Earnings Call: Q3 2019

Apr 4, 2019

Welcome to RPM International's Conference Call. 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. Following today's presentation, there will be a question and answer Please note that only financial analysts will be permitted to ask Mr. Frank Sullivan for opening remarks. Please go ahead, sir. Thank you, Richard, and good morning. Welcome to the RPM International Inc. Investor call for our fiscal 2019 third quarter ended February 28, 2019. On the call with me today are Rusty Gordon, RPM's Vice President And Chief Financial Officer, Officer and Kristine Schulze, our Senior Director of Financial Reporting. I'll begin by providing broad perspective in 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 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 $1,140,100,000,000, which was an increase of 3 point 4% over the same period in fiscal 2018. This was the 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 and particularly in the United States 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 7th straight quarter. Current quarter EBIT finished behind last year's third quarter when EBIT was up an extraordinary 53% over the prior $46,900,000, which is our 2nd best third quarter ever as still strong as it was well ahead of our 3rd quarter average EBIT $37,800,000 during the 3 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 mapped to growth improvements and an unfavorable product mix. And looking at our SG and A on a comparative basis, last year's third quarter, SG and A was favorably impacted finance center reversal of $3,400,000, something we mentioned on our January conference call, While this year's SG and 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 Schulte, who will walk to our results in more detail. Thanks Frank, and good morning, everyone. During our fiscal 2019 third quarter, we reported restructuring charges of $8,700,000 and other related expenses of $11,900,000. 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 1,140,000,000 which was an increase of Organic growth was 4.3 percent or $47,500,000. Acquisitions contributed 2.1% or $23,300,000, while foreign exchange was a significant headwind that reduced sales by 3% or $32,900,000. Impacting earnings were higher costs for raw materials, freight, labor, and energy, as well as unfavorable foreign exchange resulting from the strengthening of the 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 third quarter of fiscal $27,200,000 or 4.8 percent and acquisitions of $7,600,000 or 1.3%. This sales growth was offset by top line growth in this segment was led by our North American businesses providing corrosion control coatings, fiberglassgrading, commercial sealants, and concrete admixture and repair products. Businesses in this segment also continued by foreign exchange and international weakness in the segment, which has our greatest international exposure. Adjusted EBIT was $19,500,000 during this year's third quarter. Percent versus the same period last year. This quarter sales were comprised of organic growth and acquisitions of 9,900,000 percent 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 Earnings would have been ahead $7,100,000 during this year's third quarter. Specialty segment net sales increased $4,600,000 or 2.7 percent the fiscal 2019 third quarter versus last year's third quarter. Organic growth was relatively flat with an increase of $1,000,000 or 0.6 percent. Sales growth was primarily the result of our acquisition of insulated concrete forms manufacturer Nudura, which contributed $5,800,000 or 3.4 percent to sales. Foreign exchange had an adverse impact of $2,200,000 or 1.3%. Contributing to organic growth for our businesses providing fluorescent colorants, marine coatings and terrier cladding systems. Sales at our restoration equipment business were behind the prior year, is extraordinarily strong due to a large sales backlog that resulted from Hurricane Harvey. Substantially, all of this segment 3rd quarter EBIT decline versus the prior year was due to startup investments for our New Brick exterior cladding product, and nudura, which has pronounced seasonality in the 3rd quarter. Adjusted EBIT for the fiscal 2019 third quarter was $18,800,000. Also during the quarter, we issued $350,000,000 in bonds and use of 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 $400,000,000 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 $1,500,000,000 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 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 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 and improve our we have made in procurement. 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 3, where we are implementing a culture of continuous improvement, we continue to reduce our planned footprint and optimize existing assets. We are working individually on a plant by plant basis to reduce yield losses which you'll see on Slide number 4, we have delay our top management. As a result, we have simplified our organizational structure and better aligned with our strategy to create global brands. The resulting year and are projected to meet our original target. As you may have noticed on the slides, manufacturing appears to be running slightly behind the wave 1 target, while SG And A is running a bit ahead. This is simply due to a reallocation of distribution expenses between these 2 expense categories. Based on the success of the MAP to Growth so far, we expect to meet 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 digit consolidated sales growth and double digit EBIT growth resulting from recently implemented price increases taking hold, our MAP's 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 and unfavorable and moderating raw material expenses. Sales growth due to easier comparisons 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 percent to 27 percent in the 4th quarter will be higher than last year's Based on our expectations adjusted earnings guidance is a range of $1.12 which includes accretion of $0.03 to $0.04 a share as a result of share repurchases completed this year versus the adjusted $1.05 during last year's fourth quarter. Now 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 November 28th 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 have taken on Steve's duties related to our MAP to Growth Initiative. And 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 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 and we are becoming world class in our operations. This 12 punch will make us very difficult to beat in the markets we serve. We're now you. And our first question online comes from Mr. John McNulty from BMO Capital Markets. Good morning, John. Yes, good morning. Thanks. Good morning, Frank. Thanks for taking my question. So I guess a couple of things. It sounds like on the procurement front, you're starting to make some headway, maybe we haven't seen it, because of FIFO. But 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. So can you give us some color as to how we should be thinking about the potential for improvement in turns on working capital as we're kind of looking out over the next 12 months or Sure. And we did not provide patient that most of the working capital improvement 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. And so 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 and 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. But the most meaningful benefits will come in wave 23 as they follow the operating improvement activities we're undertaking. Got it. That's helpful. And then 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 a little slower in SG and A was a little bit ahead. What was the driver for that again? Because I didn't quite catch catch what you were getting? Sure. There's 2 issues there. The first is, I think we thought and I communicated that the timing of a plant closure announcement and the actual cessation of operations and our beginning to benefit from those savings was 90 days. And that was hindsight, incorrect and a little bit naive. I think that the timing from, announcement to closures more like 5 months And so while we have announced these plant closures and we're in the process of doing it, 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. And 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 28, more than a dozen warehouses and other offices. And all of those are properly reflected in SG And A, not in cost of sales. And so that's just a reallocation between what we originally communicated, during our Investor Day in manufacturing that is actually an improvement in SG And A. Got it. That's helpful. And then maybe just one last question on a different angle. So, can you speak to kind of what you're seeing with regard to the M and A environment and pipeline, it looks like it helped you obviously this quarter with some sales lift How does the environment look going forward? And also, I guess maybe can you speak to your appetite for M and 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 Improvement Program, the MAP to Growth program. There's a lot of acquisition activity in our space. And as we look at it, we are dedicated to 1st executing on the operating improvement initiative. And in any event, maintaining investment grade rating, as it relates to acquisition activity combined some of our return of Thank you. Our next question online comes from Mr. Frank Mitsch from Permian Research. Frank, good morning, folks. Hey, obviously wishing a pull in speedy recovery to Steve. Frank, can you talk about what 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, you know, we had, regionally 5% plus growth in North America and minus 3% in Europe, a big part of that minus 3 was foreign exchange. So excluding foreign exchange, real modest to flat growth in Europe, And there's not a lot that, suggests that that's going to get better and we're not planning for it to get better as we think about our new fiscal year. And 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. And we certainly are focused there in terms of some opportunities to consolidate, various aspects of G And A Manufacturing and distribution. And I think That's as far as we would go in terms of detail. All right. I was trying to get how many plans out of this well. But 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 straining 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? Yes, I can't answer that. Specifically. And it's not really restraining all it is, let's say, an accounting difference versus some of our largest industry peers who report on LIFO. And so 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. But 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 $34,000,000 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. And so those are dollars that we are 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, Russell. Thank you. Good morning, everyone. And also best wishes to Steve. We have we are hearing a lot about the international being weak and you mentioned Europe and Latin America. So looking at Europe, you don't see any improvement, but what I was wondering is if you could talk about whether you the trend during the quarter? Are you actually seeing it declining somewhat worsening? And 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. The negative impact of FX, which certainly hit us in the third quarter. And 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, and where assets should be and what businesses, including our customers, should be doing in relationship to, their thinking about the EU and the UK and Europe. So we don't see it getting better. All right. And any particular market that is especially weak versus a flat if we exclude FX flat demand? No. As you'll recall in our January quarter, the weakness that we have is regional, not necessarily a product or markets. And so 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. And 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. And then moving on to the consumer, you're 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 show in Williams? Sure. That's certainly one and that's going quite well. And we've also had some small project paint pickup, in the hardware store came channels. And, we've also had some recovery and some lost share at Lowe's as a result of some of the strategic alignments and changes last year in the spring. And as folks know we lost some business there and we are recovering, some of what was lost business. And so, our consumer segment teams are doing a great job. And 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 4 or 5 quarters. And hopefully that will continue. But it seems like, we're finally seeing some good, consumer takeaway in those categories after what's been a relatively weak 4 or 5 quarters of POS. Thank you. And lastly, if I may, following up on the M and A pipeline. Do you have any appetite for a large acquisition in one that you could fit into one of your industrial product lines? So, our acquisition pipeline is pretty good as it always has been, particularly in the small to medium size acquisitions. And as it relates to all the acquisition activity in 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. Thank you. Our next question online comes from Mr. Vincent Andrews from Morgan Stanley. Hi, this is actually Steve on for Vincent. Just have a quick question on SG And A. Last quarter, you guys broke out reconciliation versus SG and A to adjusted SG and A. And, I was curious if you could maybe bucket this quarter where some of your MAP to Growth initiatives stood in COGS first SG And A? Sure. Just broadly, First of all, our 3rd quarter and we highlighted that given its seasonality is all over the place. So this quarter is down meaningfully from last year. There were lot of one time items. We are up 25% at the EBIT line from our FY 2017 third quarter EBIT. And so 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 And A, we mentioned in January about the long term incentive reversal last year in third quarter. We had a number of incentive comp reversals last year in Q3 as it became apparent that we were not going to 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 1,000,000 of dollars. We have communicated throughout the year that Gori's, and that has been true. And it was true again in the 3rd quarter, and it will be true in the 4th quarter. And then the last comment I would make is that All of these, and this is unique to RPM. We're seeing higher freight and distribution expense, which unique to RPM the freight out and distribution expense is reflected in SG And A versus most of our competitors that reflect that in cost of goods sold. And we're seeing higher labor costs pretty much everywhere, whether it's, in our core staff or in our plants. And so those are what reflect, the big swings in SG And A in what is a seasonally low quarter anyways. Okay. So just in regard to the restructuring charges specifically though, Is it possible you could break that out between COGS and SG and A or? Yes, I don't know that we've done that. We highlighted the restructuring charges. The 2 categories are all restructuring related, the 1st category, which Rusty, remind me is about $9,000,000. Yes, for the SEC. And so that's really charge on the income statement. Yes, what you can formally qualify or quantify is, for accounting purposes, restructuring. And then the other charges were principally professional fees. We have a significant fees with consultants. Alex Partners 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 And A. And 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 online comes from Ghansham Panjabi from Baird. Please go ahead. Good morning, Ghansham. Good morning, Frank. Good morning, everyone. I guess first off, on the 4.3 percent organic growth, can you sort of break that up between volume and maybe price mix? And then related to that Frank, I mean, a lot of companies have called out what unfavorable weather, particularly in January 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, a net organic growth on a consolidated basis, it's about 2% price. And the weather was a 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 competitor highlighted the rain and snow. And this is supposedly one of the wettest years since 1983. Weather happens every year and 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. But it was certainly an impact in the year. We're off to a good start in the spring. And, as long as we don't end up with a, very wet end of May 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. But that is most definitely impacted by weather. Perfect. That's very helpful. And 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, lower raw material costs, whatever way you want us to sort of think about that from a stack rank perspective? Yes, I would expect us to see the 1st quarter in about 6 or so, 7 quarters, where gross margins are flat to slightly up. And that's a combination of mix of business. It's a combination of our company's price efforts. And what we see is moderating raw material costs, our in our third quarter raw material costs against sequentially were improved by a couple percentage points, but we were still year over year up by mid high single digit rates. And so as we get into the 4th quarter, we'll start to annualize the significant increases started last year, started before last year in fourth quarter, but really were pronounced in the fourth quarter. And 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. And then just one final one on fiscal year 2020, if I could. I mean, understanding it's early, but at this point, what's reasonable for us as we've kind of tightened up our models to assume for core volume growth or core sales growth for fiscal year 2020? Then just as a clarification on Slide 5 towards the end of waste plant summary in your slide deck, you call out an annualized run rate to benefit 2020 of 100 $1,000,000. Is that fiscal year 2020 or calendar year 2020? Thanks so much. Sure. So the annualized run rate is fiscal year 2020. And 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. And so those issues will impact us And so we've got to make sure that, we continue to push our operating improvement initiatives that we can overcome as much of these headwinds as possible. I think if we're looking at 13% to 15% EBIT growth, in our fourth quarter. We would expect to see something in the neighborhood at 20% or maybe slightly higher EBIT growth in Q1 and that you should see that, hopefully accelerate, but 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 released 4th quarter earnings on July 22nd. Thank you. Our next question on line comes from Jason Rodgers from Great Lakes Review. Please go ahead. Good morning. Good 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 31 2020. And what is left to be done at that point would be small, 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. And, our Specialty Products group, under Steve Knoop's leadership had started ERP implementation consolidated into Microsoft D365 boy 15 months ago. So we're 2 thirds of the way through there. And it's something that our IT people are pretty adept at because in the last 5 or 6 years, we have regularly completely integrated acquisitions into the base system of whoever the core RPM acquiring company was. All right. And 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 4th quarter? Sure. Yes, so far this year, we have, through February 28, bought back about 2,800,000 shares. And in addition to that, we retired the convertible for mostly cash. So that took about 3,300,000 shares off the table. So, so far, 6,000,000 shares were down between repurchase and the convertible redemption. So you should see in our fourth quarter that magnitude of a decline in our diluted share count. And that's offset by stock vesting and awards, which will be a small offer. And then, just to follow-up earlier on the SG and A question, do you have an adjusted it SG and A number for the quarter? Because that was in the slides last quarter, but I didn't see it this quarter. Yes. No, we did not. And again, it's in relationship to all the moving parts in the quarter, and given the seasonality of the of the third quarter. I think the other thing that negatively impacted us in the third quarter, which Rusty commented on, but we could quantify a little bit better. In our Specialty Products group, the new Dura 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 3rd quarter. And so they're accentuating our quarterly seasonality. I think their revenues we disclosed at about $50,000,000 when we acquired them. And And then the other, element in specialty that particularly impacted our third quarter is we're accelerating our investment in drive at Brick. And, it's an exciting new product. Year to date, we have about $2,000,000 in sales and $5,000,000 of operating losses. Almost half of that was in the 3rd quarter. We have plans to automate most of their production, and that's going to be a blockbuster decline, at some point, that's our plans. But if it does not turn out that way, those are operating losses that could easily be eliminated. Okay. Thank you. Thank you. Next question online comes from Mr. Kevin McCarthy from Vertical Research. Good morning all. With regard to your slide number 5, how much of the $104,000,000 in run rate savings would you expect to actually hit the income statement in fiscal 19? I think we'll have a better sense of that, Kevin, in July, and we'll communicate, that to folks. And I think it really depends on also how much of that run rate is experienced in our fourth quarter. And so that's an annualized run rate that we expect to be at as of May 31. There'll be portions of that that will benefit our 4th quarter. And then of course, there'll be portions of wave 2 that should benefit the 2nd half of the 2020 fiscal year. And 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. 2nd, 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 6 months, some of the upstream silicone products seem to have as well. So 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 and 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%. And so, but as I mentioned earlier, sequentially, the 3rd quarter was the 2nd quarter row where we've seen sequential improvement, in our base top raw materials. But we're still, year over year, up high single digits. And so we're gaining on, 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 8 different vendors and we consolidated down to 2 or 3. And it's moved significant volume to strategic partners, and it's moving volume away from either smaller or less inclined to cooperate, suppliers. And so it's been an interesting process for us. It's having good results. Okay. And then 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 4th quarter? Yes, Kevin. On investment income line, you'll see we were down about 700,000 from last year. So the performance was not as good as a year ago. Obviously, a lot happened within quarter because December markets took a nose dive and recovered in January February. As far as the fourth quarter goes, I think based on the trend of the last 3 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. So to the extent, it's an issue. We will certainly highlight that after the fourth quarter. Sure. And we'll work, 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. And as I mentioned in January, The equity portfolio of our captive insurance companies that this applies to is about $100,000,000. And so 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. Thank you. Our next question on line 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. Was wondering if you can 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 Carbon business, which serves energy markets pretty broadly. Oil and gas, and pipelines, refineries, windmill, windmill blades, And so they have various product lines that are focused on either pipelines, which is in ground or associated with chemical facilities. Our fiber grade business, which provides, FRP grading, which is corrosion weather resistant has had a good result in the energy markets as well. So those are the principal product lines. And looking pretty sustainable going out through the next couple of quarters? Yes, we think so. I mean, obviously raw material not raw materials, oil prices have been volatile, but as the folks on this call know, there was a period of time when the oil industry and the energy market cut back meaningfully, not only on expansion, but on maintenance. And it feels like we're back to a normal maintenance spend period of time. Okay. And then I wanted to also ask about the consumer business. You alluded in the past to some contracts that were keeping you from raising price, and 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. And the last areas of RPM, to get, some price increases happening in our consumer businesses at the end of our 3rd quarter. And so that will help our 4th quarter. And it's much needed and trailed the rest of RPM. All right. Thanks very much. Thank you. Thank you. Our next question online comes from silica Cusick. From JPMorgan. Please go ahead. The first question I have is a cash flow question. So, in your press release, it says like year to date, your map related, initiatives was sort of like a $0.50, headwind to or it was sort of like a you booked us up a nonrecurring item and so maybe that's like $80,000,000 or $90,000,000 pretax. What do you expect in the 4th quarter in terms of charges? And And what are the cash outflows related to that that may still have to come? Like did you already spend all of it or what are the outflows that may come in the 4th quarter or next year? Yes, there 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 or 8000000 dollars 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. And then the charges that we will continue to incur, particularly in fiscal 2020, will be related to plant closures and or distribution consolidation. And 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. So we would expect to see those costs continue in 2020. In July, we will provide more detail by category of our expected closures, closure costs and what are 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 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. Okay. I think previously we had talked about a total program cost in the $120,000,000 to $140,000,000 range. And the cash costs being in the $80,000,000 to $90,000,000 range. And 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, the second question I have is, related to the, Restolium And True Value Initiative, that was just like put in place. So it's something that's new, it's best to understand. And true value has, I don't know, 4 1500 stores, something like that. And what's the sell through that you expect? Is it something like $10,000 a store and the opportunities like $45,000,000 or that's way too optimistic or it's way too low? Or is there like any additional color that you may have? Yes, not really. I mean, without being disrespectful, it's kind of way too in the weeds. And 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. But I had commented earlier we had picked up market share in the hardware store chain, in small project paints with our consumer segment. And that's been, true and that should benefit our 4th quarter, and that we've also regained some, big box, share that was lost last spring and some of that's coming back to us. So the consumer businesses are doing a nice job in managing their categories, which we lead in and, and, 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. And that's allowed us to gain share in hardware and regain some lost share in big box. One other way. So if I look at your 4th quarter guidance and I look at the guidance for the consumer group for the 4th quarter, do you think the underlying demand is something like 2%. If you like strip out what the business wins may be and what in pricing sort of like 2%, or do you think it's better than that? Or worse than that? Our forecast for the fourth quarter consumer is in a mid to high single digits. That'll all be organic. It'll all be organic. It includes the price and business wins. That's correct. And so, it should be a solid 4th quarter, for our Consumer segment. I mean, 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 fair. Yes. The last question, I have it on the Specialty segment. You said Nudura is like in annual sales, like maybe $50,000,000 and it's seasonally slow in the February quarter. And then it's probably a more normal quarter in, for the May quarter. And so if you were to get, I don't know, like, $10,000,000 or $12,000,000 in Ngodura related sales, like that would be like 5% growth in the specialty segment. So why is your outlook so, conservative in terms of modest growth? Yes. I mean, the acquisition benefit would be 5%. No, I mean, we build that up from our businesses. And in our Specialty segment, it's a real crosscurrent of fluorescent pigment. I mean, you know all the different product lines. I think they're expecting modest single digit growth. And, 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. So that will impact the sales growth. And 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. So that impact me. Tail off a bit too. Thank you. Our next question on the line comes from Steve Byrne from Bank of America. Please go ahead. Good morning. Good morning. Frank, when you rolled out the MAP to Growth initiatives last fall, you put out some margin targets were you anticipating some slippage in margins in this fiscal year? And what's your level of conviction on hitting that 16% EBIT margin looking out 2 years? Sure. I think that's a great question. And, I think we and our whole industry experienced some challenges this year that we did not fully anticipate. So, when we get to the end of our current fiscal year at May 31, I think people are seeing and we'll start to believe the good momentum that we're building, but 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. And the element of that is not a function of if we get there, it would really be a function of timing. So are we going to get there on exactly the timing that talked about. And then 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 November, versus where we're going to end up the year. And just to expand on that, Frank, when you say that potential additional savings, are you looking at different areas to potentially integrate. I don't know whether it's, facility headquarters or or distribution or commercial, are you looking at some other levers to pull? Not necessarily. We do have some opportunities in G And A that we're looking at. I think the other area that we're excited about and this is not going to happen, as of the December 31, 2020 or even May 31, 2021 timeframe. But the, manufacturing improvements and continuous improvement initiatives that we're rolling out are having a really good effect. And when the MAP to Growth timeline stops relative to the communicated kind of target finish line that we have, our continuous improvement programs will not. And there's some growing enthusiasm about our ability to add to that $75,000,000 manufacturing and operations target. It's outside of our MAP to Growth timeline, but it's real. And so, there's a lot of enthusiasm there in A lot of the things that we're doing, when they're effective will not only impact margins relative to financial targets, but we'll 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 and that will continue beyond this program. And 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. And, as it relates to the new resources, Gordie Hyde, leading our manufacturing and operations efforts, we have added for process engineers, on the corporate staff that work directly for him. We have, in the procurement side taken, 4 or 5 of our top procurement people out of our operations, put them on the corporate payroll, and we've added an additional resource there. And so 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. And thank you. Our next question online comes from Arun Ms. Waseem from RBC Capital Markets. Good morning. Good morning. Frank, how 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 raws still kind of settling down. Is that a fair, I guess, assessment And would you think that you need to go out with further pricing as the year goes on? So should we expect kind of a increasing, contribution from price in future quarters or how should we think about that? Sure. That's a great question. And, so 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. And the last pieces, as I mentioned earlier, were in consumer. So 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 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 United States, relative to employment, labor costs, and it'll be interesting to see how that plays out as well. Okay, thanks. And 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 kind of a moderation in those competitive pressures, and any benefits to you guys, have you been able to place any more volume of everything And then as a second part of the question, if it's not, 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 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 which tamped down a POS. I mentioned earlier on the call, the early read on, consumer takeaway is pretty good. So the 1st couple of weeks of our fourth quarter seeing real strong POS and small project paint. And combined with, market share gains, we should have a a nice recovery in our consumer business. I would remind folks that we also took out a significant chunk of SG And A And Consumer in the fourth quarter of last year. And, 2 of the plant closures that we have announced and have been completed. We're in our consumer segment. So 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 is the start of the 1st or the 4th quarter than we've seen in 4 or 5 quarters. And so it's all all point 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. And just lastly, 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? And then maybe can you just give us one line or 2 industrial in North America and Brazil, and if you're feeling any encouragement by those markets or offset by those markets? Sure. We don't anticipate things improving in Europe. And 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, think that we're seeing some spikiness from 1 month to the next. And in this case, I think it's good, particularly in Brazil, full 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. And so 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. Thank you. Our next question online comes from Mr. Kevin Hocevar from Northcoast Research. I'm wondering, just wanted some clarification on Slide 5. The new year to date estimate run rate of 104,000,000 up from the initial target of $83,000,000. Is that and you maintained the $290,000,000. Is that implying then that you're realizing savings faster and perhaps pulling some savings forward from future waves. And that's the reason for the raise. Or are these are you generating more savings than you initially expected, which could be incremental? That's a great question that we struggle with here. And 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 4 months, 5 months that we're not only ahead of the curve in terms of timing in the 1st phase, but that we're actually adding to the whole program. So I think in 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 will 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. And then in the guidance, you give an expectation for consumer segment, margin recovery starting in the 4th quarter. But didn't mention that, any similar verbiage in the other segment. So the expectation that those other segments have flattish or something like that margins, were consumers really the one that's going to see the nice improvements there? No, I would expect see margin recovery in all three of our segments in the 4th quarter. It will be a function of a mix in part. So the elements that are impacting our gross margins are really three things. They're raw material cost headwinds. Which year over year continuing, that should start to mitigate as we get into the fourth quarter and the rest of 2020. The impact our price increases and the positive impact of our MAP to Growth initiatives. So 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 1st to, execute on SG and A cost cutting and, that our first plant closures out of the box for any consumer as well. And we'll also be annualizing a easier comp, both in the fourth quarter 1st quarter. Okay. Got you. Very helpful. Thank you. And thank you. Our final question comes from Mr. Mike from KeyBanc. Please go ahead. Good morning Mike. This is Brandon on for Mike. How are you guys doing? So 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 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 suggests that that's going to continue to be positive. And 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 new Dura business growth in cooperation with our Tremco businesses. The AlphaGuard roof restoration product is continuing to grow at double digits. And so 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. So we see that as positive. And 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. 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 4th 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, and have a great day. And thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating.