RPM International Inc.

Welcome to the RPM International Conference Call for the fiscal 2020 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 at www.rpminc.com. Comments made on this call may include forward-looking statements based on current expectations that involve risks and uncertainty which could cause actual results to be materially different. For more information on these risk and uncertainties, please review RPM's report filed with the SEC. During this conference call, references 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 will need to press star, then one 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.

Thank you, Shara. Thank you, Shara. Good morning, and welcome to the RPM International Inc. Investor Call for our fiscal 2020 fourth quarter and year-ended May 31, 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 has also taken on the responsibilities for our investor relations activities. On the call today, I'll provide an overview of our performance for the quarter and an update on our Map to Growth Operating Improvement Program. Matt will follow me with a review of our fourth quarter financial results, and then Rusty will wrap up our formal remarks with our outlook for fiscal 21. After that, we'll be pleased to take your questions. Leading up to the coronavirus pandemic, our business was trending towards a quarter and year of record sales and record adjusted earnings. However, as expected, our fourth quarter consolidated results were impacted by by the economic fallout created by the pandemic, which to various degrees interrupted our manufacturing and distribution operations, as well as the maintenance, repair, and construction activities of many of our customers around the world. At various times during the quarter, we had more than 10 manufacturing facilities closed, along with multiple other sales offices and distribution centers, due to government-mandated closures, mostly outside of the United States and for disinfecting and cleaning facilities related to health and safety protocols. During the pandemic, we have taken decisive action to restrict travel, limit access to our facilities, and establish safety protocols and allow those who could effectively perform their jobs remotely to do so. Through it all, we have remained focused on protecting the health and well-being of our associates and their families and are playing a role in inhibiting the spread of the coronavirus in the communities in which we operate. Thanks to our associates' efforts to follow our comprehensive health and safety protocols, nearly all of our manufacturing facilities and distribution centers have been open and operational since our fiscal year end. The COVID-19 generated challenges during the quarter resulted in an 8.9% decline in our consolidated sales, which was better than the decline of 10 to 15% we anticipated and discussed on our April call. On a geographic basis, our sales were essentially flat in the U.S., where construction and hardware channels were generally deemed essential, but were down 25% in international markets, where many of our businesses were ordered closed by government mandates. The primary driver of our better-than-expected top-line results was the growing demand throughout the quarter in the U.S. for our consumer groups, small project paints, caulks, sealants, repair products, wood stains, and specialty cleaners. Consumers had additional time for home improvement maintenance and repair projects because of the stay-at-home orders across our country. They were able to purchase the products they needed through e-commerce portals, which grew dramatically during the quarter, as well as our retail partners and our broad distribution base of DIY stores, which were among the businesses that were considered essential to the economy and we're able to remain open and operational. The performance of our consumer segment relative to our other segments highlights the long highlighted value of RPM's diverse operating company portfolio where weakness in one segment is often offset by strength in another. Our fourth quarter adjusted diluted earnings per share of $1.13 while below last year's all-time high results still represent our second best fourth quarter on record. The decline in adjusted diluted EPS was equivalent to the drop in sales, illustrating our quick response to reduce cost during the economic downturn, as well as the ongoing success of our map to growth operating improvement program. Coronavirus safety protocols, such as limits on travel and facility access, slowed some of the planned activities that were part of our phase three of the Map to Growth program, particularly manufacturing improvement initiatives, which were nearing their end, particularly including plant closures and ERP consolidations. However, in response to the economic downturn created by this pandemic, we quickly took proactive measures to accelerate the Map to Growth cost reduction initiatives with a focus on de-layering management and other areas of administration. As a result, we remain on track to achieving or exceeding our original annual cost savings of $290 million. During the fourth quarter, we announced the closure of three plants, which brings our total to 22 out of the 31 plants that were originally targeted for closure and consolidation at the beginning of the Map to Growth program. As we mentioned last quarter, due to the pandemic induced delays in executing some of our restructuring initiatives, we will be extending the timeline to achieving our original map to growth objectives. This includes our goal of repurchasing a billion dollars of our stock, which was more than halfway completed, but suspended in mid-March as a response to the pandemic and its economic impact. There is still too much uncertainty at this point to set a new target date for completion. As the global economy stabilizes and we gain more visibility into business conditions, we will communicate our new MAP initiatives and growth timeline in the coming quarters. Expenses were dramatically down in our non-operating segment due to the coronavirus pandemic. Medical costs were lower due to lower volumes. Management incentives on long-term programs were reversed. Travel was banned and use of outside consultants was curtailed. We will continue to be aggressive in managing all costs, expenses, and areas of the business within our control to drive performance and continue to navigate through this unprecedented environment. As a result of the economic uncertainty created by the pandemic, we have focused on generating strong cash flow and maintaining liquidity. At year end, we reported record operating cash flow of $550 million as a result of good working capital management, and margin improvement initiatives from our Map the Growth program. Our procurement team formed as part of the MAP program has recently done an incredible job of improving payables by negotiating better terms with our suppliers, which will continue to benefit cash flow in the coming quarters. At May 31, 2020, our total liquidity, including cash and committed revolving credit facilities, stood at $1,280,000,000. I'll now turn the call over to Matt Radicek who will review our financial results for fiscal 2020 fourth quarter on an adjusted basis.

Matt Radicek Thanks, Frank, and good morning, everyone. Please note that my comments will be on an adjusted basis, as Frank noted. During the fourth quarter, we generated consolidated net sales of $1.46 billion, a decrease of 8.9 percent compared to the $1.6 billion reported during the same period of fiscal 2019. Organic sales declined 7.9 percent or $126.6 million. Acquisitions contributed 0.7 percent to sales or $10.7 million. Foreign exchange was a headwind that reduced sales by 1.7 percent or $26.5 million. Adjusted diluted earnings per share were $1.13, a decrease of 8.9 percent compared to the record $1.24 in last year's fourth quarter. Our Consolidated Adjusted Earnings Before Interest and Taxes decreased 11.5 percent to $213.6 million compared to $241.4 million reported in the fiscal 2019 fourth quarter. Turning now to our segments, sales in our construction products group were down 15.6 percent to $472.4 million compared to $559.6 million a year ago. Organic sales declined 13.9% or $77.9 million. Acquisitions contributed 0.7% or $4.1 million to sales. Foreign currency translation reduced sales by 2.4% or $13.4 million. Adjusted EBIT in the segment was down 12.1% to $77.3 million compared to adjusted EBIT of $87.9 million during last year's fourth quarter. The segment's strength was its U.S. roofing business. It experienced limited interruption from the pandemic as most roofing projects, which are completed outdoors and do not require entry into customers' facilities, were able to proceed. The season for roofing applications was broadened when schools closed early, allowing us to meet demand from this customer base. The segment performed better in the U.S. However, in certain international markets where construction was not considered essential, the segment experienced significant sales declines. International results were further challenged by currency headwinds. While the segment sales declined during the quarter, earnings declined at a lesser rate due largely to the success of the map to growth program, which included the closure of two manufacturing plants and proactive measures taken to cut expenses. Sales in our performance codings group were down 20.2% to $235.1 million compared to the 294.5 million we reported during last year's fourth quarter. Organic sales declined 18.3 percent, or 54 million. Acquisitions added 0.2 percent to sales, or a half a million dollars. While foreign exchange was a headwind of 2 percent, or 5.9 million. Segment adjusted EBIT was down 31.9 percent to 23.7 million, compared to 34.7 million reported during last year's fourth quarter. The segment quickly responded to the economic downturn created by COVID-19 by delaying management and aggressively reducing fixed costs, particularly in areas of the business that serve the energy industry as well as other affected sectors. Similar to our construction product segment, the performance coatings group also performed better in the U.S. than internationally. Although segment sales declined, Earnings did not decrease as much as would be expected on a detrimental basis due to operating improvements from our Master Growth Program. In the consumer group, sales were strong, increasing 6.7% to $616.2 million from $577.5 million during last year's fourth quarter. Organic sales increased 7.7% or $44.6 million. Foreign currency translation reduced sales by 1% or $5.9 million. Adjusted EBIT in the segment was down 4% to $104.5 million compared to $108.8 million in the prior year period. While U.S. sales were up 12%, international markets struggled due to more stringent lockdown orders on manufacturing and retail. Overall, the consumer group sales results for the quarter were excellent given they are in comparison to a very strong fourth quarter last year when we made large market share gains. Our associates went to extraordinary lengths to deliver products to our customers, in spite of supply chain challenges. The bottom line was impacted by higher operating expenses for safety measures and equipment, as well as distribution costs due to increased e-commerce orders, all that were required to function during the pandemic. These costs are expected to be temporary and were not passed along to our customers. As part of our map to growth initiatives, we closed an Australian manufacturing facility which will benefit our bottom line in the coming quarters. Specialty products group sales were 135.2 million during the fiscal 2020 fourth quarter, compared to sales of 169.7 million in the prior year period, which was a decline of 20.3 percent. Organic sales decreased 23.1 percent, or 39.3 million. Acquisitions contributed 3.6 percent, or 6.1 million to sales. Foreign currency translation reduced sales by 0.8 percent, or 1.4 million. Adjusted EBIT in the segment was down 72 percent to 7.3 million in the fiscal 2020 fourth quarter, compared to 26.2 million in the fourth quarter of fiscal 2019. Overall, the segment accounted for 9 percent of the quarter's consolidated sales. A number of the segment's businesses served OEM markets that have struggled during the pandemic, such as furniture and marine marine distributors that were closed for an extended period of time in the U.S. because they were not classified as being essential industries. I'll now turn the call over to Rusty, who will walk through our outlook for fiscal 2021.