Earnings Call: Q4 2021

Jul 25, 2021

Welcome to RPM International's Conference Call for the Fiscal 2021 Fourth Quarter and Year End. Today's call is being recorded. This call is also being webcast and can be accessed live or replayed on the RPM website atwww.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 this risk 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 session. Then the number 1 on your telephone. Please note that only financial analysts will be permitted to ask questions. At this time, I would now like to turn the call over to RPM's Chairman and CEO, Mr. Frank Sullivan, for opening remarks. Please go ahead, sir. Thank you, Angelica. Good morning, and welcome to the RPM International Inc. Investor Call for our fiscal 2021 Q4 and for the full year ended May 31, 2021. With me on today's call are Rusty Gordon, RPM's Vice President and Chief Financial Officer and Matt Radicek, Vice President of Global Tax and Treasury, who supports our Investor Relations activities. On today's call, I'll provide details on the Successful completion of our MAP to Growth operating improvement program. Matt will then review our 4th quarter results in some detail, And Rusty will conclude with comments on our outlook for the first half of fiscal twenty twenty two. We'll then be pleased to answer your questions. On our April investor call, we referenced rising inflation across our P and L at structurally high single digits with some select spikes of 150% to 200%. Some on our call today thought that by now Raw material costs and availability would have gotten better to the point of pressure from some customers to get back price. That was wrong in April and way wrong today. Raw material costs have increased to levels on average in the high teens. More importantly, certain critical raw material shortages Across our industry are negatively impacting our ability to produce and meet market demand. In Q4, This raw material availability cost us an estimated $100,000,000 in revenue. It's likely to cost us more in Q1 and we anticipate having more raw material availability lost production days in Q1 this year than we had from the impact of COVID shutdowns in Q1 last year. These challenges notwithstanding, thanks to our successful MAP to Growth operating improvement program, we generated strong results Our full year consolidated sales increased 11% to $6,100,000,000 Our EBIT margin increased by 150 basis points and adjusted EBIT was up 26.5%. Operating cash flow climbed nearly 40 percent to a record $766,200,000 and our adjusted EBIT margin climbed to 12.8%, was also a record. Our MAP to Growth program has been the principal driver of this strong financial performance. The successful execution of our MAP to Growth operating improvement plan, especially in light of the incredible disruptions caused by the COVID pandemic And more recently by unprecedented supply chain challenges is a true testament to the dedication and resilience of the RPM Associates Worldwide. At the program's onset, we recognized that RPM had reached the point where a center led approach in selected areas of the business was required to take it to the next level of growth. In manufacturing, we formed a center led team that has This team launched our MS-one hundred and sixty eight manufacturing system, which is allowing us to produce better products more quickly, more cost effectively and more sustainably. In addition, we reduced our global manufacturing footprint by 28 facilities, Consolidating production to more strategically advantageous plants. Our original target was 31 plants, The consolidation efforts were slowed by the COVID pandemic. We expect to exceed the original target in the coming year. We also created a center led procurement team that has consolidated material spending across our operating companies, negotiated improved payment terms with our supplier base And it's helped us reduce working capital. These initiatives have created 1,000,000 of dollars in cost savings. With stronger supplier partnerships, Longer term contracts, we are in a much better position to secure necessary raw materials and control costs through the current raw material supply shortages than we would have been just 3 years ago. Additionally, we took steps to streamline many of our administrative functions. Through our financial realignment, we consolidated 46 accounting locations, Improve controls, develop more effective and efficient accounting processes and reduce costs. Similar initiatives were undertaken in our IT infrastructure We have migrated 75% of our organization to 1 of 4 group level ERP platforms. Additionally, we have reduced number of data centers we manage by shifting systems and hardware to the cloud and we are creating a number of platforms for Centralized data driven decision making. Over the course of the 3 year MAP to Growth program, we have returned $1,100,000,000 of Capital to shareholders through a combination of cash dividends and share repurchases. Aside from a significantly improved profit margin profile and Stronger cash generation is reflected in the cumulative total return generated by RPM, which has exceeded our peer group over the 3 years of the MAP to Growth program. The lasting legacy of our MAP to Growth operating improvement plan is a revolutionary change in how people work together at RPM. Our operating company leadership is managing today with a broader view of RPM as a whole, allowing us to better leverage resources. Another permanent change has been the operational disciplines we develop that will continue to generate improvements in Profitability, cash flow and operating efficiency well into the future. Perhaps more significant has been our ability to maintain our unique growth oriented culture, evidenced by the fact that our revenues continued to grow at or above industry averages throughout the MAP to Growth program. The real heroes behind the MAP to Growth success were our associates worldwide, particularly our frontline workers who kept our manufacturing and Distribution centers operating during the COVID pandemic. We also owe a debt of gratitude to my good friend and one of RPM's great operating leaders, Steve Canoop, who is Architect of the NAFTA Growth Program and passed away prematurely in 2019. Additionally, I'd like to recognize Mike Sullivan, Vice President of Operations and Chief Restructuring Officer Tim Kinser, Vice President of Operations Procurement Gordy Hyde, Vice President of Operations Manufacturing, who successfully executed the program with an Tense focus and strong leadership that we're integral to delivering these results and instilling a permanent focus on operating efficiency and Continuous improvement into our culture. While we have reached the 2020 MAP to Growth conclusion, There will be some runoff from the MAP to Growth program in fiscal 2022, during which we expect to capture approximately $50,000,000 in incremental savings. We will also be leveraging the lessons learned from this program to chart a course for 2025. Over the next 6 to 12 months, we will be working on a MAP 2.0 program in conjunction with our operating leaders. We remain fully committed to achieving our long term goal of a 16% EBIT margin, and we will be sharing more information about our progress for I'd now like to turn the call over to Matt Radicek, who will discuss our Q4 results in detail. Thanks, Frank, and good morning, everyone. Please keep in mind that my comments will be on an as adjusted basis. For Q4, we generated consolidated net sales of $1,740,000,000 an increase of 19.6% compared to the 1,460,000,000 reported in the year ago period. Sales growth was 13.9 percent organic, 2.2% the result of recent acquisitions and 3.5% due to foreign currency translation tailwinds. We were very pleased with the strong top line growth Thanks to our center led procurement team, improved internal collaboration and the leveraging of internal resources to get materials where they are most needed. Adjusted diluted earnings per share increased 13.3 percent to $1.28 compared to $1.13 in the fiscal 20 2Q4. Our adjusted EBIT was $236,200,000 compared to $213,600,000 during the year ago period, which was an increase of 10.6%. Keep in mind that last year's Q4 was impacted by the pandemic's onset, Which created the extraordinary situation where our non operating segment reported a profit due to lower medical expenses, Incentive reversals and other factors. On the other hand, during this year's Q4, we experienced higher insurance costs due to business interruptions created by hurricanes and the winter storm Yuri as well as higher incentives tied to improved performance. If you exclude the impact of our non operating segment from both years, our 4 operating segments combined Generated impressive sales growth of 19.6 percent and adjusted EBIT growth of 27.5% as they overcame Margin pressures and supply availability challenges. Turning now to our segment performance for the quarter. Our Construction Products Group generated record results. Construction, maintenance and repair activity accelerated in the U. S. During the quarter and even more so in international markets. Construction Products Group net sales were a record 629 400,000 during the fiscal 2021 Q4, which was an increase of 33.2% compared to fiscal 20 2Q4 net sales of 472,400,000 Organic growth was 28.4 percent and foreign currency translation provided a tailwind of 4.8%. Leading the way for the segment were businesses in North America that provided commercial roofing materials and concrete admixtures and repair products as well as our European businesses, all of which generated record sales. Demand for our Nudura insulated concrete forms remained at elevated levels due to the relatively low installed cost, in addition to their environmental and structural benefits as compared to traditional building methods. Adjusted EBIT was a record $110,400,000 compared to adjusted EBIT of $77,300,000 reported during the year ago period. This represents an increase of 42.7%. The bottom line was boosted by volume leveraging, Savings from our MAP to Growth program and higher selling prices. Our Performance Coatings Group also benefited from the release of demand for the construction, maintenance and repair of structures in the U. S. And abroad, which it leveraged into strong financial results. The segment's net sales were $283,300,000 during the fiscal 2021 Q4, which was an increase Of 20.5 percent compared to the $235,100,000 reported a year ago. Organic sales increased 12.9% and acquisitions contributed 2.9%. Foreign currency translation increased sales by 4.7%. This segment has been particularly challenged through the pandemic because of its greater exposure to international markets The oil and gas industry as well as a greater reliance on facility access to apply its products. Points of strength in the Performance Coatings Group Businesses providing commercial flooring systems and North American bridge and highway products as well as recovery in its international businesses. Adjusted EBIT was $31,000,000 during the Q4 of fiscal 2021 compared to $23,700,000 during the year ago period, representing an increase of 31.2%. Segment earnings increased due to higher sales volumes, the MAP to Growth program and pricing, which helped offset raw material inflation. Our consumer group reported record net sales of 600 $28,900,000 during the Q4 of fiscal 2021, an increase of 2% compared to net sales of $616,200,000 reported in the Q4 of fiscal 2020. Organic sales decreased 3.8% Since this was the Q1 in which we comped against the surge in demand at the beginning of the pandemic. Acquisitions contributed 3.8% to sales, Foreign currency translation increased sales by 2%. During the 1st 3 quarters of this fiscal year, our consumer group sales and earnings have grown rapidly As it served the extraordinary demand for DIY home improvement products by consumers who were homebound during the pandemic. As more Americans became vaccinated and were no longer confined to their homes, DIY home improvement activity began to slow from its torrid pace During the quarter, though the pace of sales remained higher than the pre pandemic levels. In international markets, many of which still have stay at home orders in place, they remain quite strong. Fiscal 2021 Q4 adjusted EBIT was $93,600,000 a decrease of 10.4% compared to adjusted EBIT of $104,500,000 reported during the prior year period. Helping to partially offset the cost pressures were selling price increases and savings for our MAP to Growth program, some of which were invested in advertising programs to promote new products. The Specialty Products Group reported record net sales of $202,800,000 during the Q4 of fiscal 2021, which increased 49.9% compared to net sales of $135,200,000 The fiscal 2024 quarter. Organic sales increased 46.2 percent, While acquisitions contributed 0.7% to sales and foreign currency translation increased sales by 3%. For the Q2 in a row, our Specialty Products Group generated the highest organic growth among our 4 operating segments. Its results have improved sequentially over the past three quarters with excellent top and bottom line results by nearly all of its businesses, Including those providing coatings for recreational watercraft, OEM equipment, wood, Food and Pharmaceuticals as well as cleaning and restoration equipment and chemicals. Adjusted EBIT was a record 30 in the prior year period. Its record results were driven by recent management changes, increased business development initiatives and improving market conditions. Lastly, I have a few comments on our liquidity. Our fiscal 2021 cash flow From operations, as Frank mentioned, it was a record $766,200,000 compared to last year's record of $549,900,000 This is primarily due to continued good working capital management and margin improvement initiatives for our MAP to Growth program. At year end, our total liquidity was $1,460,000,000 and included $246,700,000 of cash and $1,210,000,000 in committed available credit. Our net leverage ratio is calculated under our bank agreements was 2.17 as of May 31, 2021. This was an improvement as compared to a 2.89 a year ago. With a healthy balance sheet, we continue to use some of our record cash flow to reduce debt. Total debt at the end of fiscal 2021 was $2,380,000,000 compared to $2,540,000,000 a year ago. And as Frank mentioned, we are also investing more aggressively in growth initiatives, including advertising, operating improvements and acquisitions. Plus, we are rewarding our shareholders through our cash dividend and our stock repurchase program. Since the beginning of 4th quarter, we repurchased approximately $38,000,000 of stock. I'll now turn the call over to Rusty for comments on our outlook. Thanks, Matt. As we discussed last quarter, various macroeconomic factors are creating inflationary and supply pressures on some of our product categories. As a result of the lag impact from our FIFO accounting methodology, we expect that our fiscal 2022 first half performance will be significantly impacted by inflation throughout our P and L, which is currently averaging in the upper teens. We are working to offset these increased costs with incremental MAP to Growth savings and commensurate selling price increases, which we will continue to implement as necessary. More importantly, the limited availability of certain key components is negatively impacting our ability to meet demand. Our most significant challenge for the first half of fiscal twenty twenty 2 will be in our consumer group. Several factors are compressing margins in this segment. First, selling price negotiations took Supply of raw materials, several of which are severely constrained due to trucking shortages or force majeure Being declared by suppliers has led to intermittent plant shutdowns and low productivity. Lastly, the consumer group has outsourced production in several cases to improve service levels at the expense of margins. To address these first half margin challenges, the consumer group is cutting costs and working with customers to secure additional price increases. We expect that our other three segments will successfully manage Supply challenges to continue their robust top and bottom line momentum from the 4th quarter and Into the first half of fiscal twenty twenty two. Turning now to Q1 of fiscal 2022, We expect consolidated sales to increase in the lowtomidsingledigits compared to Q1 of fiscal 2021 when sales grew 9% creating a difficult year over year comparison. Additionally, supply strength has slowed production in some product categories. Despite these factors, our revenue growth is expected to continue in 3 of our 4 segments. We anticipate our Construction Products Group and Performance Coatings Group To generate sales increases in the high single or low double digits, the Specialty Products Group is Expected to generate double digit sales increases. These sales projections assume that global economies continue to improve. Sales in our consumer group are expected to decline double digits as it continues to experience difficult comparisons to the prior year when organic growth was up 34%. However, the consumer group's Fiscal 2022 Q1 sales are expected to be above the pre pandemic record, indicating that we have Expanded the user base for our products since then. We expect our Q1 adjusted EBIT To grow in 3 of our 4 segments with the exception again being our consumer group, Based on the anticipated decline in this one segment, our Q1 consolidated adjusted EBIT Is expected to decrease 25% to 30% versus a difficult prior year comparison When adjusted EBIT in last year's Q1 was up nearly 40%. Moving to Q2 of fiscal 2022, we expect good performance again with the exception of the consumer group. As discussed earlier, the challenges in this segment are anticipated to result in a significant decline in adjusted EBIT against difficult prior year comparisons when sales were up 21% and EBIT was up 66%. We anticipate that the Q2 decline in consumer will be mostly offset by the combined EBIT growth in our 3 other segments, leading to consolidated adjusted EBIT Adjusted EBIT was up nearly 30%. After we work through the temporary supply chain challenges, We expect to emerge with a consumer group that has broader distribution and a larger user base than it had pre pandemic. For our other three segments, good results are expected to continue due to recent strategic changes And our Specialty Products Group continuing to pay off and the catch up of deferred maintenance driving additional business at our Construction Products Group and Performance Coatings Group. This concludes our formal comments and we will now be pleased to take your questions. Call. Our first question comes from the line of John McNulty from BMO Capital Markets. Your line is now open. Yes. Good morning, John. Good morning, John. Good morning, Frank. Thanks for taking my question. So I guess the first one would just be in terms of the pricing that you need for each of the divisions, can you kind of walk us Through how we should be thinking about that and the timing of which you hope to kind of implement some of these price increases just so we can kind of measure that versus The timing of the raw materials and when they may kind of level off? Sure. So in Q4, on average, based upon the timing of the effectiveness of Various price increases that we negotiated this spring, the effect was about 3% in Q4. And we would expect or anticipate at this point that the effect of pricing in Q1 will be in the 5% to 6% range. And that's based upon price increases that are in effect at this point. And we are going forward with additional price increase activity in the next month across a lot of our different businesses. Mike will report obviously in Q the Q1 results when we report those results in October, But we are pursuing additional price increases in consumer, in particular as well as other parts of RPM On top of what's already been enacted. Got it. That's helpful. And then when we look at the construction business, the growth The growth is pretty chunky, but admittedly there's a lot of wish to weird comps that we're trying to deal with. I guess is there a way to think about how much of it is just The core business coming back first, how we should be thinking about market share gains and what you've been doing there? Sure. Our Construction Products Group Just completed its 3rd consecutive year of strong sales growth, very strong EBIT margin improvement And it's driven by market share gains, the introduction of new products and the integration of what were a collection Very often kind of independent operations and you're going to see more to come. We enter the Q1 with really good momentum in our Construction Products Group, our Performance Coatings Group and our Specialty Products Group. Some of that momentum is being disrupted by the supply chain and really raw material availability issues that Matt and Rusty referenced. We literally have had weeks of lost production days Because of the lack of availability of certain critical elements and we're not that you'd see stronger growth than we even project. So we're likely in the Construction Products Group to be up in the 9% to 12% range in terms of sales for the quarter. And the demand is higher than that. And the good momentum that we've had for 3 years is continuing. You'll see after Q1 a return to Solid growth and margin enhancement in our 3 non consumer segments. Got it. And maybe I can sneak one last one in. With regard to cash flow, I mean, you've certainly seen a big improvement in the cash flow since MAP to Growth was really put in place. I guess, can you speak to how we should be thinking about the M and A opportunities that you can look at as you look at 2022 Versus buybacks and how we should be thinking about cash being returned to shareholders? Sure. We Continue to have a pretty strong pipeline of kind of our typical small to medium acquisitions. So we'll pursue those and get them done where we can. We've commented in the past on larger transactions and we are committed both to achieving the original MAPTA growth goal of a 16% EBIT margin and a return of capital between dividends and share repurchases of $1,500,000,000 through May 31, 'twenty one, our total return of capital as measured in the MAP to Growth program was 1,000,000,000 So a little short there. So we will balance those, but we've got a much stronger cash flow That we had 3 years ago to be able to have fun with that balance in terms of how we return capital to shareholders and continue to pursue growth. Got Thanks very much for the color. Thanks, John. Our next question comes from the line of Mr. Frank Mitsch from Fermium Research. Good morning, Frank. The line is Hey, good morning, Frank. I was struck by the comments regarding higher ad spending. Should we anticipate that the Guardian Protection Products part of Specialty Products will be the official sponsor of the Cleveland baseball team? That's a great suggestion. But we have not looked into that yet. But Certainly, there's a nice connection there and go Guardians. Oh my goodness. That's going to take a long time to get used to. Really interesting that you got impacted by $100,000,000 in the fiscal Q4 because of raw material availability and you expect an even higher Impact here in the Q1, you kept mentioning critical components, etcetera. Can you identify what some of those critical components are so we can kind of track on the outside as to When companies are lifting force majeures, etcetera? Sure. So some of them are specific to Critical elements in our roof restoration coatings and certain intermediate chemicals have been unavailable, which has caused us The shutdown production for in one case as long as 5 days. And so we find ourselves in a number of these areas Sourcing raw materials that were readily available in the United States that had been Drafted by this winter storm, Yuri, the power outages in Texas and the lack of investment that happened during COVID. And so we are now finding replacement products typically in Asia, sometimes at higher This is obviously a longer supply line because they got to show up on a boat. When they get to Long Beach, California, they can sit 3 or 4 weeks because of disruptions there. Another element, again, this is in construction products, is on traditional Rerooking projects, not a roof restoration, but traditional black line and felts. I think it's no surprise The people that there is a shortage in foam. It's disrupting, for instance, seating in the furniture markets and in the automotive seating area. And it also finds itself in the roofing where you can have all of your materials shipped and sitting outside of a school building or a hospital Waiting for foam board insulation, which is on back order in a lot of places. So those are a couple of instances in the more industrial side. On the consumer side, unfortunately, there was an accident at a major alkyd resin producer in the United States that represented almost 30% of alkyd resin production, that's a particularly critical raw material for our small project paints Category and spray paints category in our consumer business. Again, we're looking at qualifying replacement Product from Asia and other areas, longer supply lines, higher costs. And so all of these are temporary, but they're certainly temporarily causing a pretty big disruption in our consumer business. Understood. And as you sit here today, now obviously 3 months ago or 4 months ago, you were anticipating high single digit increases in raws and now it's coming in at upper teens and that's very consistent with what we're hearing From other folks, what gives you confidence that perhaps that's going to moderate as we get into the second half of fiscal twenty twenty two? Or is that not part of your thinking? I think that's part of our thinking. We've been successful in instituting price increases. We still have some MAP to Growth benefits. And I think the biggest challenge we're facing is the disruptions from materials. And again, I can go on for an hour of MDIs and Pentas and MMAs and you name it. I'm a finance guy, not a chemist, but I'm learning a lot about chemistry. And I think as we get into the second half, the momentum that we have in terms of product demand, market demand, the benefits from our MAP to Growth program Will certainly serve us well. The other comment I'd like to make is, while we're going to have a very difficult Period in our consumer segment for the reasons we talked about in Q1 and Q2, our current estimate is on the top line will be about 12% ahead Consumer in the first half of where we were 2 years ago in our fiscal twenty first half. So a 2 year over the pandemic Expansion of 12% would indicate that we have expanded our customer base. We're excited about that. And Some of these things are they're temporary, but I don't envision them being corrected until we get into the winter months or early spring of next year. Got you. Thanks so much. Thank you. Our next Question comes from the line of Rosemarie Morbelli from Gabelli and Company. Your line is now open. Thank you. Good morning, everyone. Frank, you just mentioned the fact that you are looking at Small to medium size M and A, you have mentioned in the past that following the MAP program, You would be able to consider a larger acquisition. So are we waiting do you think it makes Sense to wait until you have gone through MAP 2.0 before you can actually look at something substantially higher than what you have been doing recently? No, I think we need yes, no, I think that's a good question. And I think we need to Solidify where we are in this supply chain environment, certainly before we bring out Publicly details of a MAP 2.0, but we have made significant strides in particular in our construction products group And in our consumer group such that I think we have the talent and the capabilities To integrate a larger transaction if one were to be available at the right price. And obviously, at today's price If you don't have the ability to drive synergies, you can't be competitive. And so in those two areas, I think we're getting there. But solidifying the supply chain challenges now is going to be important for everybody in terms of You can talk about long term goals, but the ground is shifting a little bit and it's going to shift for a couple of quarters until the supply chain If you become more clear. Okay. Thank you. That is very helpful. And then looking at the consumer, It seems as though the difficult comparison on the DIY and then some of us are going back to the office And so on. So it is it makes sense that it will slow down and decline in the U. S. On a year over year basis. But you mentioned that it was stronger internationally. So when do you think that international DIY is going to be faced with the same comparison issues? I don't know that we'll have the same comparison issues internationally That we have in the U. S. In part because of market share. We tend to be the leader in every one of the categories that we operate in, in our Consumer segment in North America and that is not true in the UK and Europe, which is our next biggest Market and certainly not true in export markets like Latin America or in Asia. So we don't anticipate seeing The same year over year challenges in those markets because of our smaller market share and also because of the smaller sizes. The real challenge will be, again, on the raw material side and the cost side. I think we're pretty comfortable with When we finish the year, we'll be substantially ahead in terms of sales and unit volume of where we were 2 years ago pre pandemic And just need to work on the product availability and cost side. All right. Thank you. Thank you. Our next question comes from the line of Ghansham Panjabi from Baird. Your line is now open. Good morning, Ghansham. Thank you. Good morning, Frank. Good morning, everyone. Maybe just following up on the last question. So your guidance for the fiscal Q1 for consumer is down double digits in terms of sales. How much of that should we sort of think about in terms of raw material accessibility in terms of the impact on there? And then how would you Characterize what I'm sure is going on, which is just an inventory adjustment at the customer level as well. I'm just trying to get a sense as to what The true underlying demand as we cycle into 2Q and beyond looks like that segment. Sure. Our estimate across RPM is probably for another $100,000,000 of lost revenue And it's predominantly in Construction Products and Consumer. As I commented earlier, Material outages, components of construction products or roofing projects are Kind of impeding opportunities for sales that are in the market. Certainly, that's true based on our momentum and what we've Accomplish and that's continuing. It's also true based on incredible stimulus. Cities, counties, states I got 1,000,000,000 of dollars and a lot of it's being applied towards infrastructure and renovation in school buildings in areas where we're very strong. On the consumer side, it's pretty much the same thing. We have lower than Anticipated or expected fill rates principally as a result of this alkyd resin disruption and We're working hard to meet that. And so that's part of the cost issue. Our principal goal here is to meet demand Quite candidly, at whatever additional cost we need to in the interim. And then we'll get out of tolling. I believe our North American chemical supply chain will return and you'll see a significant improvement in our cost structure when those things happen. Okay, great. And then on the consumer additional selling price initiatives that you're pursuing, would that be more so a 4Q event in terms of sequential Improvement or should we anticipate something starting to hit in 3Q as well? I think that will hit Probably by mid Q2. We are working on additional price increases in a number of places, not just consumer For the end of August or September. Fantastic. Thanks so much. Thank you. Our next question comes from the line of Mr. Vincent Andrews from Morgan Stanley. Your line is now open. Thank you and good morning everyone. If I could just ask Frank, when you say 12% for consumer fiscal 22 over 2019 or over pre pandemic. How are you getting to that? Is that based on your order book? Is that based on sort of your sort of Qualitative assessment of the landscape or just sort of what's giving you that bridge? It's based upon the forecast that we've done internally for Q1 and Q2. And Internally for Q1 and Q2. And a big part of that, as we've already talked about in the call, is Not just a function of demand, but a function of what we think we can supply. And so clearly, it would be stronger if we weren't facing Supply disruptions. But we regularly do a rolling 2 quarter forecast with our Board. And based on that forecast, that's what's driving that assumption. Okay. And Rusty, could I ask Just to give us some directional ideas on what could happen to working capital in fiscal 2022, just obviously you have some Production constraints, but there's rising raw material costs and along those same lines. Now that naphtha growth is done or sort of the one time Stances associated with that done, so the earnings number should be cleaner or is there still some lingering stuff? And then lastly, if you have a CapEx number for this year? Sure. That's a number of questions. I'll address working capital first. We had a great year on working capital, Really the supply chain disruption has thrown a wrench in our efforts to reduce inventory. Right now, we're just trying to get our hands on inventory from any source we can so that we can meet customer demand. So that probably has stalled us during the supply chain challenge on inventory. On Payables, we've done a great job and we continue to have our procurement team negotiate better terms And that should continue to help us. Sticking with cash flow, looking ahead to fiscal 2022, we are Boosting our capital spending quite a bit to add capacity in a number of areas. We've talked a lot about Nudura. That's a product line that's growing by 50% to 100% each quarter. So we need capacity there, More in liquid applied roofing, which as you know, Vincent has grown year after year for us and also in our consumer business We continue to constantly build share year in, year out and we'll need capacity there. As far as the MAP to Growth program goes, we will have the incremental benefits. There will be a few charges as We plan to close a few plants and further new layer management. Our next question comes from the line of Mr. Kevin McCarthy from Vertical Research PA. Your line is now open. Good morning. Good morning, Brad. In your prepared remarks, I think you referenced The outsourcing of production in the consumer segment in an effort to improve service, albeit at the expense of margins. Can you talk through how much of your production is outsourced, how much was outsourced last year and whether Or not, you'd expect that to change in fiscal 2022. Just trying to get a feel for what the associated margin dynamics could be. Sure. I don't have an exact number there, but I can tell you that The outsourcing, in some case filling, in other cases working on new resin suppliers and qualification of new suppliers and of new suppliers and their formulas is costing us a couple of 100 basis points in gross margin. And those are Margin points that we hope to regain both with some of the investment Rusty is talking about and then eliminating Some of this outsourced tolling, both in some cases related to filling and in other cases related to Resin Manufacturing. And some of it will be, as I said, snap back of our traditional North American chemical Higher supply lines versus things that we're now procuring from Asia, which is A much longer lead time, more challenging freight costs. I won't get these numbers right, but containers which are Are principally controlled by China used to be a couple of $1,000 and now they're $20,000 I mean the freight has been a big issue here as well And particularly for our consumer group, whether it's ocean freight, it wasn't a big thing that's become bigger and more expensive, Trucking. And so as I had commented in the last quarter and it's true today and you're hearing it from every industry, Inflation is hitting pretty much every aspect of our P and L. Okay. That's helpful. And then apologies if I missed it, but what is your capital budget for CapEx for fiscal Goal 22 relative to the $157,000,000 that you spent last year? Sure. Related to the comments that Rusty made about Adding capacity, this year it will be around $220,000,000 Okay. Thank you very much. Thank you. Our next question comes from the line of Michael Stevens from Wells Fargo. Your line is now open. Good morning, Michael. Hi. It's actually Richard on for Michael. Hey, Richard. Just wanted to touch again on the inflation expectations. If you look at price increases that you're getting in the Q1 and going to push more in the Q2, do you expect you're going to be able to Grow EBIT in the second half of this fiscal year, given a lot of the issues impacting the first quarter Are largely transitory? Yes. We will be growing EBIT in the first Quarter and 3 of our 4 segments will be growing EBIT sufficiently in our Construction Products, Specialty Products and Performance Coatings to more than offset the decline in Q2 in Consumer. And then we fully expect to see EBIT growth across All four of our segments in the second half of the year. And as Rusty said, that presumes continued strong demand. And the only thing we see that would interrupt that would be some issues with COVID, because the demand across all our businesses is strong And both the demand dynamics that we see, the new products that we have in line And the massive amount of stimulus in the United States all indicate that it'll be a strong year and that It will be particularly strong as we get these supply chain challenges behind us. That's going to take a couple of quarters though. Okay, great. And then just a follow-up. On the MAP to Growth incremental savings of $50,000,000 this fiscal 2022, Can you remind us how that's going to flow through the segments? And I know you're working on the next leg, MAC 2.0. Maybe if there's anything you can give us in terms Where you're focused on there as well? Sure. I don't know that we provided how it would flow through the segments. A lot of flow around $10,000,000 to $12,000,000 a quarter throughout the fiscal year relatively evenly Except for the seasonal low Q3. And MAP to Growth 2.0 is something that we had targeted having Put out an Investor Day in November of 2018 for something around that timeframe. But given the massive disruptions of the supply chain challenges, I think I know that our decision is to Better solidify what's happening, have more certainty around our supply chains on a go forward basis And then come out, so probably in the spring with some more details on what we think of as MAP to Growth 2.0. Our next question comes from the line of Mr. Steve Byrne from Bank of America. Your line is now open. Good morning, Steve. Hi, good morning. Sorry to disappoint. This is Luke Washer on for Steve. Thanks for taking my question here. Frank, in the past, you've talked about the opportunities you see in driving top line growth, specifically as it relates to opening up new sales Channels identifying cross selling opportunities and expanding internationally. Can you talk more about how you're incentivizing your 4 segment meters to collaborate more than has been done historically. What have you changed that's really driving that top line sales growth that you're looking for? Sure. That's a great question. So the couple of things that we've changed and COVID helped drive some of this, although MAP to Growth was getting us there. We have a much more often and more collaborative across our group communications than we've had in the past. And we are measuring what we call connections creating value that we've been talking about for 10 years and improving for 10 years. Now very metrically across 2 categories. 1 is what's driving revenue growth in terms Technology transfer, channel sharing and or leads from one division to another. And then the other area is on the cost side where we've gotten much more efficient and cooperative in having 1 RPM company produce For another RPM company, give you just a couple of quick examples. All of our wood stains and finishes under the Varathane brand for Rust Oleum are Produced by our Wood Finishes Group. Dayglow, which is the world leader in fluorescent color is also a Really high performance in specialty producer of polymers and they're providing tens of 1,000,000 of dollars of polymers to other RPM companies. It's not just providing announced production, it's collaborating with those companies for unique polymers. We have a Specialty Coatings business or not Specialty Coatings, Specialty Chemical business called Arnett Polymers, it's part of Stonhard. Their growth Has gone from $15,000,000 to $30,000,000 in terms of supplying multiple RPM companies critical raw materials, chemical raw materials. As you might imagine, we're investing heavily in that given the supply chain challenges we have today. So I could give you Tons of examples, but we're measuring that a lot more concretely. We are finally having some really solid success And the introduction of the roof restoration coatings of Tremco through our consumer group channels into big boxes. We've mentioned that in the past. Unfortunately, our big kickoff introduction was in the spring of 2020. So it was disrupted by COVID. Post COVID, that is taking off. And so the potential for our construction products groups, roof restoration coatings, Sealants and concrete repair products into our consumer group, strong home center customers In the coming years, I think could be 100 of 1,000,000 of dollars. And so this is an area that we've spent a lot of time talking about And focusing on and now measuring that's going to produce some really good results for us in the coming years. Sounds good, Frank. And I wanted to touch a little bit on your MAP 2.0 program. I know you're going to be talking about that a little bit later, it sounds like. But is this really going to be an initiative to drive further margin to that 16% EBIT level that you've talked about? Or could we also see potential sales targets looking out 2025. And as you look at the MAP 2.0 program, are there less specific lessons that you learned from the original MAP 2 program that you're looking to take The MAP 2.0, any kind of examples of the learnings that you've had from the original program? Sure. So in the MS-one hundred and sixty eight or manufacturing area, COVID disrupted our ability to take these continuous improvement initiatives Into our small and medium plants. And so there's certainly tens of 1,000,000 of dollars of benefits That we were not able to get to that we would get to going forward. There is a whole another level of indirect spend That our procurement activities, which have been highly successful, have not gotten to. So that's an area for us. And then there are a number of areas on the revenue side and that will be much more a part of MAP to Growth 2.0, Well, we have some opportunities to really spend with a big growth. We have Our Cobco Industrial business, which has got some exciting opportunities in Ag Chemicals, our Mantros business Is working on a product called Vertico. It's patented and it is a coating for paper and cardboard that would allow for use In various food packaging and including temporary food packaging like the Plastic clamshells that we've been all using for the last 2 years that both serves its purpose of temporary packaging relative to That's for other food items, but it's also completely compostable or biodegradable. So there are a number of exciting areas Particularly in our Specialty Products Group that we will talk about in more detail in naphthaGrowth 2.0. Sounds great. Thank you, Frank. Thank you. Our next question comes from the line of Josh Spector from UBS. Your line is now open. Good morning, Josh. Hey, good morning, Frank, and good morning, everyone. On construction within EMEA, particular in your ILBRA brand, just wondering if you can give some thoughts on where you are there versus 2019 And how things are developing currently versus the last quarter? Sure. Under the leadership of Melissa Shoger and she reports to Paul Hugenboom. We have made great progress and we took a collection of Relatively independent and decentralized businesses that were under scale. We had drive it businesses there, we had Gilbrook, we had different Tremco businesses there, Flow Creek and now they are all operating as the Tremco Construction Products Group in Europe, we have integrated back office functions. We have coordinated in some cases consolidated sales forces And we really have created greater efficiency, greater focus and in some cases better scale. And that's an area where we went from mid single digit EBIT margins to low double digit EBIT margins and there's more to come. So I appreciate that question because it was really an area that was decentralized and to a certain extent, unfocused. And our Construction Products Group leadership team has brought real focus and discipline to that. And we're in a much better position to drive solid bottom line growth with top line performance. So we made a lot of strides here. No, thanks. Appreciate that, Frank. I guess where I was trying to go with that was more from a volume I'm trying to understand if there's room for further recovery there perhaps than what you've seen in North America and the rest of the segment. Or would you say things are generally similar regionally? No. There's clearly room for growth. This is our experience and it's also in the headlines. The United States is leading the economic recovery And the solid demand we're seeing that's high single digit, low double digits is and you see it in our 4th quarter organic growth It's principally U. S. Driven. I would say Europe because of some resurgence in COVID is probably 3 to 6 months behind the United States. The rest of the world that we operate in quite candidly is a pretty good mess and the Results that our people are generating is pretty incredible. And I say that about Latin America, we have a big operation We're in Colombia. We're in Mexico, but COVID is still a rising challenge there. We have a African and Middle East business that's run out of South Africa by a great team and they performed extraordinarily well although COVID It used to be an issue in that market. And then we're not a big player in Asia Pacific, but our largest presence there is in India. And again, they also have their COVID challenges. So unless things turn around there, I would say that that rest of the world is Probably a year behind where we are in the U. S. Got it. Thank you. Thank you. Our next question comes from the line of Mr. Jeff Zekauskas from JPMorgan. Good morning. Hi, good morning. Thanks very much. You used FIFO accounting. So If it turned out that your raw material costs didn't rise after the end of your May quarter, and I know they But if they didn't, how long would it take till you were reflecting that level of raw material In other words, how long is the LIFO, FIFO delay? So I think the LIFO, FIFO delay versus our peers It's probably 60 or 90 days. And we're on FIFO because somebody about 70 years ago decided to be on FIFO and then Accounting regulations disallowed a change to LIFO. So we are where we are and don't have that flexibility of changing. But the delay versus our peers is about 60 days 90 days. Okay. And Do you guys and in your negotiations with large big boxes, In your commentary, it sounds like you negotiate prices once a year. Is that true? And are you trying to have A different kind of negotiation with them? Or do you have to wait until next year comes before you can effectively lift them Yes, we had price negotiations and price increases That average in the 5% to 6% range with most of our consumer customers, in fact, with all of our consumer customers in the spring. And as Rusty commented, our raw material situation has escalated rapidly and further from there. And we intend to have price negotiation discussions with all of our consumer customers at the end of the summer or early fall. Okay, great. And then lastly, do you quantify what your FIFO benefit is relative to LIFO for 2021 and for the May Quarter? Yes. I don't think there's a I think there's a LIFO reserve that people on LIFO get to talk about. There's no FIFO benefit. Okay. Thank you very much. Thank you. Our next question comes from the line of Mr. Mike Harrison from Seaport Research. Hi, good morning. In Specialty, Frank, you Called out the strong results you mentioned, some recent changes in management and business development initiatives. Can you give a little more detail on what's going right in that business and maybe talk about your confidence level that we're seeing sustained improvement in that specialty business? Sure. First of all, Ronnie Holman, who's been part of RPM, he was ran the lab at our chemical coatings business in Hickory, North Carolina 30 years ago and he's been with RPM ever since. He's running that division succeeds Steve Canoe. He's done a great job. Those businesses were relatively starved of growth capital because many of them were part of the SPHC bankruptcy process to address the Bondex asbestos issue that's behind us. And so two things have happened under Ronny's leadership. Number 1, we changed operating company leadership in a lot of places. In the last years, we have a new leader at Dayglow, a new leader in our TCI powder coatings business. We have a Long serving leader at our Mantros Food Group that retired and have a new leader there. And so there's been a Significant number of leadership changes really to get those organizations revitalized. We talked about our MAP to Growth program and somebody earlier had asked about MAP to Growth 2.0 and an emphasis on sales and I think that's very perceptive. As part of our MAP to Growth, we added work with McKinsey, specifically at 3 different specialty products group Our Dayglow business, our Mantros business and our TopCoat Industrial business. And I laughed with our Board if my father, God bless him, heard me tell our Board that we hired McKinsey and Company or Oliver Wyman or any of these other good consulting firms to work on growth strategy with our businesses, he'd be rolling over in his grave. But we are. And the combination of new leaders and some outside perspective and Some views of the markets and the opportunities that are beyond what we have the resources to do here Have us on track for some very, very exciting growth in those businesses. And what spurred that and I've said it in the past is These are businesses with opportunities literally to double or triple their sales. And if we can't get on that path, We would consider their divestment. So right now we're in a good place there and we're very excited about what we see. And the leaders in those businesses are really generating Positive momentum and we'll talk more in detail about that when we reveal MAP to Growth 2.0. All right. And then maybe a question for Rusty. You mentioned the non operating segment was elevated due to the insurance costs and higher incentive comp. Looking forward into fiscal 2022, is something in the $25,000,000 to $30,000,000 per quarter range a good placeholder For non operating costs, any guidance for that segment? Yes. You're in the right range, Mike. All right. Thanks very much. Thank you. Our last question comes from the line of Mr. Arun Viswanathan from RBC Capital Markets. Your line is now open. Hey, Frank. Thanks for taking my question here. I just want to get your thoughts and your perspective. So you've obviously You incurred a lot of raw material inflation. We've been hearing that from a number of folks. Maybe if you go across your different segments, Just could I get your thoughts on how your suppliers, your partners, your customers are dealing with the raw Material inflation as well. You don't get the sense that a lot of it is being placed upon you or do you feel any support from your Partners here as to shoulder some of this pain or is it being placed squarely on the coatings companies? And I guess I'm just curious, Especially in the consumer segment where, again, you are doing a lot to meet demand. So just wondering what kind of sharing you're Getting on some of these raw material increases. Thanks. Yes. Thank you. I think many of our suppliers are working Double time to get their own production back in order and it's particularly related to the U. S. Chemical supply and the impact that this Texas winter storm and then the power outages had, and that's Disrupted things. The other thing that was far more disruptive than I think people realized until Winter Storm Yuri happened Was how under invested or offline in the chemical industry in many supply bases around the globe Relative to COVID and actions people took in COVID. People are also waking up to the fact that China controls the vast majority of Shipping containers, those costs have gone through the roof. You've got port problems in China and Long Beach, California. So when materials get from Asia to Long Beach, they can sit for 3 or 4 weeks before they're offloaded. So I could go on and on. We have had suppliers that have been over backwards. Two other comments on that. Clearly, epoxy resins, a Huge raw material for us is up significantly in terms of across. Acrylic resins are up. All kinds of primary raw materials are up in terms of price. But the things that are disrupting us the most Like the critical ingredients to some of those, I talked about alkyd resins, a very important Chemical raw material for our consumer group and particularly small project paints. Penta is an ingredient to that. It's in short supply globally. And so that's a challenge for anybody producing alkyd resins. And then sadly, as I commented earlier, There was a explosion at a alkyd resin producer in Ohio and it ended up In a really tragic circumstance, that one supplier supplied roughly 30% of the Alkyd resins in North America, they are offline. And so we've had to work hard to replace them. We've worked with them. So the level of cooperation and work within the supply chain, I think is better than you would expect given all these disruptions. And we are working overtime both in terms of expanding additional opportunities. So we're Supplying some raws from Europe and from Asia that were traditionally supplied in the United States. We're expanding some of our own chemical, especially chemical capabilities. And the responses that we have, I don't think are unique to RPM in this circumstance. Great. Thanks. And just as a quick If you consider that potentially there are some capacity additions coming that would help Maybe some of the supply chain tightness loosens up as well. How should we assume kind of the upper teens Raw material increases kind of progressed from here. Do you expect that to kind of moderate in a ratable fashion, say over the next 4 quarters? When do you expect your pricing to catch up to the raw materials inflation that you've experienced? Sure. I'll tell you the two things that we think about here as we think about that. I think we feel like we're kind of in the teeth of the worst part of it now And that we should be working our way out of these challenges in the coming months and the coming quarters. The things that we worry about, the principal thing that we worry about, which wouldn't be unique to RPM is The chemical industry rebooting, rebuilding in North America is happening and it's happening at a pretty good pace. But our chemical supply base is pretty much Gulf Coast and Texas positioned in North America and a major hurricane That further disrupted that area could put everybody way back on their heels. And so We don't predict the weather. I'm just telling you relative to I think what's a very perceptive question. On the one hand, it feels like we're in the worst of it and Starting to get better. On the other hand, as we look forward, we ask ourselves, all right, what are the things that we need to be prepared for and how can we be prepared? And that's One of the things that's on people's mind. Thanks a lot. Thank you. There are no questions at this time. Please continue. Thank you for your participation on our call today. I particularly want to thank our associates who found ways to grow our businesses Throughout the last year and a half, through COVID and now through the supply chain difficulties and All along successfully executing on our MAP to Growth operating improvement program. We look forward to providing you the details of our first Quarter results when we meet in October. We also plan to have the RPM annual meeting of stockholders during the 1st week of October in person, which which will be the first time in nearly 2 years. And we remain grateful for your interest and investment in RPM. Thank you and have a great day. This concludes today's conference call. Thank you for participating. You may now disconnect. Presenters, please stand by for the post conference.