RPM International Inc.

Conference call for the fiscal 2022 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 risk 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 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 then 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. Please go ahead, sir.

Thank you, Dee. Good morning and Happy New Year. Welcome to the RPM International Link Investor Call for our fiscal 2022 second quarter. Joining me on the call today is Rusty Gordon, our Vice President and Chief Financial Officer, and Mike LaRoche, Vice President, Controller, and Chief Accounting Officer. I'll begin by sharing broad commentary on our consolidated performance for the quarter. Mike will provide details on our segment results, and Rusty will conclude our formal comments with our outlook for the fiscal 2022 third quarter. Our comments will be on an ads-adjusted basis, and all comparisons are to the second quarter of fiscal 2021, unless otherwise indicated. Please note that we provided a supplemental slide presentation to support our comments on this call. These can be assessed in the Presentations and Webcast section of the RPM website at www.rpminc.com. After our formal remarks, we'd be pleased to take your questions. I'll start with comments related to the third slide in the presentation material. For the fiscal 2022 second quarter, consolidated sales increased 10.3% to $1.64 billion, driven by continued robust demand for paints, coatings, sealants, and other building materials. This top-line performance was slightly ahead of the outlook we provided last quarter. Our second quarter sales growth could have been even stronger if not for continuing supply chain challenges that limited access to certain raw materials and cost us roughly $200 million of lost or deferred sales in the quarter. Organic sales growth was 8.6%. Foreign currency translation provided a tailwind of 0.4%, and acquisitions contributed 1.3%. Adjusted EPS was 79 cents, decreasing 26% compared to the strong adjusted diluted EPS growth of nearly 40%. in the prior year period. Consolidated adjusted EBIT for the quarter was $157.3 million, a decrease of 21%, which was in line with our outlook and was a result of continued material wage and freight inflation, as well as supply chain disruptions that were exacerbated by Hurricane Ida at the beginning of the second quarter and increased our conversion costs. Because of this supply disruption, we lost the equivalent of nearly 300 production days across RPM facilities globally during the second quarter, which was similar to our lost production days in the first quarter. We partially offset these challenges with price increases, which averaged in the high single digits across RPM, and continued operational improvements from our Map to Growth program, which provided $19 million in incremental cost savings. It's also worth noting that we faced a difficult comparison to the prior year when consolidated adjusted EBIT increased nearly 30%, largely due to higher sales volumes driven by extraordinary demand for our home improvement products in our consumer group during the pandemic. To recover lost margin from inflation, we are implementing an additional round of price increases this quarter across our business segments as appropriate. In many instances, this will be the third round of price increases in a 12-month period. The next slide provides high-level results by segment. Much like last quarter, our performance reflects the benefits of our balanced business portfolio, where softness in one segment is generally offset by strength in others. During the second quarter of fiscal 2022, three of our four operating segments, construction products group, performance codings group, and specialty products group, generated strong double-digit sales growth. Combined sales in these three segments increased more than 18%, with roughly 10% being unit volume growth year over year. While our construction products and performance codings group generated strong adjusted EBIT growth, the specialty products and consumer group faced extreme supply chain constraints that put pressure on their earnings. In particular, the specialty products group restoration equipment business was affected by worldwide semiconductor chip shortages that delayed sales to a growing backlog and unfavorably drove product mix. The consumer group continued to experience inflationary pressures, as well as shortages of key raw materials driven largely by last year's production outage at a key resident supplier that negatively impacted conversion costs. In addition, the consumer group faced a difficult comparison to the prior year period when sales increased more than 21% and adjusted EBIT was up 66%. These growth rates in the prior year period were largely due to the extraordinary DIY demand during the pandemic. All indicators suggest that the underlying demand for our consumer products remains strong, and that is continuing to grow in our third quarter. Before we move to the details on our segment results, I'd like to touch on two larger trends that RPM is well positioned to capitalize on. First, as you know, the U.S. government has passed a number of bills over the last two years that will direct billions and potentially trillions of dollars towards construction and infrastructure and markets. Based on our strong position with these markets with well-recognized, highly regarded brands such as Tremco roofing systems and commercial sealants, carboline corrosion control coatings, Euclid concrete admixtures, and New Dura insulated concrete forms, all of which have been gaining market share in this fiscal year. We are well positioned for continuing meaningful growth in North America and globally. Two years ago, we introduced the tagline, Building a Better World, in a number of our communications. It certainly represents our products and services, which literally contribute to making structures better through beautification, protection, restoration, and sustainability. But it's also meant to be aspirational as we strive to make the world a better place for those we serve, including our customers, entrepreneurs, associates, shareholders, and the communities in which we operate. As we all continue to manage through the global pandemic, we remain focused on coming together to make the world a better place for everyone. There are many examples where RPM is doing so. Some of the ways RPM is building a better world include the development of sustainable products such as our AlphaGuard Liquid Applied Roofing products, which are gaining market share and allow roofs to be restored and eliminate the needs for tear-off replacement and significant contributions to waste sites. In addition, our Tremco roofing business has been named a BioPreferred Program Pioneer by the USDA because of our early adoption of sustainable product solutions within our roofing division and the industry. Talent development, which includes the RISE education and training initiative that is part of our WTI business and was developed in response to the shortage of qualified roofers, includes an element called Elevate. This involves the training of incarcerated individuals in roofing so that they have skills and job opportunities upon their release, at which time they are guaranteed a job at our Tremco roofing business. and sustainability practices across our operations, such as initiatives to reduce water usage that are saving millions of gallons a year at Arteglo, Rust-Oleum, and other businesses. You can learn more about how RPM is building a better world on our website and in our ESG report at www.rpminc.com forward slash ESG. We have a great story to tell, and we will be organized to tell it better in the coming quarters and years. We remain focused on long-term growth, and despite COVID-related challenges, especially in supply chains, continue to invest in initiatives that will drive our business forward in the coming years. This includes operational improvements, the development of innovative new products, acquisitions, and manufacturing capacity expansions. A case in point is the 178,000 square foot plant we purchased in September, which is located on 120 acres in Texas. This will serve as a manufacturing center of excellence for multiple RPM businesses. In just two months, it is already improving the resiliency of our supply chain and fill rates. During the second quarter, we began production of alkyl resins, which are an important raw material for a number of our products, particularly in our consumer group. In the coming quarters, the plant expansion, expand the production of a number of our high growth product lines. I'll now turn the call over to Mike, to discuss our segment financial results in more detail.

Thanks, Frank, and good morning, everyone. Turning to the next slide, our construction products group generated all-time record sales of $614.2 million. Sales grew 22% for the quarter, the highest rate among our four segments. 19.9% was organic. Foreign currency translation provided a 0.3% tailwind. and acquisitions contributed 1.8%. CPG's market-leading top-line growth and positive mix were primarily driven by innovation in its high-performance building solutions, market share gains, and strong demand in North America for its construction and maintenance products. The businesses that generated the highest growth included those providing insulated concrete forms, roofing systems, concrete admixture and repair products, and commercial sealants. Sales of our Nudura ICS have been particularly robust because they offer an alternative to lumber, which is in short supply and experiencing skyrocketing costs, and because Nudura's ICS provides structural, insulation, and labor benefits. Performance in international markets was mixed, with Europe fairly flat, while emerging markets showed signs of recovery. The segment's adjusted EBIT increased 16.5% to a record level due to volume growth, operational improvements, and selling price increases, which helped to offset material inflation. Moving to the next slide, positive trends from the first quarter carried over into the second for our performance codings group. Sales grew 16.9% to a record level, reflecting organic growth of 12.2%, a foreign currency translation tailwind of 0.8%, and a 3.9% contribution from acquisitions. Nearly all of PCG's major business units contributed to the positive growth, largely due to the catch-up of maintenance projects previously deferred by industrial customers, particularly as COVID restrictions relaxed and contractor access to construction sites improved. Sales growth was also facilitated by price increases and improved product mix, driven by new decision support tools that helped improve Salesforce efficiencies and product mix. Leading the way were the segment's largest businesses providing polymer flooring systems and corrosion control coatings, serving growing end markets including electric vehicles, semiconductors, and pharmaceuticals. Sales also remained strong at its recently acquired Bison raised flooring business and in emerging markets. Adjusted EBIT increased 41.3% to a record level as a result of pricing, volume growth, operational improvements, and product mix. Advancing to the next slide, our specialty products group reported a sales increase of 10% to a record level as its businesses capitalized on the strong demand in the outdoor recreation, furniture, and OEM markets they serve. The segments fluorescent pigments business also generated good top-line growth. Organic sales increased 9%, recent acquisitions added 0.4%, and foreign currency translation increased sales by 0.6%. Adjusted EBIT decreased 29.4% due to higher raw material and conversion costs from supply disruptions, as well as unfavorable product mix, particularly in our disaster restoration equipment business, which has been hindered by the semiconductor chip shortage, as Frank had mentioned. In addition, the segment experienced higher expenses resulting from investments in future growth initiatives plus higher legal expenses. These factors were partially offset by operational improvements. On the next slide, you'll see that the severe raw material shortages that the consumer group experienced during the fiscal 2022 first quarter persisted during the second quarter. The resulting production outages negatively impacted segment sales by approximately $100 million. Segment sales decreased 3.3%, with organic sales down 3.5% and foreign currency translation up 0.2%. Despite raw material shortages, the segment's fiscal 2022 second quarter sales were still 17.4% above the pre-pandemic levels of the second quarter of fiscal 2020. Demand for its products remain high and inventories in many of its channels are low. We expect to recover these sales when raw material and supply conditions stabilize. As Frank mentioned in his opening comments, the consumer group also faced a challenging comparison to the prior year period when sales increased 21.4% and adjusted EBIT increased 65.8% due to extraordinarily high demand for its home improvement products during the first phase of the pandemic. Earnings declined during the fiscal 2022 second quarter from inflation of materials, freight, and labor, as well as the unfavorable impact of supply shortages on productivity. These factors were partially offset by price increases and operational improvements. The segment continues to add capacity to meet demand and build resiliency in its supply chain to secure the raw materials it requires. In order to meet customer demand, it is using contract manufacturing at higher costs until it can bring new manufacturing capacity online. It is also qualifying new sources for raw materials, including our new manufacturing plant in Texas. Now I'll turn the call over to Rusty to discuss our outlook.