RPM International Inc.

Welcome to the RPM International Conference call for the fiscal 2020 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 session, At which time, if you wish to ask a question, you need to press star then 1 on your telephone. Please stand by. Please note that only financial analysts will be permitted to ask questions. At this time, I would like to turn the call over to RPM's Chairman and CEO, Mr. Frank Sullivan, for opening remarks. Please go ahead, sir.

Thank you, Vanessa. Good morning, and welcome to the RPM International Inc. Investor Call for our fiscal 2020 third quarter presentation. and in February 29, 2020. On the call with me today are Rusty Gordon, RPM's Vice President and Chief Financial Officer and Matt Radicek, our Vice President of Global Tax and Treasury, who is also heading our investor relations function. I'll start the call by discussing how we are managing our business through the COVID-19 pandemic. Then I'll provide an update on our 2020 map to growth operating improvement program. After that, I'll turn the call over to Matt, who will walk through our third quarter results in detail. And he'll be followed by Rusty, who will discuss the outlook for the fourth quarter and year end. First, we know that all of you are dealing with disruptions in your professional and personal lives resulting from the COVID-19 pandemic, especially our analysts and investors from the New York City area. I'd like to thank you for being on our call today. and for your continuing interest in RPM and wish you and your families good health during this challenging time. At RPM, our priorities have been to protect the health and well-being of our associates and their family members, to support our local communities to control the spread of the virus, and to serve our customers by maintaining the continuity and success of our business operations. Our 15,000 associates around the world have really embraced these priorities And I'd like to commend them for the incredible work that they've done to continue each and every day. When it comes to protecting their own health and that of their families, we've established many protocols across our operations. We're taking precautions in our facilities to keep our people safe by aggressively cleaning and disinfecting high touch areas, practicing social distancing and good hygiene, and have been screening for COVID-19 symptoms prior to entry in all of our facilities for more than three weeks. As of April 7th, we've been informed by 14 of our 15,000 employees that they have had at various times confirmed cases of coronavirus. In these cases, we enacted our protocols to shut down the affected location, have them thoroughly cleaned and disinfected, quarantine all appropriate affected people, and then reopen the facilities following an appropriate shutdown period. In terms of our communities, we are working from home, monitoring the hygiene and health of our manufacturing and distribution associates, and reporting any infection or disruptions. We are also donating time and materials to help stem the spread of the virus. In one case, our wood finishes group supplied thousands of plastic bottles to a local distillery that has been converting product to hand sanitizer and is providing it to free in the community, especially to healthcare first responders. In another case, our Rust-Oleum operation sourced its Concrobium fogger product and donated it to first responders so that their air ambulance helicopters could be disinfected and returned to service quickly. These are just a few examples of how our operations are responding to local needs. As one of the world's largest suppliers of specialty coatings and building materials, RPM is in a strong position to weather the toll that the COVID-19 pandemic is having on the global economy. We are taking action to adjust our business activities during this period of uncertainty and are well positioned with strong cash flow, a solid capital structure, and $1.1 billion in liquidity. Many of our products are used for construction, maintenance, and repair projects, which are deemed essential in many cases and are relatively recession resistant. RPM companies around the world, with a few exceptions, have been able to continue to operate their plants and distribution centers. In fact, today, nearly all of our North American plants are operational, with a few exceptions, while a number of our international plants have been closed due to government mandates. A large number of our North American customers, such as those in construction, infrastructure, and DIY home and hardware retail, are also considered essential and currently remain open for business. With people spending more time in their homes, there is potential for increased DIY activity projects. Raw material cost inflation seems to be moderating in a number of our key product categories. Our global supply chain remains strong and our distribution and operations associates continue to work diligently to meet customer demand. We continue to be proactive in taking actions around the globe in our operations as the situation evolves. Now I'd like to discuss our map to growth restructuring program. It has steadily been gaining momentum each quarter. This quarter is no different as demonstrated by our excellent bottom line results, strong organic growth, strong earnings leverage, and record levels of cash generation. Restructuring activities include enacting operational improvements at our production facilities, consolidating manufacturing plants, de-layering management, and rationalizing product lines. During the third quarter and early in the fourth quarter, we announced the closure of two additional plants, which brings our total to 20 out of the 31 plants that were originally targeted for closure at the beginning of the Map the Growth program. Versus last year, on a consolidated basis, we realized incremental Map the Growth savings in the third quarter, totaling $21 million, of which $5 million came from manufacturing, $12 million from procurement, and $4 million from SG&A. Looking ahead, as the COVID-19 pandemic slows economic and business activity, it is also impacting our map to growth program. While there are some initiatives that can be carried out virtually, many, particularly those dealing with additional manufacturing improvements and the completion of our ERP implementations, require a physical presence at some of our plants and offices. Limits on travel and access to facilities have required us to temporarily halt some of our operating improvement activities. As such, we will be extending out the timeline from our original map to growth goals in terms of their ultimate achievement. At this point, there is too much uncertainty to set a new date for reaching our objectives. As our markets stabilize and we gain more clarity into the business conditions, we will communicate our new map to growth timeline. But as you can see once again in our third quarter results, our people are executing on our map to growth initiatives very effectively. And I'll turn the call over to Matt Radicek for a detailed review of our results for the third quarter.

Thanks, Frank, and good morning, everyone. Note that my comments will be on an as-adjusted basis. During the third quarter, we generated consolidated net sales of $1.17 billion. an increase of 2.9% compared to the $1.14 billion reported during the same quarter of fiscal 2019. Organic sales growth was 3%, or $34.0 million. Acquisitions contributed 0.7% to sales, or $9.0 million, while foreign exchange was a headwind that reduced sales by 0.8%, or $9.6 million. This was solid top line growth during the third quarter, which typically generates our most modest results each year because it falls during the winter months when painting and construction activity slow. Adjusted diluted earnings per share were $0.23, an increase of 76.9% compared to the $0.13 in the year-ago quarter. Our consolidated adjusted earnings before interest and taxes, EBIT, were up 30.4% to $60.5 million compared to $46.4 million reported in the fiscal 2019 third quarter. These excellent bottom line results were largely due to initiatives under our Map to Growth restructuring program. Our earnings also benefited from pricing and moderating raw material costs. Turning now to our segments, sales in our construction products group were strong and increased 4.7% to 372.1 million. Growth was primarily organic at 5.1% or 18.5 million. Acquisitions contributed 1% or 3.4 million. Foreign currency translation reduced sales by 1.4% or 5.1 million. Sales growth was driven by market share gains and the introduction of innovative new products, with the fastest growth being generated in our roofing, below-grade waterproofing, and concrete admixtures businesses. Adjusted EBIT in the construction product segment increased $6.0 million from the adjusted EBIT loss of $0.3 million during last year's third quarter. This improvement was largely attributed to pricing, moderating raw material costs, maps of gross savings, and a favorable leverage impact of higher sales volume. Sales in our performance coatings group were $255.7 million, up 1% from the $253.2 million we reported during last year's third quarter. Organic growth was 1.6% or $3.9 million. Sales growth in the segment was mixed. Its highway and bridge maintenance businesses were slowed by government budget constraints, particularly in the UK. However, its protective and marine coatings business unit increased market share and its continental European operations grew sharply driven by a new global management structure. Acquisitions added 0.2% to sales or a half a million dollars, while foreign exchange was a headwind of 0.8% or 1.9 million. Segment adjusted EBIT increased 33.2% to 24.2 million from 18.2 million during last year's third quarter. A focus on higher margin products and service offerings as well as maps of growth business rationalization initiatives, drove a significant adjusted EBIT margin improvement of 230 basis points in the segment. In the consumer group, sales were robust, increasing 5.4% to 398.7 million. Organic sales increased 6% or 22.6 million, driven by market share gains and unseasonably warm winter weather in North America, that enabled consumers to complete more DIY home improvement projects. The fastest growth was achieved in our caulks, ceilings, and patch and repair product lines. There was no impact from acquisitions during the quarter. Foreign currency translation reduced sales by 0.6% or 2.2 million. Adjusted EBIT in the consumer group was 32.1 million, an increase of 19.2% over the prior year. This bottom line performance was driven by savings from our massive growth operating improvement plan and were partially offset by inflation in certain raw materials and channel mix. On the top line, the specialty products groups wood coatings business successfully outperformed its peers in a challenging market. However, sales of the segment's water damage restoration products faced a difficult comparison the prior year when demand was exceptionally high due to significant weather events in North America. Sales were also down in our OEM fluorescent pigments, nail polish, and edible coatings businesses. Segment sales were $147.5 million. Organic sales decreased 7.1% and foreign currency translation reduced sales by 0.3%. The segment benefited 3.3% or $5.1 million from acquisitions. Adjusted EBIT was $17.5 million during the quarter. which was lower than the $20.2 million of adjusted EBIT reported in the same period last year. Savings from our operating improvement program helped to mitigate the impact declining sales volume had on earnings. In addition, we have new management in place and are implementing cost-cutting measures and new processes to reignite growth. Now I'll provide some comments on our cash flow and liquidity. For the first nine months of fiscal 2020, cash from operations grew by 162% to $381.2 million compared to $145.5 million a year ago. This increase of $235.7 million was due to improved working capital management and operating improvement initiatives. Free cash flow improved to a source of cash of $137 million during the first nine months of fiscal 2020, as compared to a use of cash of $74.5 million during the first nine months of fiscal 2019. This $211.5 million increase is a result of higher earnings coupled with overall improved working capital metrics. Next, a few comments on our liquidity profile. The maturities of our long-term debt portfolio are nicely staggered with the next scheduled maturity out in November of 2022. and we have multiple options for access to short-term liquidity under both our revolving credit and accounts receivables facilities. Further, in the month of February, we improved our financial flexibility and increased our liquidity by $400 million by securing two three-year term loans. We borrowed $400 million immediately after closing and swapped to a Euro fixed interest rate of approximately 0.6%. The proceeds were used to pay down the balance on our revolving credit facility. Finally, as Frank stated, at February 29, 2020, our total liquidity, including cash and committed revolving credit facilities, was $1.1 billion. I'll now turn the call over to Rusty for details on our share repurchase program and the outlook for the remainder of fiscal 2020.