Third 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.com. Comments made on this call may include forward-looking statements based on current expectations that involve risks and uncertainties, which could cause actual results to be materially different. For more information on these risks and uncertainties, please review RPM's reports filed with the SEC. During this conference call, references may be made to non-GAAP financial measures. To assist you in understanding these non-GAAP terms, RPM has posted reconciliations to the most directly comparable GAAP financial measures on the RPM website. Please note that only financial analysts will be permitted to ask questions.
At this time, I would like to turn the call over to RPM's Chairman and CEO, Mr. Frank Sullivan, for opening remarks. Please go ahead, sir.
Thank you, Richard, good morning. Welcome to the RPM International, Inc. Investor Call for our fiscal 2019 third quarter ended February 28th, 2019. On the call with me today are Rusty Gordon, RPM's Vice President and Chief Financial Officer, and Kristine Schulze, our Senior Director of Financial Reporting. I'll begin by providing broad perspective on our third quarter results, after which Kristine will run through our numbers in more detail. She'll be followed by Rusty Gordon, who will provide a progress update on our MAP to Growth operating improvement plan and share outlook for the balance of the year. Note that during our comments, we will walk through some slides that we have posted on the investor information section of our website, which can be found at www.rpminc.com, which illustrate progress in our MAP to Growth operating improvement plan. After this, we'll take your questions.
During the fiscal 2019 third quarter, we generated consolidated sales of $1.14 billion, which was an increase of 3.4% over the same period in fiscal 2018. This was a solid performance during what is our seasonally slowest quarter due to winter weather conditions across many of the countries and markets we serve. Organic growth was 4.3%. Acquisitions contributed 2.1%, while foreign exchange was a significant headwind, mostly in our industrial segment, which reduced sales by 3%. From a geographic perspective, our companies in North America, particularly in the U.S., performed well. While international operations, particularly those in Europe and Latin America, were challenged, reflecting challenging macroeconomic conditions in those regions. Price increases helped to offset higher costs for freight, labor, energy, and raw materials, which were higher for the seventh straight quarter.
Current quarter EBIT finished behind last year's third quarter, when EBIT was up an extraordinary 53% over the prior year due to a number of non-recurring items. However, we see this quarter's adjusted EBIT of $46.9 million, which is our second best third quarter ever, as still strong as it was well ahead of our third quarter average EBIT of $37.8 million during the three-year period from fiscal 2015 through fiscal 2017. Our current quarter gross profit margin was 60 basis points behind the 2018 third quarter results, which is a less deterioration than prior quarters. While our MAP to Growth savings initiatives are taking root, the fiscal 2019 third quarter gross profit margin reflects a combination of moderating inflation, MAP to Growth improvements, and an unfavorable product mix.
In looking at our SG&A on a comparative basis, last year's third quarter SG&A was favorably impacted by an incentive reversal of $3.4 million, something we mentioned on our January conference call, while this year's SG&A includes additional expense from recent acquisitions and continuing higher advertising and distribution costs. Implementation of our MAP to Growth operating improvement plan has moved rapidly, and we are making significant progress towards our goals. While we are starting to experience some benefits from our MAP to Growth operating improvement plan, due to FIFO accounting, many of the MAP to Growth initiatives we have executed in manufacturing and procurement areas will start to show up in our income statement in the coming quarters. I'll now turn the call over to Kristine Schulze, who will walk you through our results in more detail.
Thanks, Frank, and good morning, everyone. During our fiscal 2019 third quarter, we reported restructuring charges of $8.7 million and other related expenses of $11.9 million. As I walk through our results of operations for the quarter, my comments will be on an as-adjusted basis, which excludes these charges. As Frank mentioned, our consolidated net sales were $1.14 billion, which was an increase of 3.4% over the $1.1 billion reported during the third quarter of fiscal 2018. Organic growth was 4.3%, or $47.5 million. Acquisitions contributed 2.1%, or $23.3 million, while foreign exchange was a significant headwind that reduced sales by 3%, or $32.9 million. Impacting earnings were higher costs for raw materials, freight, labor, and energy, as well as unfavorable foreign exchange resulting from the strengthening of the U.S. dollar.
While some raw materials are moderating, others continue to increase, including packaging. We have been successfully implementing selling price increases to close the gap on our margins and are starting to see the benefits. Our margin recovery tends to lag because we utilize the FIFO method of accounting for our inventory. So the impact of easing raw material costs should be more fully realized in the coming quarters. Industrial segment net sales increased by $11.7 million or 2.1% in the third quarter of fiscal 2019 versus the same period last year. This increase was comprised of organic volume growth of $27.2 million or 4.8%, and acquisitions of $7.6 million, or 1.3%. This sales growth was offset by a 4% headwind from translational foreign exchange. Top line growth in the segment was led by our North American businesses providing corrosion control coatings, fiberglass grating, commercial sealants, and concrete admixture and repair products.
Businesses in this segment also continued to benefit from the energy market recovery. This was partially offset by foreign exchange and international weakness in the segment, which has our greatest international exposure. Adjusted EBIT was $19.5 million during this year's third quarter. In our consumer segment, fiscal 2019 third-quarter net sales increased by $21.6 million or 6% versus the same period last year. This quarter sales were comprised of organic growth of $19.3 million or 5.3%, and acquisitions of $9.9 million or 2.7%. Partially offsetting sales growth was a 2% headwind from translational foreign exchange. Raw material costs were still a headwind but began to moderate. Again, because we use the FIFO method of accounting for our inventory, our margin recovery tends to lag our peers on LIFO.
During the quarter, we gained market share from our competitors in the small project paints category, continuing the favorable trend that started last spring at major retailers. Earnings would have been ahead of the prior year, except for higher distribution and advertising expenses. Adjusted EBIT was $27.1 million during this year's third quarter. Specialty segment net sales increased $4.6 million or 2.7% in the fiscal 2019 third quarter versus last year's third quarter. Organic growth was relatively flat with an increase of $1 million or 0.6%. Sales growth was primarily the result of our acquisition of insulated concrete forms manufacturer, Nudura, which contributed $5.8 million or 3.4% to sales. Foreign exchange had an adverse impact of $2.2 million or 1.3%. Contributing to organic growth were our businesses providing fluorescent colorants, marine coatings, and exterior cladding systems.
Sales at our restoration equipment business were behind the prior year, which is extraordinarily strong due to a large sales backlog that resulted from Hurricane Harvey. Substantially all of this segment's third quarter EBIT decline versus the prior year was due to startup investments for our NewBrick exterior cladding product and Nudura, which has pronounced seasonality in the third quarter. Adjusted EBIT for the fiscal 2019 third quarter was $18.8 million. Also during the quarter, we issued $350 million in bonds and used the proceeds to pay down a portion of outstanding borrowings on our revolving credit facility and for general corporate purposes. Additionally, as of today, we've effectively repurchased approximately $400 million of our common stock, half of which was accomplished through the redemption of our convertible bond last November.
The share repurchases support our MAP to Growth objective to return $1.5 billion in capital to our stockholders by May 31, 2021, through a combination of dividends and share repurchases. I'll now turn the call over to Rusty, who will provide an update on our MAP to Growth initiative and also share our outlook for the remainder of fiscal 2019.
Thanks, Kristine. In regard to our MAP to Growth operating improvement initiative, we have moved with great urgency and are making excellent progress toward the objectives we laid out at our investor day last November. Since the initiation of the plan, we have closed or are in the process of closing 12 manufacturing plants and have announced the reduction of 502 positions. We have also taken great strides to upgrade our manufacturing processes, optimize assets, reduce inventory, and improve our supply chain. If you take a look at the second slide in the deck on our website, you'll see the progress we have made in procurement. Our center-led purchasing team has changed our approach since they are authorized to speak for all RPM volume. As a result, we have narrowed our supplier base and changed our strategies to enable better pricing and terms than our historic norms.
Another example is manufacturing, which you'll find on slide number three, where we are implementing a culture of continuous improvement. We continue to reduce our plant footprint and optimize existing assets. We are working individually on a plant-by-plant basis to reduce yield losses and improve equipment uptime. On the SG&A front, which you'll see on slide number four, we have delayered top management. As a result, we have simplified our organizational structure and better aligned with our strategy to create global brands. The resulting cost savings from our first wave, which you'll see on slide number five, will conclude at the end of this fiscal year and are projected to meet our original targets. As you may have noticed on the slides, manufacturing appears to be running slightly behind the wave one target, while SG&A is running a bit ahead.
This is simply due to a reallocation of distribution expenses between these two expense categories. Based on the success of the MAP to Growth so far, we expect to meet the long-term margin improvement objectives that we laid out at our November 28, 2018 investor day. I'll now turn to our fiscal 2019 outlook. Our outlook for this year's fourth quarter, which is seasonally our strongest, is positive. In the quarter, we expect to generate low single-digit consolidated sales growth and double-digit EBIT growth, resulting from recently implemented price increases taking hold, our MAP to Growth savings being realized, and moderating raw material costs. Industrial segment sales in the fourth quarter are expected to be flat to slightly down as the segment will be impacted by tough comparisons to last fiscal year, as well as its exposure to weakening international markets and unfavorable foreign exchange.
This should be offset by savings from our MAP to Growth operating improvement plan and moderating raw material expenses. For our consumer segment, we anticipate high single-digit sales growth due to easier comparisons to last fiscal year, as well as margin recovery beginning to take hold. In the Specialty segment, which comprises about 15% of consolidated sales, the sales growth should be modest. We expect a normal effective tax rate of 26%-27% in the fourth quarter, which will be higher than last year's rate due to adjustments related to tax reform.
Based on our expectations for solid top-line sales growth and double-digit EBIT growth, our fiscal 2019 fourth quarter adjusted earnings guidance is a range of $1.12-$1.16 per diluted share, which includes accretion of $0.03-$0.04 a share as a result of share repurchases completed this year versus the adjusted $1.5 during last year's fourth quarter. I'll turn the call back over to Frank.
Thanks, Rusty. Before we open up the call to questions, I want to take a moment to thank our associates around the world for their dedication to continuing to grow the RPM businesses while also implementing our MAP to Growth operating improvement plan. One more note on our MAP to Growth program. Many of you met our colleague and friend, Steve Knoop, at our investor day in Baltimore on November 28th of last year. In addition to heading up our Specialty Products Group, Steve had made significant contributions to the planning for our MAP to Growth initiative. Unfortunately, Steve has been on medical leave since January. In his absence, I've taken on Steve's duties related to our MAP to Growth initiative, as you can see, based on his strong efforts, we're off to a great start.
Lastly, I'd like to mention that we recently concluded our annual growth and strategy conference, which we hold each year in March. This year, I challenged our company leaders to think big about growth and innovation. They delivered ambitious plans to accelerate growth through innovative new products and service offerings. While we were together, I reminded them that although the marketplace values growth over efficiency, we will be able to deliver both through our MAP to Growth program. We will continue to be world-class when it comes to sales, marketing, and top-line growth, we are becoming world-class in our operations. This one-two punch will make us very difficult to beat in the markets we serve. We're now pleased to take your questions.
Thank you. We will now begin the question and answer session. If you have a question, please press star then one on your touch tone phone. If you wish to be removed from the queue, please press the pound sign or the hash key. If you're using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press star then one on your touch tone phone. Our first question online comes from Mr. John McNulty from BMO Capital Markets.
Morning, John.
Yeah, good morning, thanks. Good morning, Frank. Thanks for taking my question. I guess a couple things. It sounds like on the procurement front, you're starting to make some headway. Maybe we haven't seen it because of FIFO. I guess when you're looking out over, say, the next 12 months, I assume there's some improvement on the working capital side of this. Can you give us some color as to how we should be thinking about the potential for improvement in terms on working capital as we're kind of looking out over the next 12 months or so?
Sure. We did not provide slides on working capital improvement. We will in the future. It's our anticipation that most of the working capital improvement will occur in wave 2 and wave 3. Because the most significant benefits that are sustainable will come out of both the asset optimization as well as the operating improvement initiatives that we are taking through our businesses plant by plant, starting with our largest operations. While if you look at our balance sheet, you'll see a year-over-year decline in inventory, which is a good step in the right direction. Part of that is a result of write-off in our consumer segment in last year's fourth quarter, and part of that are the beginning of the benefits of these operating improvement initiatives on lower investment and working capital.
The most meaningful benefits will come in wave 2 and 3 as they follow the operating improvement activities we're undertaking.
Got it. That's helpful. I guess a question, Rusty had made a comment, I guess, regarding on the manufacturing front, things were maybe a little bit lighter or I wouldn't say behind schedule, but were maybe coming in a little slower and SG&A was a little bit ahead. What was the driver for that again? Because I didn't quite catch what you were getting at.
Sure. There's two issues there. The first is, I think we thought, I communicated that the timing of a plant closure announcement and the actual cessation of operations and are beginning to benefit from those savings was 90 days. That was, in hindsight, incorrect and a little bit naive. I think the timing from announcement to closure is more like five months. While we have announced these plant closures and we're in the process of doing it's taking a little bit longer in some instances we thought. The second and more meaningful area is when we laid out the MAP to Growth initiative in November, we assumed in the manufacturing pieces, all facility closures.
While we have announced the closure of 12 manufacturing facilities, we've also closed, and this was part of the manufacturing piece on our investor day, November 28th, more than a dozen warehouses and other offices. All of those are properly reflected in SG&A, not in cost of sales. That's just a reallocation between what we originally communicated during our investor day in manufacturing that is actually an improvement in SG&A.
Got it. That's helpful. Maybe just one last question on a different angle. Can you speak to kind of what you're seeing with regard to the M&A environment and pipeline? It looked like it helped you, obviously this quarter with some sales lift. How does the environment look going forward? Also, I guess maybe can you speak to your appetite for M&A, just given that you've got so much going on with the restructuring?
Sure. That's a great question. The pipeline for the typical small to medium-sized acquisitions that we're looking at is pretty good. We are focused on executing the MAP to Growth program. There's a lot of acquisition activity in our space. As we look at it, we are dedicated to first executing on the operating improvement initiative, and in any event, maintaining an investment-grade rating as it relates to acquisition activity combined with some of our return of capital commitments.
Got it. Great. Thanks very much for the color.
Thank you. Our next question online comes from Mr. Frank Mitsch from Fermium Research.
Morning.
Hey, good morning Frank. Good morning folks. Hey, obviously wishing a full and speedy recovery to Steve. Frank, can you talk about what you're seeing on the ground in Europe in terms of demand? What are your expectations in terms of volume growth there?
Sure. Europe's weak, and Europe's been relatively flat for most of the year. In some areas, we're seeing year-over-year declines. I think when you look at our total growth, we had regionally 5% plus growth in North America and -3% in Europe. A big part of that minus three was foreign exchange. Excluding foreign exchange, real modest to flat growth in Europe. There's not a lot that suggests that that's gonna get better, and we're not planning for it to get better as we think about our new fiscal year.
As you look at the MAP to Growth program, how much of that is tied or geared towards Europe?
There are meaningful opportunities for us in Europe. We certainly are focused there in terms of some opportunities to consolidate various aspects of G&A manufacturing and distribution. I think that's as far as we would go in terms of detail.
All right. I was trying to get how many plants out of the 12. Last question, you folks mentioned a couple of times that FIFO is restraining the savings that you're seeing in MAP to Growth and also restraining the ability to recoup the decline in raw materials or at least the moderation in raw materials. With that said, what sort of a tailwind are you entering fiscal fourth quarter just based on FIFO accounting on those opportunities?
Yeah, I can't answer that specifically. It's not really restraining. All it is is an accounting difference versus some of our largest industry peers who report on LIFO. To the extent that we are seeing benefits of operating improvements or price increases or moderating raw material costs capitalized in inventory, it shows up in our results typically 90 days later than it would in somebody who's reporting on LIFO. I think as you can see, and we hope in the future to be able to add some detail to the MAP to Growth slides that Rusty referred to this morning. We believe there's $34 million of improved raw material cost as a result of our ability to consolidate raw material purchases and really be a more strategic partner to a smaller and larger, in terms of size and impact, supplier base.
Those are dollars that we're confident we're achieving on the ground, and they will begin to show up in our financial results in Q4 and Q1.
All right. That's very helpful. Thanks so much.
Thank you.
Thank you. Our next question online comes from Ms. Rosemarie Morbelli from G.research. Please go ahead.
Good morning, Rosemarie.
Thank you. Good morning, everyone, and also best wishes to Steve.
Yeah.
We are hearing a lot about international being weak, and you mentioned Europe and Latin America. Looking at Europe, you don't see any improvement, but what I was wondering is if you could talk about whether the trend during the quarter, are you actually seeing it declining some more, worsening? If you could touch on the different markets you serve and the trends in those.
Sure. I think the as-reported results have actually deteriorated a little bit as a result of flat organic growth in those markets, then the negative impact of FX, which certainly hit us in the third quarter. It's our expectation that we'll see more of the same in Q4. Just seems to be kind of a stagnant environment, and there continues to be amongst our customer base and even ourselves as we think about opportunities for improvement in Europe, some decision making stalling around Brexit. Where assets should be and what businesses, including our customers, should be doing in relationship to their thinking about the EU and the U.K. and Europe. We don't see it getting better.
All right. Any particular market that is especially weak versus a flat, if we exclude FX, a flat demand?
No, as you'll recall, in our January quarter, the weakness that we have is regional, not necessarily a product or markets. We've got a pretty good quarter in the third quarter, and it's continuing in Q4 across all of our businesses in North America and particularly the U.S. We are pretty weak, flat to weak across all our businesses and product categories in Europe. I wouldn't point to any particular industry. It's more of a regional issue.
Okay. Moving on to the consumer, you are continuing to gain share. Can you talk about the share gain you are seeing, if any, when you exclude the benefit from the switch at Home Depot, for example, out of Sherwin-Williams?
Sure. That's certainly one, that's going quite well. We've also had some small project paint pickup in the hardware store chain channels. We've also had some recovery in some lost share at Lowe's as a result of some of the strategic alignments and changes last year in the spring. As folks know, we lost some business there, we are recovering some of what was lost business. Our consumer segment teams are doing a great job, they're picking up market share in small project paint because that's where they live, whether it's new colors, new products, new textures, in some cases, new packaging and new delivery. They're doing a really nice job.
To that, as we enter the spring, we're seeing some solid POS, so point of sale takeaway by consumers that's better than it's been for the last four or five quarters, hopefully, that will continue. It seems like we're finally seeing some good consumer takeaway in those categories after what's been a relatively weak four or five quarters of POS.
Thank you. Lastly, if I may, following up on the M&A pipeline, do you have any appetite for a large acquisition in one that you could fit into one of your industrial product lines?
Our acquisition pipeline is pretty good, as it always has been, particularly in the small to medium-size acquisitions. As it relates to all the acquisition activity in our industry, whatever we would do, we would seek to maintain an investment-grade rating between our acquisition activity and our commitments on returning capital to shareholders.
All right. Thank you.
Thank you. Our next question on the line comes from Mr. Vincent Andrews from Morgan Stanley.
Good morning.
Hi, this is actually Steve on for Vincent. Just have a quick question on SG&A. Last quarter, you guys broke out reconciliation versus SG&A to adjusted SG&A. Just curious if you could maybe bucket this quarter, where some of your MAP to Growth initiatives stood in COGS versus SG&A.
Sure. Just broadly, first of all, our third quarter, and we highlighted that given its seasonality, is all over the place. This quarter is down meaningfully from last year. There were a lot of one-time items. We are up 25% at the EBIT line from our FY 2017 third quarter EBIT. That gives you a sense of why we think it's a pretty good third quarter and also the volatility given the seasonal low. In SG&A, we mentioned in January, about the long-term incentive reversal last year in the third quarter. We had a number of incentive comp reversals last year in Q3 as it became apparent that we were not gonna hit any of our near-term or long-term targets.
On a year-over-year basis, looking at comp this year versus comp last year, there is a hit to earnings in the high single digits, in terms of millions of dollars. We have communicated throughout the year that we were gonna have a higher level of advertising, in our consumer segment, as we picked up market share and picked up new categories, and that has been true, and it was true again in the third quarter, and it will be true in the fourth quarter. The last comment I would make is that all of these, and this isn't unique to RPM, we're seeing higher freight and distribution expense, which is unique to RPM. The freight-out and distribution expense is reflected in SG&A versus most of our competitors that reflect that in cost of goods sold.
We're seeing higher labor costs pretty much everywhere, whether it's in our core staff or in our plants. Those are what reflect the big swings in SG&A in what is a seasonally low quarter anyways.
Okay. Just in regard to the restructuring charges specifically, though, is it possible you could break that out between COGS and SG&A or?
Yeah, I don't know that we've done that. We highlighted the restructuring charges. The two categories are all restructuring related. The first category, which Rusty, remind me, is about $9 million.
Yes, for the SEC.
That's really.
Charge on the income statement.
What you can formally qualify or quantify is, for accounting purposes, restructuring. The other charges were principally professional fees. We have significant fees with consultants. AlixPartners is the largest one, but other consultants in IT areas that are part of our implementation. Beyond that, we haven't really quantified it between cost of goods sold and SG&A.
That's true. I would refer you to our website to take a look at our non-GAAP slides, where we have further detail on each item.
Okay, thank you.
Thank you. Our next question on line comes from Ghansham Panjabi from Baird. Please go ahead.
Morning, Ghansham.
Morning, Frank. Good morning, everyone. I guess first off, on the 4.3% organic growth, can you sort of break that out between volume and maybe price mix? Related to that, Frank, a lot of companies have called out unfavorable weather, particularly in January and February. Just curious as to what sort of impact you saw, and then maybe related to that, what you're seeing so far in March.
Sure. Across RPM, net organic growth on a consolidated basis, it's about 2% price. The weather was the negative impact. Our industrial segment in particular, our Tremco Roofing business, those are challenged businesses when you have a very wet period of time. I think one of our peer competitors highlighted the rain and snow, and this is supposedly one of the wettest years since 1983. Weather happens every year, weather happens every quarter, and we don't like hearing about it from our operations any more than our investors like hearing about it from us. It was certainly an impact in the year. We're off to a good start in the spring.
As long as we don't end up with a very wet end of May and June like we had last year, I think we'll have a pretty solid performance in our industrial businesses that are weather related and also in consumer. As I said, the early signs for spring POS are good. That is most definitely impacted by weather.
Perfect. That's very helpful. Then just in terms of your guidance specific to the fourth quarter, low single-digit top-line growth and double-digit EBIT growth, can you just give us a bit more detail on how that breaks out across the various buckets, pricing, cost savings, low raw material costs, whatever way you want us to sort of think about that from a stack rank perspective?
Yeah, I would expect us to see the first quarter in about six or so, seven quarters, where gross margins are flat to slightly up. That's a combination of mix of business, it's a combination of our company's price efforts and what we see as moderating raw material costs. In our third quarter, raw material costs, again, sequentially were improved by a couple percentage points. We were still year-over-year up by mid-to-high single-digit rates. As we get into the fourth quarter, we'll start to annualize the significant increases that started before last year in the fourth quarter, but really were pronounced in the fourth quarter.
You'll also see the benefits, as I said, of the MAP to Growth initiatives that have already been completed, but really show up in our cost of sales and our gross margin, as we sell the inventory in which overhead and raw material costs are capitalized.
Then just one final one on fiscal year 2020, if I could. Understanding it's early, but at this point, what's reasonable for us as we kind of tighten up our models to assume for core volume growth or core sales growth for fiscal year 2020? Then just as a clarification on Slide five, towards the end, the Viapol plant summary in your slide deck. You call out an annualized run rate to benefit 2020 of $104 million. Is that fiscal year 2020 or calendar year 2020? Thanks so much.
Sure. The annualized run rate is fiscal year 2020. Again, I think the factors that have impeded our ability to get the head start we had hoped for in fiscal 2019 are also impacting all industry and our peers. It's inflation, not only in raw materials, but freight, labor, and a lot of other factors. Slowing growth in Europe is going to be an issue for everybody. Those issues will impact us. We've got to make sure that we continue to push our operating improvement initiatives so that we can overcome as much of these headwinds as possible. I think if we're looking at 13%-15% EBIT growth in our fourth quarter, we would expect to see something in the neighborhood of 20% or maybe slightly higher EBIT growth in Q1. That you should see that hopefully accelerate.
We don't finalize our 2020 planning until the end of May, and we will provide more specific details both on our expectations for 2020 and the impact of MAP to Growth when we release fourth quarter earnings on July 22nd.
Thank you. Our next question on the line comes from Jason Rogers from Great Lakes Review. Please go ahead.
Morning.
Morning. I do want to ask about the ERP consolidations, if that has begun, and maybe just discuss the timeline there.
Sure. We would expect to have the lion's share of our ERP implementations done by December 31st of 2020. What is left to be done at that point would be small, kind of far away international sites. We're about 50% done across RPM. Some of that is because we were already pretty heavily consolidated into SAP, for instance, in our Construction Products Group. Our Specialty Products Group under Steve Knoop's leadership had started an ERP implementation consolidation into Microsoft D365, boy, 15 months ago. We're two-thirds of the way through there. It's something that our IT people are pretty adept at because in the last five or six years, we have regularly completely integrated acquisitions into the base system of whoever the core RPM acquiring company was.
All right. Just maybe a few for Rusty. Do you have the number of shares bought in the quarter and the total spent and the share count that you're assuming for the fourth quarter?
Sure. Yeah, so far this year, we have through February 28th, bought back about 2.8 million shares. In addition to that, we retired the convertible for mostly cash. That took about 3.3 million shares off the table. So far, 6 million shares were down between repurchase and the convertible redemption. You should see in our fourth quarter that magnitude of a decline in our diluted share count. That's offset by stock vesting and awards, which will be a small offset.
Just to follow up earlier on the SG&A question, do you have an adjusted SG&A number for the quarter? That was in the slides last quarter, but I didn't see it this quarter.
Yeah. No, we did not. Again, it's in relationship to all the moving parts in the quarter, given the seasonality of the third quarter. I think the other thing that negatively impacted us in the third quarter, which Rusty commented on, but we can quantify a little bit better. In our Specialty Products Group, the Nudura business, which is off to a great start, we're really excited about it. It's really the wave of the future for construction. Seasonally, they lose money in our third quarter, so they're accentuating our quarterly seasonality. I think their revenues, we disclosed at about $50 million when we acquired them. The other element in specialty that particularly impacted our third quarter is we're accelerating our investment in NewBrick, and it's an exciting new product.
Year to date, we have about $2 million in sales and $5 million of operating losses. Almost half of that was in the third quarter. We have plans to automate most of their production, that's going to be a blockbuster product line at some point. That's our plans, if it does not turn out that way, those are operating losses that could easily be eliminated.
Okay, thank you.
Thank you. Our next question online comes from Mr. Kevin McCarthy from Vertical Research.
Good morning, all. With regard to your slide number five, how much of the $104 million in run rate savings would you expect to actually hit the income statement in fiscal 2019?
I think we'll have a better sense of that, Kevin, in July. We'll communicate that to folks. I think it really depends on also how much of that run rate is experienced in our fourth quarter. That's an annualized run rate that we expect to be at as of May 31. There'll be portions of that will benefit our fourth quarter. Then, of course, there'll be portions of wave 2 that should benefit the second half of the 2020 fiscal year. We'll have a much better sense of how to break that out, both by category and by July, we hope by segment, so you can understand that.
Okay. Appreciate that. Second, I was wondering if you could elaborate on your raw material cost trends. As we look at some of the building blocks that tend to go into your industry, propylene's come down hard over the last six months, some of the upstream silicone products seem to have as well. What are you seeing in your basket, in terms of sequential trends, and do you have an early read on how fiscal 2020 could trend in that regard?
Sure. The macro picture is pretty volatile. Oil had come down a lot. Propylene followed that. Those core building blocks don't translate into raw material savings of the products we buy immediately. Interestingly, since January 1, oil prices are up 30%. As I mentioned earlier, sequentially, the third quarter was the second quarter in a row where we've seen sequential improvement in our base top raw materials. We're still year-over-year up high single digits. We're gaining on margin through price mix and what feels like moderation across our core largest raw materials. The biggest impact of that in our fourth quarter, we believe will be the strategic change in approach on procurement as we have consolidated purchasing.
I think it took a while for us to hit our stride, but we've had a number of categories where we might have been buying from eight different vendors, and we consolidated down to two or three, and it's moved significant volume to strategic partners. It's moving volume away from either smaller or less inclined to cooperate suppliers. It's been an interesting process for us that's having good results.
Okay. Lastly, if I may, in your prior quarter, you had discussed some mark-to-market impact related to the captive insurance business. Just wondering if you saw any impact from that in the fiscal third quarter or would expect any in the fourth quarter.
Yes, Kevin, on investment income line, you'll see we were down about $700,000 from last year. The performance was not as good as a year ago. Obviously, a lot happened within our quarter because December markets took a nosedive and recovered in January and February. As far as the fourth quarter goes, I think based on the trend of the last three months, it's probably anybody's guess, but we are on the new accounting standard, which will require us to mark to market our equity securities and run it through the income statement. To the extent it's an issue, we will certainly highlight that after the fourth quarter.
Sure. We are working with our audit committee and our auditors on whether or not it's appropriate to carve that out every quarter, because it's a non-operating item. As I mentioned in January, the equity portfolio of our captive insurance companies that this applies to is about $100 million. We'll have and communicate the consistent manner in which we'll address it in the future in terms of either carving it out or just highlighting it to questions like this.
I see. Thank you so much.
Thank you.
Thank you. Our next question online comes from Mr. Mike Harrison from Seaport Global.
Hi, good morning.
Good morning.
Frank, you noted in the press release that energy was a positive in the North America industrial business. I was wondering if you could give maybe a little bit more detail on that, what specific product lines it's driving, and how sustainable you think that strength could be.
Sure. In particular, our Carboline business, which serves energy markets pretty broadly. Oil and gas, pipelines, refineries, windmill blades. They have various product lines that are focused on either pipelines, which is in-ground or associated with chemical facilities. Our Fibergrate business, which provides FRP grating, which is corrosion and weather resistant, has had a good result in the energy markets as well. Those are the principal product lines.
Looking pretty sustainable going out through the next couple of quarters?
Yeah, we think so. Obviously, oil prices have been volatile, as the folks on this call know, there was a period of time when the oil industry and the energy markets cut back meaningfully, not only on expansion but on maintenance. It feels like we're back to a normal maintenance spend period of time.
Okay. Then wanted to also ask about the consumer business. You alluded in the past to some contracts that were keeping you from raising price, that those had run their course and expected to get some price traction. Did we start to see that, or is that trickling in? Maybe just an update there.
Sure. We had some commitments associated with line reviews and other commitments that inhibit our ability to give price while we were seeing significant raw material cost increases. The last areas of RPM to get some price increases happened in our consumer businesses at the end of our third quarter. So that will help our fourth quarter, and it's much needed and trailed the rest of RPM.
All right. Thanks very much.
Thank you.
Thank you. Our next question on line comes from Silke Kussk from JPMorgan. Please go ahead.
Morning. Good morning, Silke.
Hi, good morning. How are you?
Good.
The first question I have is a cash flow question. In your press release, it says year-to-date, your MAP-related initiatives were sort of like a $0.50 headwind, or it was sort of booked as like a non-recurring item. Maybe that's like $80 million or $90 million pretax. What do you expect in the fourth quarter in terms of charges? What are the cash outflows related to that that may still have to come? Did you already spend all of it or what are the outflows that may come in the fourth quarter or next year?
Yeah. You should expect continuing outflows in terms of consulting and professional fees, which is categorized by Rusty in this other category and that's running $6 million or $8 million a quarter. In some quarters it'll be more, in some quarters it'll be less, and that'll be ongoing for a period of time. The charges that we will continue to incur, particularly in fiscal 2020, will be related to plant closures and/or distribution consolidation. A portion of that will be non-cash asset write-offs, and a big portion of that will be severance associated with those plant closures and related terminations. We would expect to see those costs continue in 2020. In July, we will provide more detail by category of our expected closure costs, and what of those will be cash and what are non-cash.
The other category is ERP implementations, and we'll have to get our head around that one because there's some debate as to how much of that ERP money we would have spent anyways versus what is being spent because of or accelerated because of our MAP to Growth initiatives.
Mm-hmm. Okay.
I think previously we had talked about a total program cost in the $120 million-$140 million range, and the cash cost being in the $80 million-$90 million range. We'll provide details in July of how much of that has been spent, and an estimate of what's to come.
Okay. That's helpful. The second question I have is related to the Rust-Oleum and True Value initiative that was put in place. It's something that's new, as best as I understand. True Value has, I don't know, 4,500 stores, something like that. What's the sell-through that you expect? Is it something like $10,000 a store and the opportunity is like $45 million, or that's way too optimistic, or it's way too low? Is there any additional color that you may have?
Yeah, not really. Without being disrespectful, it's kind of way too in the weeds. For obvious reasons, we have avoided talking as much as possible about specific customers. A year ago, that was hard to do with some of the strategic changes supply-wise in our marketplace. I had commented earlier that we had picked up market share in the hardware store chain in small project paints with our consumer segment. That's been true, and that should benefit our fourth quarter. We've also regained some big box share that was lost last spring, and some of that's coming back to us. The consumer businesses are doing a nice job in managing their categories, which we lead in. We have formidable competitors. Their focus tends to be more on gallon goods and retail paint stores, as opposed to the specialty products that we focus on.
That's allowed us to gain share in hardware, and regain some lost share in big box.
If I may ask the question one other way. If I look at your fourth quarter guidance, and I look at the guidance for the consumer group for the fourth quarter, do you think the underlying demand is something like 2%? If you strip out what the business wins may be and pricing is up like 2%, or do you think it's better than that or worse than that?
Our forecast for the fourth quarter consumer is in mid to high single digits.
Yeah.
That'll all be organic.
It'll all be organic and includes the price and business wins.
That's correct. It should be a solid fourth quarter for our consumer segment.
Okay. I think the last question-
Which will offset what we-
Yeah.
Just so you know, in terms of the quarter, it'll offset what we anticipate to be a challenging comp, and some regional challenges in our largest segment, which is industrial.
That's it. Yeah. The last question I have is on the Specialty segment. You said Nudura is an annual sale. It's like maybe $50 million, and it's seasonally slow in the February quarter, then it's probably a more normal quarter for the May quarter. If you were to get, I don't know, like $10 million or $12 million in Nudura-related sales, that would be like 5% growth in the Specialty segment. Why is your outlook so conservative in terms of modest growth?
Yeah, I mean,
The acquisition benefit would be 5%.
No, we build that up from our businesses. In our Specialty segment, it's a real cross-current of fluorescent pigment. You know all the different product lines. I think they're expecting a modest single-digit growth. I can't answer that specifically right now. I don't know, maybe Rusty does, if it's versus a tough comp last year. Rusty?
Yes. I think another factor you should consider is FX will be going against us. That'll impact the sales growth. The momentum this year has been low organic growth. They were the first to get price out of the box, so we'll start lapping the anniversary of price increases. That impact may tail off a bit, too.
Okay. Thanks very much for taking the questions.
Sure.
Thank you. Our next question online comes from Steve Byrne from Bank of America. Please go ahead.
Morning.
Morning. Frank, when you rolled out the MAP to Growth initiative last fall, you put out some margin targets. Were you anticipating some slippage in margins in this fiscal year? What's your level of conviction on hitting, say, that 16% EBIT margin looking out two years?
Sure. I think that's a great question. I think we and our whole industry experienced some challenges this year that we did not fully anticipate. When we get to the end of our current fiscal year at May 31, I think people are seeing and will start to believe the good momentum that we're building. We'll be a little bit behind the curve in terms of our margin targets. We'll have a better sense of that in July. The element of that is not a function of if we get there, it would really be a function of timing. Are we going to get there on exactly the timing that we've talked about?
The other element is, given the pluses and minuses of building an operating improvement plan, can we find additional savings that would compensate for what is a slower start relative to the fiscal 2019 margins that we anticipated when we put this plan together in October and November versus where we're going to end up the year.
Just to expand on that, Frank, when you say potential additional savings, are you looking at different areas to potentially integrate? I don't know whether it's facility headquarters or distribution or commercial. Are you looking at some other levers to pull?
Not necessarily. We do have some opportunities in G&A that we're looking at. I think the other area that we're excited about, this is not going to happen as of the December 31, 2020 or even May 31, 2021 timeframe. The manufacturing improvements and continuous improvement initiatives that we're rolling out are having a really good effect. When the MAP to Growth timeline stops relative to the communicated target finish line that we have, our continuous improvement programs will not. There's some growing enthusiasm about our ability to add to that $75 million manufacturing and operations target. It's outside of our MAP to Growth timeline, but it's real.
There's a lot of enthusiasm there, and a lot of the things that we're doing, when they're effective, will not only impact margins relative to financial targets, but will change our culture in some fundamental ways, particularly in how we allocate capital to fixed assets and how we measure performance and efficiency on the plant floor. That will continue beyond this program.
Just one last one for you, Frank. You got a lot on your plate right now. Would you consider bringing in any new resources to help drive this restructuring program, given Steve's challenges right now?
Well, we would expect Steve to be back in the saddle, hopefully, sometime mid to late summer. As it relates to new resources, Gordy Hyde's leading our manufacturing and operations efforts. We have added four process engineers on the corporate staff that work directly for him. We have on the procurement side, taken four or five of our top procurement people out of our operations, put them on the corporate payroll, and we've added an additional resource there. We are adding some really good talent in the procurement and the manufacturing continuous improvement areas to, again, not only help us achieve our goals as they've been laid out, but really help us fundamentally change our procurement process and our manufacturing and operations focus on an ongoing basis.
Very good. Thank you.
Thank you. Our next question online comes from Arun Viswanathan from RBC Capital Markets.
Good morning.
Morning, Frank. How are you doing? Thanks for taking my question. I guess first off, it's just on price real quickly. Given your comments earlier as far as crude going back up, but maybe the raw is still kind of settling down, is that a fair assessment? Would you think that you'd need to go out with further pricing as the year goes on? Should we expect kind of an increasing contribution from price in future quarters? How should we think about that?
Sure. That's a great question. Here's how we think about it. As I mentioned earlier, sequentially, we're seeing a second quarter where raw materials quarter-over-quarter are going down by low single digits. Year-over-year, we're still up. Hopefully, that will even out in Q4. Certainly, that's our expectation. Much of the price increase that we've experienced was developed throughout the fiscal year. The last pieces, as I mentioned earlier, were in consumer. I think we'll get the full benefit of price for sure in the first half of the new fiscal year, and then we'll start to annualize price increases as we go through the year across RPM. The area that would drive additional price increases is what's happening in not only raw materials, but freight, labor.
There is a higher level of inflation across every business, at least in the U.S., relative to employment, labor costs. It'll be interesting to see how that plays out as well.
Okay, thanks. In the consumer business, I think you had noted some weakness in the small project category over the last couple of years at different times and possibly some of it due to competitive pressures. Have you seen either a kind of a moderation in those competitive pressures and any benefits to you guys if you've been able to place any volume of urethane? As a second part of the question, if competitive pressures haven't subsided, do you think that the DIY channel itself is going to continue to be weak, just given low unemployment? Or how should we think about how the DIY channel and consumer segment kind of trends from a volume perspective over the next couple of quarters?
Sure. First of all, it's an intensely competitive area. There's some really strong regional players and a lot of big and bigger than us industry players that we compete with every day. The other thing that we suffered through last year, in particular in Q4 and into June, was extraordinarily wet weather, which tamped down POS. I mentioned earlier on the call, the early read on consumer takeaway is pretty good. The first couple of weeks of our fourth quarter, we're seeing real strong POS in small project paint. Combined with market share gains, we should have a nice recovery in our consumer business. I would remind folks that we also took out a significant chunk of SG&A and consumer in the fourth quarter of last year. Two of the plant closures that we have announced and have been completed were in our consumer segment.
We've done a lot of work there on the cost side, and we picked up market share, and we're seeing better POS, at least as the start of the fourth quarter than we've seen in four or five quarters. It's all pointing in the right direction. Weather could impact that in the fourth quarter. I think that's the only element that would negate what feels like good momentum.
Okay, thanks. Just last, if I may, you mentioned some continued softness in Europe. Any chance that that could turn around, I guess, later as we go through the year? Then maybe you can just give us one line or two on industrial in North America and Brazil. If you're feeling any encouragement by those markets or offset by those markets. Thanks.
Sure. We don't anticipate things improving in Europe. If there was a Brexit deal that made everybody happy, that might buoy spirits across Europe and help things move in the right direction, but we're not planning on that. As it relates to Latin America, I think that we're seeing some spikiness from one month to the next. In this case, I think it's good, particularly in Brazil, where we have our Viapol business, our largest presence in Latin America. As the economy turned down in Brazil and geopolitical issues hit, we saw some spikiness that ultimately was a volatility indicator of a significant downward trend. Now we're seeing some spikiness, not only in Brazil, but in other parts of Latin America, which I'm hopeful is like a volatility indicator of a significant movement in the right direction.
The feeling on the ground there is more positive than it's been in a couple of years. We're not consistently seeing it in our results yet, although we're hopeful.
Great. Thank you.
Thank you. Our next question online comes from Mr. Kevin Hocevar from Northcoast Research.
Hey, good morning, everybody. Just wanted some clarification on slide five, the new year-to-date estimate run rate of $104 million, up from the initial target of $83 million. You maintained the $290. Is that implying that you're realizing savings faster and perhaps pulling some savings forward from future waves, and that's the reason for the raise? Are you generating more savings than you initially expected, which could be incremental?
That's a great question that we struggle with here. That's why we have not changed our long-term target. I think it's way too early to decide that after being at this for essentially four months, five months, that we're not only ahead of the curve in terms of timing in the first phase, but that we're actually adding to the whole program. I think on the manufacturing piece, we're a little bit ahead of the curve. On the procurement piece, we're a little bit ahead of where we thought we were. As we get into next year, we hope to provide more detail, and I think we'll have a better answer to that question because it is one that we are struggling with internally in terms of what is being off to a good start, but feeling like maybe we're accelerating some of the early benefits.
In procurement in particular, I think there'll be a point at which we will have achieved what is possible with a new approach, and the rest of it will be really a function of what happens in the commodity cycle.
Got you. Okay. You give an expectation for Consumer segment margin recovery starting in the fourth quarter, didn't mention any similar verbiage in the other segments. Is the expectation that those other segments have, I don't know, flattish or something like that margins where Consumer is really the one that's gonna see the nice improvements there?
No, I would expect to see margin recovery in all three of our segments in the fourth quarter. It will be a function of mix in part. The elements that are impacting our gross margins are really three things. They're raw material cost headwinds, which year-over-year are continuing. That should start to mitigate as we get into the fourth quarter and the rest of 2020. The impact of our price increases and the positive impact of our MAP to Growth initiatives. I would expect margin improvement in each of our three segments in the fourth quarter. It will be most pronounced in Consumer because our Consumer segment was the first to execute on SG&A cost cutting and our first plant closures out of the box were in Consumer as well.
We'll also be annualizing a easier comp both in the fourth quarter and the first quarter.
Okay. Got you. Very helpful. Thank you.
Thank you.
Thank you. Our final question comes from Mr. Mike Sison from KeyBanc. Please go ahead.
Good morning, Mike.
Hello, this is Brandon. I'm for Mike. How are you guys doing?
Good.
I know you guys have talked about international weakness, specifically in Europe. I was hoping you could talk a little bit more about the positive momentum in North America, specifically the U.S. What are your expectations for demand in the fourth quarter and maybe how that moves into fiscal year 2020?
Sure. As we had commented earlier, the energy markets that we serve seem to be pretty solid, and we're back to a normal level of maintenance spending. The activity in the construction markets has been a little bit volatile, but I think recent communications or information around housing starts, and commercial construction suggest that that's going to continue to be positive. Just like in our consumer segment we've talked about, we've got some new product areas. There's an opportunity to leverage some of the Nudura business growth, in cooperation with our Tremco businesses. The AlphaGuard roof restoration product is continuing to grow at double digits. Some of it is market related and some of it is a continuation of some of the new product introductions and new innovation that is coming out of our industrial segment. We see that as positive.
Most of the new product introductions that we're talking about happen to also be North America, because those are our biggest markets and where we have our largest sales and distribution effort.
Great color. Thank you. That's all I had.
Thank you.
We have no further questions at this time. I'd like to turn the call over to Mr. Sullivan for closing remarks.
Thank you very much for joining us on today's call. We appreciate all the questions around our MAP to Growth program and hope to provide you with even more details when we release our fourth quarter results and provide outlook for our 2020 fiscal year on July 22nd. We plan to renew our tradition of releasing earnings in New York, most likely at the New York Stock Exchange with an investor luncheon, where we will also have our segment presidents to talk in more detail about their expectations for growth in their segment, and the impact of MAP to Growth, not only in RPM on a consolidated basis, but also by each of our segments as well. Thank you very much for your interest in RPM and your investment in RPM, have a great day.
Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.