RPM International Inc.

Welcome to RPM International's conference call for the fiscal 2021 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, all 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, then one on your telephone. Please note that only financial analysts will be permitted to ask questions. At this time, I'd like to call over to RPM's chairman and CEO, Mr. Frank Sullivan, for opening remarks. Please go ahead, sir.

Thank you, Denise. Happy New Year and welcome to the RPM International Inc. investor call for our fiscal 2021 second quarter. Joining me on today's call are Rusty Gordon, RPM's Vice President and Chief Financial Officer, and Matt Ratajk, our Vice President of Global Tax and Treasury, who is also supporting our investor relations activities. I'll take a few moments to provide an overview of the factors driving our strong financial performance for the quarter and also share an update on our Map to Growth Operating Improvement Program. Matt will then review our second quarter financial results in detail and And then Rusty will wrap up with our formal remarks with an outlook for the third quarter of our fiscal 2021 year, after which we'll take your questions. I'm very pleased to report that we generated record sales, earnings, and cash flow for our second quarter. The excellent performance was achieved largely due to the efforts of our associates to grow our top line which was achieved by three out of our four segments, despite challenging economic conditions worldwide, coupled with operational efficiency improvement activities. The map to growth initiative once again generated strong leverage to the bottom line on moderate sales growth of 6%. Organic sales grew in a broad range of categories, including cleaning, disinfecting products, air purification equipment, small project paints, OEM coatings, and other areas. Acquisitions also contributed to sales, including the second quarter edition of Alley Industries, which is best known for its Gator brand of abrasive products. Alley's largest acquisition we made since fiscal 2013 positively impacted both sales and earnings in the quarter, while also demonstrating our renewed focus to invest in growth initiatives. Foreign currency translation also added to sales as international markets, particularly those in Europe, showed improvement. On an adjusted basis, our consolidated EBIT margin increased 240 basis points at 13.4% during the quarter, driven by three of our four segments registering substantial EBIT margin improvements and high EBIT growth. This was even more impressive given a tough comparison last year when adjusted EBIT increased 22%. Our consumer business continues to lead the way, driven by unprecedented consumer demand with small project paints, clocks, sealants, stains, and cleaners. while our other segments are finding ways to compete and win in the markets they serve. Our businesses remain focused on growth and are continuing to develop new innovative solutions for our customers. One example is DAP's Eclipse Rapid Wall Repair Patch, which was just introduced and was developed to quickly fix most common drywall damage with simple, mess-free repair. Another is CarbLine's PyroCrete 341, a next-generation cementitious coating for passive fire protection. With enhanced application properties and excellent durability, PyroCrete 341 positions Carboline as a market leader in passive flare protection. In addition, our construction products group recently introduced a suite of products that will keep us working this winter in temperatures as low as minus 20 degrees Fahrenheit, including AlphaGuard Puma and Volcom EWS waterproofing coatings, which are used to protect roofs and concrete. And in a challenging construction market, our construction products group continues to focus on renovation as exemplified by its Spectrum Simple seal for facade restoration. On one recent residential tower in Minnesota, a complete window replacement was estimated to cost $15 million. Tremco won the job by recommending its Spectrum Simple solution, which was used to restore the facade at a cost of only $1 million. We expect significantly more of this restoration project sales. Our map to growth program continues to have tremendous momentum. During the second quarter, we announced the closure of two plants, which brings our total to 25 out of the 31 plants that were originally targeted for closure at the start of the program. We're also becoming much more efficient in utilizing our manufacturing assets as our focused improvement team meetings continue to deliver cost savings opportunities. One example is a drive-it manufacturing engineer recently trained in six similar principles who identified process improvements to reduce scrap and increase yields, which will result in $250,000 in annual savings. There are literally hundreds of other continuous improvement examples like this across RPM as we have invested in training our operations associates throughout the MAP2Growth program. In addition, the targeted benefits from our center-led procurement initiatives are ahead of plan and our administrative improvements and ERP consolidations are continuing to be implemented. As mentioned last quarter, we expect that we will reach the MAP2Growth program's planned run rate of $290 million in annualized savings by the conclusion of this fiscal year. That said, through our culture of continuous improvement, we continue to add to our robust pipeline of cost savings initiatives and operational improvements that will carry into fiscal 22 and beyond and will ultimately result in exceeding our original map to growth expectations. Based on our improved margins and better working capital management, our business units generated record cash from operations, which increased 93% to $580 million. We've been strategic in managing this record cash flow, using it to pay down debt, make acquisitions, and an increase in our cash reserve. At quarter end, total liquidity stood at $1.6 billion. making our balance sheet stronger than it has been in a long time. One final comment I'd like to make relates to my predecessor, Tom Sullivan. He was also my father and mentor who passed away on November 30th. I share this because he had a tremendous influence on shaping the RPM of today. He took over the business in 1971 after his father died unexpectedly. At that time, RPM sales were $11 million. Following a 55-year career with RPM, Tom retired from our board in 2016 when annual sales had reached nearly $5 billion. His leadership ingrained practices within the organization that can continue to perpetuate our growth and success, and his spirit continues to drive RPM. I'll now turn the call over to Matt Radicek, who will review our fiscal 21 second quarter financial results and warnings.

Thanks, Frank, and good morning, everyone. Please note that my comments will be on an as-adjusted basis. During the second quarter, we generated record consolidated net sales of $1.49 billion, an increase of 6% compared to the $1.4 billion reported during the same quarter of fiscal 2020. Organic sales increased 3.5% for $49.5 million. Acquisitions contributed 2.3 percent to sales, or $32.6 million. Foreign exchange was a tailwind that increased sales by 0.2 percent, or $2.5 million. Adjusted diluted earnings per share were at $1.6, an increase of 39.5 percent compared to 76 cents in the year-ago quarter. Our consolidated adjusted earnings before interest and taxes, EBIT, increased 29.7% to 199.3 million compared to 153.7 million reported in the fiscal 2020 second quarter. Turning now to our segment results. Sales in our construction products group increased 0.8% to 503.5 million compared to 499.5 million a year ago. Organic sales increased 1.2% or $6.1 million. There was no impact from acquisitions. Foreign currency translation reduced sales by 0.4% or $2.1 million. Adjusted EBIT in the construction products group increased 26.8% to $78.5 million from adjusted EBIT of $61.9 million reported in a year-ago period. The segment was able to leverage its modest sales growth into outstanding results on the bottom line, largely due to map to growth initiatives, aggressive discretionary cost cuts, and proactive management to improve its product mix. This was achieved despite soft commercial and institutional construction markets in North America and in Europe. The segment was able to maintain its top line by focusing on renovation and restoration projects, expanding its position as a single-source provider of building envelope systems, and continuing to take market share with its industry-leading construction technologies, including its New Dura insulated concrete forms. Sales on performance coatings group decreased 11.6% to $258.8 million from $292.7 million a year ago. Organic sales declined 12.2 percent or 35.6 million. Acquisitions contributed 0.6 million or 0.2 percent to sales. Foreign exchange increased sales 0.4 percent or 1.1 million. The segments adjusted EBIT was down 24.2 percent to 28 million compared to 37 million in the prior year period. Similar to last quarter, the performance coatings group's sales continue to be impacted by COVID-19 restrictions that limited access to construction sites and also by weak energy markets that have resulted in a deferral of industrial maintenance spending. Industrial capital spending has been restricted, especially in the energy sector, which is the largest market for our industrial corrosion control and fireproofing coatings businesses. The segment was particularly challenged in emerging markets, and its carboline business was temporarily disrupted by hurricanes in the Gulf region of the U.S. The segment's earnings were impacted by declining sales, partially offset by map to growth savings, and discretionary cost reductions. Out of all of our segments, the performance codings group has been unfavorably affected the most by the pandemic. However, it also stands to benefit significantly from the pandemic's end as its customers catch up on deferred maintenance and construction projects. The unprecedented demand for our consumer products continued this quarter, resulting in a significant increase in sales for our consumer group. They increased 21.4% to $547.5 million from $450.9 million in the fiscal 2020 second quarter. Organic sales increased 15.2% or $68.6 million. Acquisitions contributed 26 million or 5.8% to sales. Foreign currency translation increased sales by 0.4% or 2 million. Adjusted EBIT in the consumer group increased 65.8% to 90.7 million compared to 54.7 million in last year's second quarter. Our consumer group's outstanding performance was driven by our broad distribution and by leveraging our market leading position as homebound consumers tackled significantly more projects. We are investing in paint making and aerosol filling capacity to help meet this demand. The top line also benefited from vigorous cleaning product sales, favorable translational foreign exchange, and the acquisition of Ali Industries. Raw material costs were stable overall during the quarter. However, we are currently seeing broad-based inflation in a number of raw materials. High sales volumes and map-to-growth savings were leveraged to the segment's strong bottom line. Specialty products group sales were 176.1 million, an increase of 11.3 percent compared to 158.2 million in the year-ago period. Organic sales increased 6.6 percent or 10.4 million. Acquisitions contributed 3.8% or $6 million to sales. Foreign currency translation increased sales by 0.9% or $1.5 million. Adjusted EBIT in this segment increased 27.7% to $29.6 million this quarter, compared to $23.2 million in the second quarter of fiscal 2020. Management changes that we implemented at the specialty products group have helped to turn around results at the segment this quarter. Sales were boosted by increased hurricane and wildfire activity, which drove demand for our water restoration equipment, as well as fluorescent pigments, which are used in fire retardant tracer dyes. Additionally, we continue to experience strong demand for our expanding product lineup of disinfectants, air purification equipment, and HEPA filters. Several of the segments and markets have improved. For example, sales of its industrial wood protection products increased as a result of improved lumber demand in the US, and we've expanded sales in our forestry chemicals business in Australia and New Zealand. The segment's bottom line increased as a result of higher sales volumes, operational improvements, and map to growth savings. Now, Rusty will walk you through our outlook.