RPM International Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the first quarter 2021 RPM International Earnings Conference Call. At this time, all participant lines are in listen-only mode, so if you require operator assistance, please press star, then zero. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star, then one. Please be advised that today's conference may be recorded. I'd now like to hand the conference over to your host today, Mr. Frank Sullivan, Chairman and CEO. Please go ahead, sir.

Thank you, Liz. Good morning and welcome to the RPM International Inc. Investor Call for our fiscal 2021 first quarter. Joining me on today's call are Rusty Gordon, RPM's Vice President and Chief Financial Officer, and Matt Ratajkic, our Vice President of Global Tax and Treasury, who is supporting our investor relation activities. I'll share insights behind our strong financial performance for the quarter, as well as an update on our Map to Growth Operating Improvement Program. Then Matt will walk you through a review of our first quarter adjusted financial results. Rusty will conclude our formal remarks with our outlook for the remainder of fiscal 21, after which we'll take your questions. Our strategically balanced business model, the resiliency of our operating companies and our Map to Growth Operating Improvement Program have enabled RPM to pull through the depths of the economic slowdown created by the COVID-19 pandemic. With the dual benefit of improved margins and better working capital management, our businesses are generating excellent cash flow, which allowed us to pay down nearly $200 million of debt during the first quarter. Today, our liquidity is up to $1.5 billion. We have pivoted back to investing for accelerating growth as demonstrated by the acquisition of alley industries, as well as our strong organic growth in a number of our segments in the first quarter. During our fiscal 21 first quarter, selected segments of the global economy began to gain momentum as stay-at-home orders were relaxed. This freed pent-up demand from last year's fourth quarter and helped drive our record top-line results, which grew 9.1% over the prior year period. This was in sharp contrast to the COVID-19-related sales decline we reported for the fiscal 2020 fourth quarter. Our two largest segments posted positive growth in the first quarter, while two of our segments declined. Overall, RPM's results benefited from the positive impact of our map to growth operating improvement program and our balanced business model, where strength in one segment offsets weakness in another. In addition, much credit for our strong performance is due to our management philosophy, which keeps customer-centric decision-making at the operating level and enables our companies to be very nimble in adapting to change. Some examples around RPM of leaning into the pandemic's disruption include Rust-Oleum, tinting wall paint, and shipping to residents through a new e-commerce program hosted by a big box home center. Tremco developing innovative indoor air quality services with a global MRO distributor for use on its customers' facilities, and our Legend Brands business pivoting from disaster remediation to disinfecting and air purification in response to evolution of its contractors' business needs. The most significant driver of RPM's first quarter growth was our consumer segment, which had already been experiencing unprecedented demand for small project paints, caulk sealants, stains, cleaners, patch repair products as consumers completed more DIY home improvement projects. On a consolidated basis, international markets rebounded with 2 percent growth after a 26 percent drop during the difficult fourth quarter when construction and hardware channels were not deemed essential and were thus locked down in most of the international markets we serve. We continue to benefit from successfully implementing our map to growth program which enabled us to leverage the first quarter sales growth into even stronger bottom line results with adjusted EBIT that increased nearly 40%. During the first quarter, we announced the closure of one additional plant, which brings our total to 23 out of the previously announced 31 plants that were originally targeted in our map to growth operating improvement program. The momentum behind our map to growth program continues to accelerate as it drives efficiency and operational excellence throughout our businesses. We are on track to reach the targeted run rate of $290 million in annualized savings by the conclusion of our current fiscal year, which ends May 31, 21. The projected benefits from our center-led procurement initiatives are ahead of plan, and our administrative improvements and ERP consolidations will continue into fiscal 22. In regard to our IT investments, we are currently enhancing our capabilities in analytics by centralizing systems and databases. This is allowing RPM to harness more complete information across its multiple business units and build decision support tools to improve the effectiveness of our procurement, distribution, and sales teams. We are leveraging our information resources to make RPM stronger, and our success is a direct result of the cooperation and buy-in of our associates across RPM. While the Map to Growth Operating Improvement Program will be reaching its annualized cost savings target by the end of the fiscal year, we will run through that target as a result of continuing opportunities in the Map to Growth pipeline, including consolidation of more accounting locations after the setup of new ERP systems are completed. In addition, we are establishing a culture of continuous improvement and operational excellence that will benefit RPM's bottom line for years to come. Most importantly, I'm proud of the efforts of our plant managers who have made our workers' health and safety a top priority during the pandemic. Supported by Mike Sullivan and Ken Armstrong here at the corporate office, our operations personnel have successfully minimized workplace transmission of COVID-19 at a very low level. I'll now turn the call over to Matt Radicek who will review our fiscal 2021 first quarter results on an adjusted basis.

Matt Radicek Thanks, Frank, and good morning, everyone. Please note that my comments will be on an as-adjusted basis. During the first quarter, we generated consolidated net sales of $1.61 billion, an increase of 9.1 percent compared to the $1.47 billion reported during the same quarter of fiscal 2020. Organic sales increased 9.3% or $136.6 million. Acquisitions contributed 0.5% to sales or $7.4 million. Foreign exchange was a headwind that reduced sales by 0.7% or $10.1 million. Adjusted diluted earnings per share were $1.44, an increase of 51.6% compared to $0.95 in the year-ago quarter. Our Consolidated Adjusted Earnings Before Interest and Taxes, EBIT, increased 39.8% to $269.2 million, compared to $192.6 million reported in the fiscal 2020 first quarter. Now I'll discuss our segment's results. Sales in our constructions products group increased 2.2% to 547.7 million compared to 536.1 million a year ago. Organic sales increased 3.6% or 18.9 million. There was no impact from acquisitions and foreign currency translation reduced sales by 1.4% or 7.3 million. Adjusted EBIT in the construction products groups increased 17.7 percent to 102.3 million compared to adjusted EBIT of 86.9 million during last year's first quarter. The segments commercial sealants and roofing businesses in North America performed well, driven by continued success in its restoration and building envelope systems initiatives. Sales were boosted by orders that were deferred during the fiscal 2020 fourth quarter. This segment also benefited from easier comparisons to last year's first quarter when extremely wet weather in North America slowed construction activity. Map-to-growth initiatives, price increases, and strong cost management enabled the segment's bottom line to vastly outpace its relatively modest sales growth. Sales in our performance codings group were down 12.6% to $259.8 million in compared to the 297.2 million we reported during last year's first quarter. Organic sales declined 12.2% or 36.4 million. Acquisitions contributed 0.8 million or 0.3% to sales. Foreign exchange was a headwind of 0.7% or 1.9 million. The segment's adjusted EBIT was down 16.4% to $30.9 million compared to $36.9 million during last year's first quarter. Similar to the fourth quarter, the segment's top line continued to be impacted by poor energy market conditions that resulted in deferred industrial maintenance spending, as well as by COVID-19 restrictions that limited outside contractors' access to facilities and construction sites. In response, the segment has managed its decremental margins well by aggressively cutting fixed costs and reducing its break-even point. Cost savings that resulted from map-to-growth operational improvements benefited the segment's earnings. Adjusted EBIT margins would have actually improved during the quarter had it not been for the impact of transactional foreign exchange expense. Finally, we announced one more facility closing in this segment during the quarter. As Frank mentioned, there was unprecedented demand for our consumer products, which drove incredibly strong consumer group sales. They increased 33.8% to 641.2 million from 479.3 million during last year's first quarter. Organic sales increased 34%, or 163.2 million. There was no impact from acquisitions, and foreign currency translation reduced sales by 0.2%, or 1.3 million. Adjusted EBIT in the consumer group increased 121.6 percent to 136.7 million compared to 61.7 million in the prior year period. Results were up significantly in this segment due to robust DIY demand as consumers spent more time in their homes completing improvement projects during the pandemic. Our consumer group was a large beneficiary of this trend. due to our market leadership position and many years of building our retail distribution network. We are working around the clock to meet this unprecedented demand and are also making significant investments in plants, equipment, and operational disciplines to expand our capacity. The segment also benefited from an easier comparison to the prior year's first quarter when its product sales were tempered by extremely wet weather. The segment's bottom line increased as a result of volume leveraging, map to growth savings, temporary reduction to discretionary spending, favorable product mix, and moderation in some raw material categories. However, future cost pressure is anticipated due to recent inflation in certain raw materials and packaging, as well as additional overhead expenses resulting from ongoing investments in capacity. We anticipate that we will see elevated demand over the next few quarters as housing turnover improves and more DIYers gained successful experience with new projects. Specialty products group sales were 158 million through the fiscal 2021 first quarter, a decline of 1.3 percent compared to sales of 160.1 million in the prior year period. Organic sales decreased 5.7 percent or 9.1 million, which was partially offset by acquisitions, which contributed 4.1 percent or 6.6 million to sales. Foreign currency translation increased sales by 0.3% or 0.4 million. Adjusted EBIT in the segment was down 15.9% to 24.1 million in the fiscal 2021 first quarter compared to 28.6 million in fiscal 2020. The segment's first quarter sales rebounded and were nearly flat as compared to last year's first quarter. This was due to more favorable market conditions that drove demand for some of its products. Marine coatings were boosted by increased outdoor activity, wood protectants were boosted by stronger lumber sales, and nail mammals increased because of greater demand for home beauty care. The unfavorable impact to the bottom line from product mix, operating disruptions associated with COVID-19, and the leveraging on lower volumes was partially offset by savings from the Massive Growth Operating Improvement Program. Now, Rusty will walk you through our outlook for the remainder of fiscal 2021. Rusty Coyle- Thanks, Matt.