts regarding the margin outlook in consumer. And in particular, we've obviously seen a lot of DIY strength, but you noted some elevated costs related to safety measures and supply chain expenses. What is the magnitude of those costs and how do you see that flowing through in the fiscal first quarter and beyond? So I think across all of RPM, and this is hard to gauge the added costs of the response to the coronavirus would be mid to high single digit millions So somewhere in the $5,000,000 to $10,000,000 range. But the bigger impact was, on revenues, obviously, that won't be forever. There was just such disruptions, particularly in April and May, particularly in international markets. We are focused on improving the margins of all of our businesses, in particular, our consumer business, our margins haven't fully recovered from where they were back in 2016. And there has been a lot of focus on operating efficiency at the plant level. We've closed a number of plants across RPM, but I believe 3 of those have been in our consumer segment. And so our efforts to really focus on being more efficient at the operating level on introducing lean manufacturing disciplines on different items, SIOP disciplines in our plants, these are things that were lost on me 5 years ago, but are not lost on me or organization today. And they're having a benefit and we're continuing to focus there. We've also reduced our supplier base and it's helped us both improve terms and, negotiate better pricing in a lot of places. And become better strategic suppliers. So we're having, discussions with a number of major suppliers at the RPM level. That we hadn't had in the past. And so that's helping us as well. So we're keenly focused on all of those issues and we'll continue to benefit from that in fiscal 2021 as we continue to execute the rest of the MAPFTA growth program. Appreciate the color there. Secondly, how would you characterize your capital expenditure budget in fiscal 2021? Relative to the $148,000,000 in 20.20? Yes. Our current spend, budgets about $130,000,000, which down. But again, that was in a forecasting process that was pretty conservative We do have a one major capital spend that for expansion in our construction products group. Obviously, the consumer capital spend, I referenced most of that's behind us. We just got to get it through the finish line. That could change as we get into the second half of the year and if our performance and the underlying economic dynamics are better than we anticipate. So because we cut back pretty aggressively. So 130 is what our current budget is. Hope we end up spending $150,000,000 because the world ends up being better than everybody anticipates. Our next question comes from the line of Vincent Andrews with Morgan Stanley. Your line is now open. Thank you, and good morning, everyone. Just a couple of follow ups on the consumer group. Frank, I just want to clarify first, you said July I heard you say consolidated sales for the total company were flat in July. Can you clarify what consumer was in July? Yes, we'll provide the details on the quarter, in October. So I don't want to, as I said, we were hesitant April to get into monthly details, but given the volatility felt the investor community deserved that. That's why we're providing some details now in our quarter, but It's not over and we'll report, our results there. Other than I would refer you to the comments that Rusty made, and the direction we provided in our earnings release this morning. We anticipate, solid kind of low to mid single digit growth in our consumer segment across the year. Okay. All right. That's helpful. And then if I could just ask on I'm just trying to bridge the sales and consumer down to the EBIT line and you've subsequently called out that you had $5,000,000 to $10,000,000 of COVID costs across the company. Sounds like a lot of those were probably in consumer just because of the e commerce issue. You also referenced higher raw material costs. So I'm just trying to think about sequentially from F4 into F1Q, whether we should see a material improvement, assuming there's some sales growth, whether EBIT should actually, I assume should be growing in the fiscal first quarter and consumer rather than in fourth quarter, it declined despite 7.7 percent organic sales growth. Is that Anything you can do to help us there? Yes, probably not what you're looking for, but just to repeat that as we sit here today, it looks like The first quarter will drive on a consolidated basis, low single digit revenue growth and a EBIT growth of 20% or better year over year. And then maybe just lastly, I appreciate your comments on sort of the new confident DIYers. And I'd also just like to get your perspective on because it seems to me this isn't just a shift of pro to DIY. Obviously, that's happening to a certain extent, but it also seems like the home improvement the size of that pie is probably increasing in COVID despite the fact that overall consumer discretionary spending is going to decline So would you agree with that idea that we're kind of in a new home improvement renovation cycle? And yes, maybe DIY is going to have more share of that than it would have in the past for any number of reasons, but just the idea that the overall pie might be expanding? Absolutely. I mean, I think there are new gardeners that weren't gardeners before for, this spring. I think there are new, users of our wood stains and finishes product. And I referenced that one in particular because it it tends to be more craft or more project. It's not a simple, paint this or Again, our small project tanks are more project driven and more craft and more unique. But all the things that we see suggest, whether it's gardening or the use of small project paints or confidence in being able to do repairs themselves. That the base of home improvement and DIY has expanded in the spring. And that's continuing nicely throughout the summer months. Okay. Excellent. Very nice job. And I guess we'll talk to you in a few months. Thanks again. Thank you. Our next question comes from the line of Mike Harrison with Seaport Global Securities. Just looking at the margin performance that you had in the construction segment, I was wondering, you mentioned the strength that you were seeing roofing business. I was wondering if that was maybe driving some mix benefits as well. Just trying to get a sense of whether we can expect that margin strength to continue as we get into 'twenty one, even if there are still some challenges from a demand standpoint and instructions? Yes, that's a great question. And I'll tell you, if you look at our, construction products group through 9 months, They, have really, benefited from good execution and MAP to Growth They've really benefited from being very strategic in where they're investing for growth in terms of new products. They're leading the roof restoration coating market significantly. And that whole thing is growing and they've got competitors that are coming on, but they're still the leader there. And even in the fourth quarter, again, great question. When you look at a revenue base, it was down 14% or 15% and an EBIT that was down concurrently 12. It tells you that there was good mix, but it also tells you the benefits of the MAP to Growth program and our construction products group. That group has been, really leading in a lot of areas for us. And I referenced earlier, we're excited about the future cooperation or synergy, if you will, group technology and some of the brands and our consumer group strengthened some of the home centers. So there hopefully will be more to come there. We've got some good introductory products and a couple of tests. And if they prove out to be successful, that's a whole new area of growth for us in the home center channel with Construction Products Group Technology. All right. And I don't think we've talked at all about the specialty business you mentioned that they were impacted by their exposure to some of the OEMs that had been closed during the quarter. Areas like wood coatings for furniture, powder coatings. Have those OEMs gotten back up and running at this point? Maybe just a little more color on what you're seeing there? Yes, they have. And so if you're in, marine coatings like our pet marine business, If you're in the treatment for furniture as well as the furniture protection insurance business with our, which our Guardian business is in. Furniture stores were closed, for peer to time, most of our outlets for our Marine coatings were closed. And while it wasn't true of a month, From 1 week to the next, we had revenues that were down 70% or 80% because their customers were closed. So it was pretty shocking. And it gives you a sense of what's happening to a lot of small businesses, because their product lines are businesses that are part of RPM or other big companies that have survived this because they're part of a bigger group. And so, those, horror shows of bad weeks are behind us. All of our customers are up and running. And, we're starting to pick pick back up. And so that was a particularly hard hit portion of RPM's business. But it was the business that got particularly most impacted by shutdown orders of their customer base. All right. Thanks very much. Thank you. Thank you. Our next question comes from the line of Silke Cook with JP Morgan. I was wondering if you could tell me what you have, map savings are cumulative since you started the program whether you can just like roughly stick it in the three buckets that you measure, like kind of factoring procurement, general administrators? I don't have that off the top of my head. I know that we laid out pretty good detail of 3 waves First wave was $101,000,000, I think, and we exceeded that by about $10,000,000 second wave, which we just finished was about the same and we're slightly ahead of that. The 3rd wave we think will be delayed a little bit. You'll recall that, our the area that I think is doing the best is manufacturing I think we had $70,000,000 or $75,000,000 of total benefits split roughly between plant consolidation and continuous improvement. And when we finish fiscal 2021, we will have come close to $100,000,000 of benefits in the manufacturing area between the benefit of plant closures. But the continuous improvement aspect has really been a home run for us. And there's more to come there incrementally, obviously less. But that's a process that becomes a permanent part of RPM. We call it MS-one hundred and sixty eight And so there's some elements of the MAP to Growth program that will be permanently part of our culture, and that's one of them. Our procurement activities, have done particularly well. We were able to work with a major financial institution on some vendor financing, which has helped us with terms and, we've had some pretty pretty good success in some areas we didn't anticipate, like distribution of all kinds of small stuff And so that's going pretty well. And we're continuing to look for some new alternatives or new opportunities to continue to expand the benefits of the MAP to Growth program beyond the original, original communicated goals back in November 18. In your slides, it's sort of like layouts, all of the nonrecurring items. And I think your restructuring expenses like last year were like $42,000,000 and like this year, $34,000,000, just a restructuring part of it. Is that $75,000,000, has that been spent already or there's still costs that you are there still cash related items or cash outflows that you expect from those, charges you took? Sure. Silke, you'll see that in Note B of our 10 K when we release it at the end of the day. And it'll give you the outlook for future costs and restructuring. I just was wondering whether the like those are like the reserves that you take. I was wondering whether you've already paid those out? Well, yeah, there's a lot of severance in our restructuring costs, as you'll see in Note And we have paid out a lot, but we continue to have, severance costs as we continue to close facilities. But yeah, I don't believe on the severance piece or the expense piece, there's, anything that is a, reserve that hasn't been paid out in cash. There are 2 much lesser extent than we had, particularly in year 1, some consulting contracts that were tied into in terms of completing different work. But there, I don't think there are any big to your question. There are no big slugs of cash that are not already spent. To the extent we have, reactions to a economic challenge continuing with COVID-nineteen, then we would highlight those and incur the expense at the time. Your corporate costs, like you used to run like something like 80,000,000 a year. And like I think this year was like $63,000,000 and maybe you spent like nothing in the fourth quarter because of the curtailments that you took, what do you target for at fiscal 2021? Sure. Yes, Silca, in a typical quarter, our non operating segment costs are a little over $20,000,000 usually, and they were way down in the fourth quarter as you saw. The year over year variance, about half of it was related to medical. And those costs, we basically allocate those at the beginning of the year on a per employee basis to our operating companies and as you probably know, 99% of our employees do not work at corporate. But as the year falls and we get actual experience for the good or bad in medical, that experience hits our non operating segment. And then the fourth quarter as medical claims went down as people avoided. Doctor visits, we had a favorable variance in medical. So we would expect some of that to continue in the first quarter and we'll see beyond that. So our Our first quarter probably should be a little better than the usual low 20s of millions of expense in the non op segment? Yes. So, in general, you're correct. I would assume about $20,000,000 or $22,000,000 of non expense. Obviously, we didn't have that in Q4. We'll do better than that in Q1 and how the year unfolds. We'll certainly let people know that Q4 experience, by the way, wasn't unique to us. The reduction in medical expense and medical visits was pretty universal across all businesses, at least in the United States. Yes, I was just curious of like what the trends were. And then lastly, I was wondering if I can just touch upon the, like, again, the sort of expenses you current in the consumer business. Was that order can you quantify that in some way? Was that like a $10,000,000 headwind in the quarter? Was it like bigger or was it lower sort of have some feel for what happened? Yes. We haven't provided a lot of detail there. We had some raw material inflation in consumer. Again, mostly around packaging that we expect to continue. You've all seen some of the announcements of some of the particular can and metal packaging suppliers We had higher expense for DIY. And I think somebody rightly assumed, if we had $5,000,000 to $10,000,000 of COVID expense in terms of safety issues and other issues across the whole corporation, it was disproportionately in consumer. But I think that's all the detail that we provided on that. Thank you. Our next question comes from the line of Josh Spector with UBS. Your line is now open. Good morning, guys. Hey, guys. Good morning. Thanks for squeezing in my question. Just a question on the strength in U. S. Roofing at I was wondering if you could comment on any risk of pull forward in some of those projects either from later this year or maybe even from next I don't know if you could share anything that you're hearing from any customers or contractors on that front? Sure. I think our consumer I'm sorry, our roofing business in our construction products group, they're continuing to perform very well. There's no doubt that the, the June results that we had sales wise, when you follow pretty negative months in April May and your June is up double digit revenues that some of that June business was the result of projects that were delayed or halted in April May. So there's certainly some of that But beyond that, I think somebody earlier had asked about mix and we expect to continue to see good mix the in our construction products group, the roofing business generally is less economically impacted than the construction sealants business, which has an element of DIY, but I'm not DIY, an element of maintenance and repair. But also a, an element of new construction. So that's more impacting the construction sealants business than the roofing and waterproofing business. Okay, thanks. That's helpful. And I guess similarly in performance, you talked about some negative impact from contractors not being able to get into customer sites perhaps apply the flooring materials. Are you seeing any change in that behavior currently? Yes. Slowly. And so, there is a more opportunity, again, in the early part of the first quarter for instance, in our St1r roofing business for our crews and or independent contractors to get into facilities and do the work. Certainly sequentially, it's much better than April May, although it's still an issue in certain industries and certain facilities. And We anticipate that continuing perspective on the COVID health pandemic. Our last question comes from the line of Ghansham Panjabi with Baird. Your line is now open. Good morning, Catherine. Thank you. Good morning, everybody. Hi, Frank. Good morning. Hey, so on consumer, I'm sorry if I missed this, but can you break out for us how been performed by the various geographies during the fourth quarter. And then Frank, on your comment on the spike in costs related to e commerce, is that just because of the abruptness of the change during the quarter. I'm just trying to get a better sense as to what you're referring to just because obviously there's going to be some consumer behavioral shifts going forward. E commerce is a massive winner. And I would assume there it's only going to grow from here for you. Sure. So in response to e commerce question, We mostly ship truckloads to distribution, whether it's a major home center sending their own trucks to pick up our goods or us sending truckloads either direct or through 2 step distribution. And in e commerce, in some cases, we are shipping to a customer, and in other cases, we are shipping direct to the consumer in small quantities. And so that brings with it a higher cost. Does that answer your question? It does. And then the international piece? Yeah, on the international piece, our growth organically in the U. S. In our Consumer segment in Q4 was 12%. And we were negative everywhere else. Got it. And just one final question on the guidance first quarter of 20 percent plus increase in adjusted EBIT, that's just rounding up a little bit about $40,000,000 on an absolute basis year over year. How much of this is of this increases from MAP to Growth? And then how should we think about the raw material cost dynamics as well? We will give you the details on that when we report the first quarter in October. Got it. But you ended the 4th quarter in the mid-20s, right, in terms of mapped growth. Is that correct? Correct. That's correct. Thanks so much. Thank you. Thank you. This concludes today's question and answer session. I would now like to turn the call back to Mr. Frank Sullivan for closing remarks. Thanks, Sarah. In the coming weeks, we'll release our 1st, formal environmental, social and governance report While this will be our first official report, ESG considerations have always been an important part of how we operate at RPM. My opening letter, I'll discuss the fundamental values that have driven RPM sustained growth over the decades. We have long believed that responsibly serving the needs of our associates customers and communities resulted in long term generation of stockholder value. While society is asking more of companies than ever before, in ensuring safe ethical and sustainable business practices and creating environments that promote inclusion and social justice Our ESG report will demonstrate how these values have always been a priority at RPM. At the same time, we recognize that there is more work to do. Look forward to further advancing this work into continuing to play an integral role in the communities we serve and once you've had a chance to review this document too to our associates around the world for their hard work and resilience during these uncertain times. They've adopted challenging conditions created by the health pandemic and are finding unique and innovative ways to safely continue operating our businesses and serving our customers while maintaining health protocols to their benefit their families and the communities in which we operate. Many thanks to the growth program and also generating long term value for your investment. And to everyone on the call, I wish you and your family's good health Thank you for joining us on our call today, and we look forward to reporting to you our first quarter results in early October. Thanks, and have a great day. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.