RPM International Inc.

Good morning and welcome to RPM International's conference call for the fiscal 2020 second quarter. Today's call is being recorded. This call is also being webcast and can be accessed live or replayed on the RPM website at www.rpminc.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 session, at which time, if you wish to ask a question, you'll need to press star one on your telephone. Please note that only financial analysts will be permitted to ask questions. At this time, I would like to turn the call over to RPM's chairman and CEO, Mr. Frank Sullivan, for opening remarks. You may begin, sir.

Thank you, Brandon. Happy New Year and welcome to the RPM International Inc. investor call for our fiscal 2020 second quarter ended November 30, 2019. On today's call with me today are Rusty Gordon, RPM's Vice President and Chief Financial Officer, and Matt Radicek, our Vice President of Global Tax, Treasury, and also in charge of our investor relations. I'll kick off the call with some comments on our second quarter results and an update on our 2020 Map to Growth Operating Improvement Plan. Then Matt will review the second quarter numbers in more detail. Rusty will conclude our formal comments with our outlook for the remainder of fiscal 2020. and then we'll take your questions. For the third consecutive quarter, our earnings were up significantly over the prior year and ahead of expectations. Our strong bottom line growth in the quarter was primarily driven by our 2020 map to growth program, which is enabling us to grow earnings at a faster rate than our peers. Last year's selling price increases coupled with moderating raw material inflation has also positively impacted results. Revenue was up 2.8% during the quarter, organic sales growth were up 3.5% due to market share gains and some pricing activity. We are pleased with this organic growth given the aggressive product line rationalization taking place at RPM, along with the current macro environment in which we are operating. In regard to our 2020 map to growth operating improvement plan, the specific actions we have taken during the quarter included continuing to de-layer management at different groups, consolidating manufacturing and shedding low-margin product lines to free up resources for more value-added EBIT accretive volume. So far through 2020 MAP2Growth program, we have discontinued product lines on an annualized basis with revenues of approximately $60 to $70 million. We also announced the closure of three plants in the second quarter, along with one more plant completed so far in the early part of the third quarter, this brings our total to 19 out of a planned map to growth program, 31 plant consolidations. On a consolidated basis, we realized 2020 map to growth savings in the second quarter totaling about $31 million, $9 million of which came from manufacturing, $10 million from procurement, and $12 million from GNA. As you may recall, we realized savings during the fourth quarter of fiscal year 2019 and the first quarter of fiscal 2020 of $21 million and $26 million, respectively. I point this out because these successive quarterly increases in 2020 MAP to Growth Operating Improvement Plan total savings demonstrate the strong momentum of earnings improvement that the program is generating. In terms of our Operating Improvement Plan, we continue to make progress in our CEDR-led procurement function as we better leverage our spending through consolidation of material spending across operating companies. Our strategic suppliers are finding opportunities as well since they can grow their business with RPM by capitalizing on this recent change in our approach. Also on the procurement side, we continue to negotiate improved payment terms with the supplier base and have added some significant supplier financing programs that provide advantages for both RPM and our suppliers. In manufacturing, we are increasing productivity by closing underutilized plants while improving efficiency in the plants that we continue to operate, allowing us to reduce costs and improve service to our customers. We continue to invest in training our workforce in continuous improvement disciplines, and we are seeing good progress in our plants through our focused improvement team efforts. We are in the early innings of our accounting consolidation and expect to see the additional savings that it generates as well as savings from ERP consolidations in wave three of our 2020 map to growth program. I'll now turn the call over to Matt Radicek to review our results for the quarter.

Thanks, Frank, and good morning, everyone. Please note that my comments will be about our financial results for this year's second quarter and will be on an as-adjusted basis. We achieved record consolidated net sales of $1.4 billion, up 2.8%, compared to the 1.36 billion reported during the second quarter of fiscal 2019. As Frank stated, organic sales growth was 3.5% or 47.7 million. Acquisitions contributed 0.6% to sales or 8.5 million, while foreign exchange continued to be a headwind that reduced sales by 1.3% or 17.5 million. As Frank also mentioned, our 2020 Map to Growth program generated significant earnings leverage to the bottom line. Also contributing to the bottom line was the margin improvement resulting from pricing and some moderating raw material costs. EBIT increased 22% to $153.7 million for an EBIT margin of 11% versus last year's EBIT margin of 9.2%. Diluted EPS increased 31% to $0.76 per diluted share and $0.58 per diluted share a year ago. Share repurchases and the prior year's convertible bond retirement resulted in $0.02 per diluted share accretion for the quarter. Now looking at our performance on a segment basis. Sales in our construction products groups was very strong and increased 6.9% to $499.5 million. Growth was largely organic at 7.4% or $34.5 million, aided by a backlog from last quarter that resulted from exceptionally rainy weather that had slowed construction activity. In addition, we picked up market share in a somewhat lukewarm North American commercial construction market. Acquisitions contributed 1.2% or $5.8 million, primarily from the recent Nudura and Scholl transactions. Organic growth was offset by foreign currency translation, which reduced sales by 1.7% or 8.1 million, and also by product rationalization through which we are discontinuing product offerings that did not meet our more stringent margin or working capital standards. From a geographic perspective, European markets remain soft. We are combating this by reducing overhead and proactively managing our product mix to simultaneously improve earnings and margins. Our Latin American businesses generated good growth in constant currencies. Segment EBIT increased 43.3% or 18.7 million to 61.9 million. This improvement was largely attributed to volume growth, 2020 map to growth savings, pricing, and the contribution from acquisitions. Sales in our performance codings group were 292.7 million, up a modest 0.3% from last year. Organic growth was 1.7 or 4.8 million, driven by our businesses providing corrosion control and fireproofing coatings. As we noted last quarter, the segment was reorganized under a global brand management structure, which is beginning to bear fruit. It is enabling us to pick up market share in Europe, and we experience continued growth in North America, particularly in our Carboline product line. Impacting organic sales were strategic actions to exit soft international markets and low margin product lines. Acquisitions added 0.1% to sales while foreign exchange was a 4.3 million or a 1.5% headwind. Segment EBIT increased 12.6% to 37 million. Much like last quarter, 2020 map to growth savings provided this segment with strong earnings leverage despite essentially flat sales growth. Operating improvement initiatives included workforce reductions and the exit from two margin diluted businesses. Also contributing to the bottom line was pricing and improved product mix. In the consumer group, sales were strong, increasing 6% to $450.9 million. Organic sales increased 6.4% or $27.1 million, driven by new sealant and adhesive products that generated new accounts and market share gains. The segment also benefited from pent-up North American demand for exterior small project paints and coatings, It was caused by the exceptionally wet weather during the spring and early summer. Sales in Europe, a large percentage of which are in the UK, were soft due to the weak macroeconomic conditions in Europe and also uncertainty surrounding Brexit. Acquisitions contributed 0.6% or $2.5 million to sales, while foreign currency translation reduced sales by 1%. EBIT in the consumer group was $54.7 million, an increase of 26.8% over the prior year. This improvement was a result of actions taken including the 2020 map to growth initiatives such as enhanced manufacturing disciplines and two plant closures plus the price increases from last year. These programs are helping margins recover and trend higher towards historical levels. The specialty products group top line was impacted by a difficult comparison to the prior year when demand was elevated due to natural disasters. These included hurricane activity that boosted demand for our restoration equipment and more rampant wildfires that drove demand for our fluorescent pigments, which are used in fire-retardant tracer dyes. In order to accelerate growth in the segment's top line, we have made recent management changes. Segment sales were 158.2 million. Organic sales decreased 10.5% and foreign currency translation reduced sales by 0.6%. There was no impact from acquisitions. EBIT was $23.2 million during the quarter, which was lower than the $28.8 million of EBIT in the prior year. We continue to implement operational improvements to reduce costs in this segment, including the consolidation of the ERP system to one platform, and we also continue to invest in selective initiatives to revive growth going into fiscal 2021. We expect that the segment will see the benefits of these actions in the coming quarters. Lastly, a comment on cash flow. For the first half of fiscal 2020, cash from operations grew by 102.4% to $300.2 million compared to $148.3 million a year ago. This increase of $151.9 million was due to initiatives to reduce working capital and improve margins. I'll now turn the call over to Rusty for details on our outlook for the remainder of fiscal 2020.