RPM International Inc.

Good morning and welcome to the RPM International Fiscal Fourth Quarter and Fiscal Year 2025 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Matt Schlarb, Vice President of Investor Relations and Sustainability. Please go ahead.

Thank you, Gary, and welcome to RPM International's conference call for the Fiscal 2025 Fourth Quarter and Full Year. Today's call is being recorded. Joining today's call are Frank Sullivan, RPM's Chair and CEO, Rusty Gordon, Vice President and Chief Financial Officer, and Michael LaRoche, Vice President, Controller, and Chief Accounting Officer. This call is also being webcast and can be accessed live or replayed on the RPM website at .rpminc.com. Comments made on this call may include forward-looking statements based on current expectations that involve risks and uncertainties which can cause actual results to be materially different. For more information on these risks and uncertainties, please view 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 items or terms, RPM has posted Reconciliation's The Most Directly Comparable GAAP Financial Measures on the RPM website. Also, please note that our comments will be on an as-adjusted basis, and all comparisons are to the Fourth Quarter of Fiscal 2024 unless otherwise indicated. We have provided a supplemental slide presentation to support our comments on this call. It can be accessed in the Presentation and Webcast section of the RPM website at .rpminc.com. Now I would like to turn the call over to Frank.

Thank you, Matt. I'll begin today's call with a high-level review of our Fourth Quarter and full-year results and some additional details on our newly announced three-segment operating structure. Then Michael LaRoche will cover the financials in more detail, Matt Schlarb will provide an update on cash flow and the balance sheet, and finally Rusty Gordon will then conclude our prepared remarks with our outlook for Fiscal 2026 full-year in the first quarter. As always, we'll be happy to answer your questions after our prepared remarks. Highlights from our Fourth Quarter results can be found on Slide 3. Thanks to the hard work of RPM associates, we demonstrated the power of RPM as we combine solid top-line growth with improved operating efficiency that has been enabled by our MAP 2025 Operating Improvement Initiatives. This resulted in Fourth Quarter sales, adjusted EBIT, and adjusted DPS all at record levels. We generated positive volumes led by systems and turnkey solutions for high-performance buildings as well as our focus on maintenance and repair. The volume growth resulted in improved fixed cost leverage and allowed us to better realize the financial benefits of our MAP 2025 Operating Improvements. All segments increased adjusted EBIT with the largest growth coming from our Construction Products Group and Performance Codings Group, which generated volume growth that leveraged MAP 25 benefits to the bottom line. Additionally, three of four segments generated record Q4 adjusted EBIT. Turning to Slide 4, the record results we generated in the Fourth Quarter reflected a strong and consistent trend as we had delivered record adjusted EBIT in 13 of the last 14 quarters. In fact, we generated record annual sales, adjusted EBIT, and adjusted DPS in each year since we began the MAP 2025 program in what can be best described as a mixed economic environment. Additionally, in Fiscal 2025, we generated a record adjusted EBIT margin. Moving to Slide 5, in addition to the consistent progress we've achieved, the cumulative impact of these improvements during MAP 25 has been significant. Compared to our baseline fiscal year of 2022, we expanded gross margins close to our 42% goal, adjusted EBIT margin by 260 basis points, and improved working capital as a percent of sales by 320 basis points. These improvements and margins in working capital efficiency strengthened our cash flow and allowed us to complete the largest year of acquisition in RPM's history in Fiscal 2025. Importantly, our balance sheet remained strong with credit metrics still close to our best ever. These results are a testament to the dedication and relentless persistence of our associates, and I want to thank them for their execution of our operating improvement initiatives and commitment to RPM during this challenging low-growth, no-growth environment. As we look to the future, we are focused on realizing the full power of RPM, essentially building on the efficiencies we have ingrained into our businesses and accelerating growth to take full advantage of those efficiencies. To accelerate growth, we are taking a more strategic approach to allocating capital to both organic and inorganic opportunities. This includes leveraging the progress we have made in data analytics through MAP25 to capture true profitability so we can focus investments on the highest potential opportunities and then aggressively pursue growth in those areas. We are starting to see this take hold as we begin Fiscal 2026. As an example, we recently implemented $15 million in SG&A streamlining actions and a portion of these savings are being reallocated into our highest growth opportunities in attractive end markets like turnkey engineered solutions, cleaners, and international markets in the developing world. These investments are in areas such as technical sales force expansion, marketing, new products, and new facility build-out. One other key element of our growth plan that has been enabled by our MAP 2025 initiative is the cultural shift that has taken place to allow our businesses and associates to collaborate more closely or what we call connections creating value. This will drive additional organic growth opportunities and synergies in 2026 and beyond. To accelerate this shift towards realizing the full power of RPM, we've changed our operating structure to three segments. Construction products group, performance coding group, and the consumer group. As you can see, this new structure on slide six. Businesses that have previously been part of our specialty products group are now reorganized under the three groups mentioned above. This new structure will allow us to achieve additional operational administrative efficiency and enable our businesses to work more closely to realize synergies in new business generation, product development, and insourcing. For example, our industrial coding group of businesses has joined the performance coding group and will benefit from improved collaboration on high performance coding development with our carb line division, as well as a broad distribution network which will improve customer service levels. The color business has now joined the consumer group, which through insourcing has become Dayglow's largest customer. The new structure will allow cooperation more closely and efficiently in color specifications, a critical component of our consumer products, in particular Rust-Oleum. This change will also allow the color group to operate with a more streamlined overhead structure and leverage our consumer segment's strong marketing know-how to raise the profile of our well-known Dayglow fluorescent pigment brand. Importantly, this will not change what has served RPM so well throughout our history. Having an entrepreneurial culture that serves our customers with leading brands, products, and services and staying true to our core values of operating with transparency, trust, and respect. We are pleased with the fourth quarter results our associates achieved in a continuing low to no growth environment, which continues to be unsettled due to the ongoing tariff uncertainty. We are optimistic about our opportunities to continue this positive momentum into and throughout fiscal 2026. I now turn the call over to Mike LaRoche to cover our financials for the quarter in more details.

Thanks Frank. On slide seven, consolidated sales increased .7% to a fourth quarter record led by systems and turnkey solutions for high performance buildings, a focus on repair and maintenance solutions and acquisitions. U4 adjusted EBIT increased .1% to a record as volume growth allowed us to better leverage MAP 2025 initiatives and overcome headwinds from temporary cost and efficiencies from plant consolidations and raw material inflation, which was driven by metal packaging. Profitability headwinds included higher M&A expenses, higher variable compensation associated with the sale of technical products, and the SG&A from acquired businesses, partially offset by SG&A streamlining actions. Fourth quarter adjusted EPS was also a record driven by the improved adjusted EBIT. Turning next to geographic results on slide eight, growth was led by Europe where growth and performance coatings and M&A benefited sales. In North America, sales growth was driven by system and turnkey solutions serving high performance buildings. Emerging market sales were mixed as Latin America grew excluding FX, Africa and Middle East grew modestly in addition to solid prior year sales, and Asia declined as economic conditions in the region remained soft. Next, moving to the segments on slide nine, construction products group sales increased to a record driven by systems and turnkey roofing solutions to survey high performance buildings. This was in addition to strong prior year results. MAP 2025 and higher sales of engineered systems and services that expanded margins drove record adjusted EBIT. This was partially offset by temporary inefficiencies from plant consolidations. On slide 10, performance coatings group achieved record sales led by turnkey flooring solutions serving high performance buildings, fiberglass reinforced plastic structure growth and M&A. Adjusted EBIT was a record as higher volumes improved fixed cost leverage which was aided by MAP 2025 and as a result of sales mix improvement. Moving to slide 11, specialty products group sales improved as specialty OEM showed signs of stabilization after a cyclical downturn. Food coatings continued to perform well and was aided by a prior acquisition. Demand was soft in the fluorescent pigments and disaster restoration businesses. Adjusted EBIT increased thanks to MAP 2025 benefits partially offset by a $2.5 million bad debt expense due to a customer bankruptcy and higher startup expenses at a resin center of excellence. On slide 12, the consumer group sales declined modestly as new product introductions and one month of the pink stuff acquisition were more than offset by continued DIY softness. We also continued rationalizing SKUs which had a negative impact on sales but helped improve the adjusted EBIT margin. Adjusted EBIT increased to a record driven by MAP 2025 benefits which more than offset the sales decline and raw material inflation. I'll turn the call over to Matt who will cover the balance sheet and cash flow.

Thank you, Mike. Our strong cash flow in fiscal 2025 that was enabled by MAP 2025 profitability and working capital improvements allowed us to continue returning cash to shareholders in the form of dividends and share repurchases. Overall, these increased $39 million or .5% over the prior year. Operating cash flow for fiscal 2025 was $768.2 the second highest amount in the company's history surpassed only by the prior year when there was a large working capital release when supply chains normalized. During fiscal 2025 fourth quarter, inventories increased as we made strategic purchases of raw materials to mitigate the impact of future tariffs. The strong cash flow also contributed to the funding of several acquisitions in fiscal 2025 which is the largest M&A year in RPM's history. This momentum has continued in the year with the acquisition of ready seal a leader in high quality and easy to use exterior wood stains during the first month of fiscal 2026. That increased by $519.5 million year over year primarily driven by the funding of TMPC and the pink stuff acquisitions. Despite this debt increase, our leverage ratios near all-time best levels and liquidity remained strong at $969.1 million. CAPEX increased $15.9 million over the prior years we invested in growth projects including the residence center of excellence and a distribution center both of those facilities being in Belgium and a new production of research facility in India. The consolidation of eight plants through our MAP 2025 program also contributed to the higher CAPEX. Now I'd like to turn the call over to Rusty to cover the outlook.

Thank you Matt. Moving to our full year outlook on slide 14, we expect another year of record sales and adjusted EBIT in 2026 including margin expansion as we benefit from MAP 2025 carryovers as well as from recent acquisition. We expect sales to increase low to mid single digits and adjusted EBIT to grow in the high single to low double digit range. We will leverage the things within our control including implementing additional efficiency initiatives and focusing on turnkey and system solutions for high performance buildings. Our new three segment organizational structure will contribute to improved collaboration and SG&A streamlining. Overall SG&A streamlining actions completed throughout the first quarter will save around 15 million dollars on an annualized basis with most of the benefit coming in future quarters. Approximately one-third of these savings will be reallocated into higher growth business platforms for technical sales force expansions and increased marketing activities. Additionally we are in the process of consolidating eight less efficient plants while opening three plants and fast growing international markets that will be shared by multiple RPM businesses. We expect higher pricing in response to inflation particularly the tariff related inflation that we are unable to otherwise mitigate. We will also benefit from the businesses we have recently acquired. Interest rates are an important variable that we will be watching. They have remained elevated which has pressured existing home sales and DIY activities and have also been a headwind to some new build non-residential construction. Higher debt balances from M&A will also contribute to increased net interest expense which is expected to range between 105 and 115 million dollars for the year. Our first quarter outlook can be found on slide 15. We expect sales growth and record adjusted EBIT in the quarter led by systems and turnkey solutions serving high performance buildings as well as a focus on repair and maintenance which customers tend to grab gravitate toward during times of economic uncertainty. Additionally we will benefit from a full quarter of the pink stuff acquisition and the ready seal acquisition which closed a couple of weeks into the first quarter. We also expect inflation to continue increasing in the quarter particularly in metal packaging which has been rising in response to tariffs. This will temporarily cause price cost to be negative during the quarter as not all price increases were fully implemented at the beginning of the quarter. These profitability headwinds are expected to offset operational efficiency benefits during the quarter. Overall we expect consolidated sales and adjusted EBIT to both increase by low to mid single digits in the quarter. By segment we anticipate similar sales growth among the three groups with consumers slightly higher because of their acquisitions of the pink stuff and ready seal. That concludes our prepared remarks and we are now happy to answer your questions.

We will now begin the question and answer session. To ask a question you may press star then one on your telephone keypad. If you are using a speakerphone please pick up your handset before pressing the keys. To withdraw your question please press star then two. Our first question today is from Mike Sison with Wells Fargo. Please go ahead.

Good morning. Really nice quarter and outlook. Frank I'm just curious in terms of what underlying demand or organic growth do you see this year? I know you growth in sales but just a little bit of color what you think the organic growth can be in this difficult environment?

Sure broadly speaking and you've heard this on some of our more recent investor calls as we were approaching the end of our MAP25 initiative which formally ended at May 31, 2025 we've been talking within RPM about a pivot to growth and we're starting to see that take hold. I think we anticipate the ability to consistently generate two to three points of organic growth on a consolidated basis for the year. I think the two biggest challenges that are kind of the dynamic factors as to whether things could be better are certainty and finality around the tariff issues or not and the worm turning for the consumer DIY business which is seen 24 months of no or negative growth on a pretty regular basis and something extraordinary in our history. But you're seeing really solid organic growth out of CPG and PCG and we're starting to see things move in the right direction after a challenging 18 months in the industrial coatings group so more OEM coatings that was the largest piece of our specialty products group. I think those are the key factors that give us confidence that we're going to see modest organic growth quarter by quarter for the year.

Great and a quick follow up the new three segment structure does that enable you to generate you know more productivity cost savings down the road and how do you think about that with the new segments?

Absolutely so at the start of our MAP initiatives seven years ago so in the fall of 18 our specialty products group was about 11 percent of consolidated revenues and somewhere in the 18 or 19 percent of consolidated EBIT. They through economic challenges and some underperformance a few units shrunk to this past year where they're slightly less than 10 percent in each case and so we saw that in conjunction with the retirement of the group president Ronnie Holman who's been with us for more than three decades to consolidate those specialty products group businesses into the other parts of RPM will benefit from upfront about 15 million dollars of expense reduction or efficiency actions taken in Q1. Will benefit from the synergies both operationally internally and externally I mentioned in my prepared remarks the opportunities to coordinate better the activities of our industrial coatings group with Carbline which will now both be part of the performance coatings group. We think that not only is our things improving in our color group but on a hundred million dollar business their largest single customer is eight million dollars of sales to Rustoleum. Rustoleum is in the color business and so it's a combination that we think will move our color business and our day glow business forward better than had it continued to operate as an independent company. So those are just some examples of the synergies we see both on the cost side as well as on the revenue side.

Right thank you.

The next question is from John McNulty with BMO Capital Markets please go ahead.

Morning John. Congratulations hey Frank great results. I guess I had two questions one is on the MAP25 program and I know it sounds like there may be a new one coming soon but I guess can you help us to understand how much in terms of incremental savings in 2026 you may be expecting just so we can kind of have a good baseline to work with and then the other question is just you made some pretty significant improvements on the working capital front in the MAP25 program. I guess how much of that do you feel like you still have left to go because I think in the prior couple quarters you were at least implying that there's still some pretty heavy lifting going on there so can you help us to think about both of those? Sure I'll

give

you a couple

data points which really highlight why we feel you know we'll have a choppy first quarter in terms of poor leverage because of the cost price mix dynamic that we're facing but a combination of price increases and number of our businesses and product lines that are rolling out at the end of July and into August and early September will help specific to your question the MAP2025 benefits in fiscal 26 should be about 70 million dollars across the full year and then I think the last area will be the benefit of the one expense reduction actions associated with a consolidation from four segments to three which we'll start benefiting from in the future quarters so those are the key elements in terms of how we think about it. Relative to working capital there's still a two or three hundred basis point improvement that we expect. You will see forward progress in fiscal 26 whether or not we get all of that in 26 or it bleeds into 27 time will tell but we will make forward progress this year and our goals which we intend to meet are to gain another two or three hundred basis points of improvement.

Got it okay no that's great and then just as a follow-up it seems like the dams kind of opened up a little bit with regard to M&A I guess can you help us to think about the M&A pipeline as you're looking out to 2026 at this point I know you've completed a bunch but you still you know admittedly you still have you know a really strong balance sheet and more cash flow to come in so how should we be thinking about that?

Sure I'll tell you that both culturally but also in terms of metrics the benefits of the MAP initiatives that our people have executed over the last seven years through a improved EBITDA margin which is a ratio that the rating agencies and banks look at and a sustainably improved cash flow including ready seal and the pink stuff and TMPC in the last 12 months we've completed over 600 million dollars of debt funded acquisitions a decade ago that would have challenged your balance sheet a little bit today it modestly moves those ratios and so we've got plenty of dry powder we're also seeing in these transactions and you and it happened later than you would have expected but we went through a period of incremental debt cost of capital for big companies of almost zero to a period where the cost of capital even on an incremental basis is in the five or six percent range and you would have expected that to bring down M&A valuations it has it took longer than maybe you would have expected but the transactions that we're being successful on today are at historically high multiples for us but two or three multiple turns below where transactions were happening maybe two or three years ago and we're in a good position to take advantage of that and I would expect our traditional acquisition growth machine to deliver more revenue growth and more deals this year and in subsequent years

great thanks very much for the color congratulations on the quarter

thank you

the next question is from Kevin McCarthy with vertical research partners please go ahead

morning Kevin thank

you and good morning good morning Frank congrats on the results and particularly nice to see the strength in construction products you know against the current macro backdrop on slide seven and eight you know you talk a little bit or reference at least your success in systems and turnkey solutions so just wonder if you could frame that out a little bit in in terms of you know maybe the the size of what you're doing there the growth rates and my impression is you were a first mover in that regard and I'm curious as to whether any of your competitors are adopting that sort of turnkey model or whether you have a lot of runway in terms of first mover advantage there

sure I can't really speak to competitors but I can tell you that we have had in our construction products group a very deliberate effort over the past let's say five years maybe even a little bit longer but it's really starting to take hold in the last year or two of moving from selling components to selling systems and so with the advent so drive it was its own business a decade ago selling exterior finishes and eaves tremco sealants sold their sealants into construction projects via distribution and and through specifications today they're really focused on six sides of the building through acquisition and internal development we've acquired things like new dura so icf panelization and so when you think of a wall system a decade ago we were providing all of the high margin sealants gaskets the elements around window door penetrations roof connections to walls today we have a much larger share of that wall we have high performance building solutions in new dura we have opportunities now to be more of an asset maintainer with some of our big customers instead of just doing reroofing or we now have pure air which allows us to address maintenance and rehabilitation of big hvac units which we've been asked for decades by customers hey while you're on a roof can you fix this we didn't have a very good answer we do now with pure air so we've really been thinking about both asset management what that means and system solutions and how we own a bigger piece of the not just the the sealant or gasket or you know unique components so that's been one critical area i think the other critical area in our stonehard flooring business in particular and tremco roofing is we've had for decades a unique supply and apply model and in a labor challenged environment that gives us an advantage in some circumstances and we're seeing those benefits as well the last comment in this area and it highlights some of the outperformance of our performance coatings group and our construction products group they have essentially teamed up in a what we call a platform approach to the developing world five years ago we did a full blown analysis with our board on acquisitions and the one area that stood out as not being successful was what we deemed small and far away a strategy of planting a flag you name it in indonesia in dubai in poland wherever in different places and we really weren't following up so you know we had these small operations but there wasn't a lot of synergy and attention paid to them we have reorganized the developing world approach under one leadership team they get the same attention as each of our groups in terms of monthly performance and outlook and so i think we have a strategy to grow in the developing world particularly across our industrial and commercial product lines that's starting to come to fruition that quite candidly five years ago wasn't working so you put all of those together and i think it explains the outperformance in our cpg and pcg businesses and why we think that that's going to continue

very interesting my second question is for rusty would you comment on what the passage of the one beautiful bill act means for rpm for example you know do you anticipate lower cash taxes given the provisions related to accelerated depreciation and r&d expensing

sir yeah we are still sorting through that kevin in general it's good news that the corporate tax rate is not going to 28 which was proposed in the last administration also you mentioned bonus depreciation yeah that should spur investment and that would be great as you can imagine for rpm you know manufacturing of course is one of many sectors of construction that we service and in terms of what i understand is that yes from a tax perspective it is looking like that the depreciation on our 220 million a year of capital spending can be basically we can expense the purchase of tangible property at 100 percent not 40 percent which was case prior to january so nothing but good news but still a lot to sort through

thanks very much the next question is from patrick cunningham with city please go ahead

good morning hi good morning frank good morning rusty can we maybe unpack you know this sort of price cost particularly in one you know we have seen a lot of the pricing opportunities in terms of the Q1 and Q2 and then expectations for the balance of the year and are the biggest pricing opportunities you know more in these turnkey systems where you're seeing strong demand and how the value proposition or is there is there anything more broad-based there

i think broadly we look at at pricing and have better discipline through our map initiatives across all our businesses specific to q1 our big challenges in consumer you know there's a couple commodity chemicals that are actually showing deflation one exception which hurts our industrial businesses is epoxy resins which were a huge buyer of those are up low double digits but specifically to consumer metal packaging is a real challenge plastic packaging is up modestly pigments are up double digits propellants are up 13 or 14 percent and so when you look at our rostoleum business in particular between metal packaging and propellants it's a real challenge and they're managing on the operating side to find deficiencies but we're going to need some price there and have plans to get it at the end of the summer and early fall so that explains kind of the the challenge in q1 where i would expect us to demonstrate like we did in q4 real solid growth positive organic growth in our industrial commercial businesses but a lack of leverage because of some of the segment consolidation activities that are driving some cost some of the map initiatives that are driving some duplicate costs as for instance we're closing a major tremco plant and in the process of moving all that production into two plants the united states we have some similar activities in europe which cannot be adjusted out and then i think those are the key elements of what will drive a lack of leverage in q1 but as i said earlier expense reduction actions in q1 in relationship to the segment consolidation price increases that are scheduled here for the end of July into August and early September and then broadly the the benefits of map 25 on the rest of fiscal 26 will show some nice leverage to the bottom line of the growth that we put forward in the quarters after q1

great very helpful and then in the prepared remarks you talked about the potential headwinds to non-resi construction can you speak to the health of the project backlogs construction and performance coatings are you starting to see any commitments slow or maybe delays impacting the conversion of the existing backlog no

the the backlogs for those businesses are really strong the challenges that we'll face are just difficult comps you know both pcg and cpg had really strong years in fiscal 25 really strong years in fiscal 24 so you know it's it's we're rounding some more challenging comps but as you saw in in q4 we're generating some pretty solid you know low single digit mid single digit organic growth and a lot of it's around the systems a lot of it's around the advantage of a supply and apply model and we expect that to continue the you know the the other thing that they would work in is in our consumer diy business we have been introducing in our dapp business in our rustoleum business new products there's a low odor product water-based low odor product just introduced at rustoleum there's some new single component foams that were introduced in the in the past six or nine months at dapp the move into cleaners with the pink stuff really puts us on the map where previously we had somewhere in the 50 to 70 million dollar range of kind of niche cleaning products now we'll have north of 250 million dollars in the cleaning category and importantly the pink stuff gets us into channels that we didn't have much of a presence in grocery discount drug and so these are thousands of outlets where the pink stuff is a broad cleaning category versus the niches we had the crud cutters and the conchrobiums and so a very deliberate strategy to diversify into new channels and into a new cleaning category with some of the disciplines our consumer group has and hopefully that will begin to pay off in fiscal 26 despite you know the lack of housing turnover and its impact on diy markets which is not really which has been bad for the last couple of years

the next question is from mike harrison with seaport research partners please go ahead

morning mike

hi good morning uh congrats on a nice quarter uh and um pretty good looking guidance i was hoping that you could uh maybe help us take a step backwards and and just help us understand in the fourth quarter you guys were pretty meaningfully ahead of your expectations i was hoping you could walk through uh what areas specifically were better than you anticipated where do you feel like you were right to be more cautious and and can you help us understand how uh demand trends in some of your key segments or product lines uh were playing out in april into may into june i think your your press release referred to some momentum on the outlook and i'm curious you know what specific areas you guys are seeing this momentum sure

um so a couple things one is new products and consumer that i mentioned a lot of which were introduced this spring and so that's starting to take hold uh and it's helping us fight an otherwise broad economic challenge in that area um another one is what we're doing in the developing markets we're seeing double digit growth and even margin improvement that's meaningful in local currencies currencies didn't help us uh last year looks like currencies might actually be a tailwind in fiscal 26 so that's good news um and then i will tell you that if you see the detail in press release on pcg uh and uh cpg as i indicated earlier i think we we can generate a solid two or three points of of real unit volume growth we had better than that q4 some of that was weather related uh uh delays from the q3 which we had talked about in q3 and uh thankfully the great back to your question as we get into 26 q3 was really a odd winter interruption you know our our fiscal year end helps us in some ways and hurts us in this case the calendar didn't help our q3 was december january february and the weather was terrible had our q3 been a january february march on a calendar quarter like most of our peers our results would have been better um and so uh i think it's a combination of those things that explain the strong fourth quarter but the continuing momentum if you really think of q3 as an aberration we're showing momentum from q1 q2 q4 and we see that continuing as we enter fiscal 26

all right very helpful and then i'm just curious in terms of the inflation that you're seeing you know would you categorize that as being normal supply and demand fluctuations or do you think it's driven more by tariff impacts i think we're just trying to get a sense of whether we could still expect some some further changes in what you're seeing around input costs depending on what happens with uh with trade policy

sure our best guess and you know we look at it pretty in great detail of the unmitigated impact of tariffs as they stand today and of course this can all change next week or next month but our best guess today is a negative four percent to five percent hit in fiscal 26 um you know we have some mitigation activities in terms of agreements with vendors we have some opportunities to as we talked about for instance the pink stuff moving production for the pace that they sell in the u.s to adapt plants so we're working on that that's just one example and then the final area would be in price increases from an inflation perspective i would tell you that this is a rough guess and this is sullivan but i think half the two-thirds is truly tariffs and half the one-third is the response of domestic suppliers taking advantage of the tariff regimes to raise prices steel steel is a great example um you know uh tin plate does come a lot from overseas not a lot of production in the u.s but the aggressive pricing of steel companies because they can uh is a challenge for anybody that buys steel these days

all right if i could sneak one more in uh just just curious if you can give any guidance on depreciation and amortization uh for for fiscal 26 as well as the capex outlook thank you

sure mike yes so for depreciation and amortization it should be around 200 million for fiscal year 26 the increase really driven by the m&a we've done and also some of the higher capex spending we've had um and then when we look at capex for the full year too we should be about 220 to 240 that would be the range and just also we mentioned this on the call but just to reiterate interest expense will be higher this year because of the additional debt that's been used to fund these m&a so we expect net interest expense to be between 105 and 115 million dollars for the year

the next question is from matthew ioey with bank of america please go ahead

morning

i'm not sure i've ever heard that last name pronunciation i like that one um but congratulations i guess it was a good quarter and obviously some of this organic growth i wanted to touch a little bit on on the flooring side of the equation i mean some of this reflective of the data center ai build out um is that is that manifesting into critical mass here or is this still an opportunity to to come as it relates to uh like uh i think there's

yeah i think there's still more opportunities there we are seeing some benefits uh in certain areas in particular our great business and frp grading and its non-conductive nature in data centers we're seeing some in flooring and coatings um i would say we're getting our share i would not say yet we're getting more than our share and we're working on that um and uh but in general um you know we're just seeing a nice uptick uh in small to medium-sized uh flooring projects along with some of the larger more headline uh projects that are out there and some of it's a really focused sales force and i do believe some of it is our supply and apply model uh which in a challenging labor environment uh is helping us

i appreciate that and um i think by our estimate we have something like 230 million in top line contribution to deals next year uh is that right and what do you expect contribution from that and kind of related sgna was up because of some of this deal uh some of the deal activity is that mostly just one-time legal banker fees uh how you know with streamlining how should we expect sgna to kind of flow through here

sure yeah i can take that one in terms of acquisitions we've announced the pink stuff acquired at the beginning of may and uh annualized that's 150 million pounds and then we just acquired ready seal in the middle of june we disclosed that at 40 million u.s dollars so you can model those in and you're right uh if you on acquisition deal costs they were elevated in q4 and they'll continue to be elevated in q1 as frank indicated on the last call that's actually a favorable indicator for rpm when those costs are up activities robust and we would expect that to hopefully continue you appreciate it

thank you

the next question is from josh specter with ubs please go ahead

morning yeah hi uh good morning good morning frank um just a couple quick follow-ups um first on raw materials apologize i missed this but you previously you said mid single digit inflation is where you thought we'd what's your latest view there

yeah in general i think as we start the year we're seeing broadly on a consolidated basis inflation in the one to two percent range um but it's uh kind of heavily weighted towards what's happening in our consumer business around packaging propellants and some pigments and you know i'm i'm hopeful that as this tariff issue gets some certainty and settle down that we'll see that simplified you know as i indicated earlier unmitigated we see a four to five percent impact of the tariff regimes and our ability to offset some of that through moving manufacturing and or agreements with some of our suppliers will help and it would be nice to get through after this year and have some of that fuga uncertain volatile changing every week provide some certainty in which people can plan around and as rusty mentioned that and some of the positive impacts of the one big bill on manufacturing investment i think will get people off the sidelines in terms of making decisions on additional projects which will help us

okay i guess what i was trying to figure out is so does that one to two percent inflation peak earlier in the year is that the mitigated impact or do you expect that to increase as we

percent inflation is what we are seeing q1 and it's disproportionately weighed towards consumer

okay thanks i'll leave it there

the next question is from david beg lighter with deutsch bank please go ahead

thank you good morning good morning um frank just done in consumer the organic down 3.8 percent in the quarter how much is due to the sq rationalization if you remained are you seeing greater pressure on the consumer as we speak or is it pretty much the same

it's pretty much the same you know we just finished our second year or eight quarters in a row of no or negative diy takeaway and we've never seen anything like that so unprecedented um and it seems to be flatlining if you will but there's no real dynamic here we're at a 40-year low in housing turnover and certainly others have lamented that and that's a challenge in this area it's predominantly in our rustoleum business and small project paints in part because of their size and their market share dap continues to build momentum and show some positive momentum throughout 25 and as we get into 26 they have more of a contractor customer base than our rustoleum business does we're actually performing pretty well in european marketplace however in europe we are in the process of discontinuing a lower margin product and closing a factory there and so that was part of the the negative impact on an annualized basis the sps business was 50 million bucks and most of that will go away um and you know we're in the process of transitioning that into whether plant and then we are leaving the cell with the cell

got it and just back on ross on tuesday you're one of your clueless base peers lower their back and they have raw material guidance they're seeing reductions in solvents and resins why they disconnect with what you're seeing or is it just more packaging related costs or maybe can help us there help us there thank you

sure so you know to the last question which i you know it was really trying to get at the same thing in terms of where we see inflation going i don't know all i can tell you is that in q1 our inflation on a consolidated basis it's going to be one to two percent and it's mostly in consumer and it is so metal packaging as we sit here today's up 11 or 12 percent propellants up 13 or 14 plastic packaging's up one or two percent pigments are up 10 percent those those are there are some solvent areas that are going down the one exception which is meaningful raw material for rpm across the board is epoxy so we're big producers of epoxy floor coatings epoxy coatings epoxy sealants and so that's up about 11 percent certain solvents and other things are moving in the right direction if oil price is moving the right direction that will be good but given the impact that tariffs have and the uncertainty from one way to the next other than being able to forecast a one to two percent inflation and give you the details we just did we don't really have a clue as to you know where things are going post this fall and in the next year thank you

the next question is from john roberts with mizuho please go ahead

uh thanks and i'll add by congrats is there a home for all of spg in the other three segments

yes so if you look at the color group roughly 100 million dollars eight million dollars of that is intercompany sales from our color group to rustoleum and the color group is about color and rustoleum is about color it's a great fit and there's opportunities with our best consumer marketers to do things with the deglo brand that up until now we have not our legend brands business is really asset management and as we get into businesses like pure air which is the refurbishment and rehabilitation of major rooftop hvac units it really fits into that same thing that's about 100 million bucks and then the balance of the 700 million dollar spg prior segment is the industrial coatings business and the food business the food business the the food coatings business not a lot of synergies it's just a great business higher than rpm margin profile at the gross margin and ebit margin level good solid growth it had to go somewhere so it's going to the performance coatings group but the other three elements all have really good strategic fits

and then you had a customer bankruptcy in spg last quarter and prior you had a bankruptcy in the consumer segment i know you said the backlog is relatively strong but are you seeing signs of stress across other areas of your customers

um not that we're aware of today the dynamics in the air handling air moving rehabilitation legend brands business are changing and it's moving a little bit from distribution to direct sales and so there's a lot of dynamics along the lines of of what you're asking that's about 100 100 million dollar business for us other than that you know we don't see any signs of stress from our customer base or any expectations of further bankruptcies

okay

thank you

the next question is from frank mitch with fermium research please go ahead

morning frank good morning frank to you as well i'd love to get invited to one of the local cleveland business meetings where you get together with some of the steel guys i'm sure it's uh i'm sure it's a very light environment um i want to follow up on the map savings for fiscal 2026 and confirm the 70 million dollars that you referenced that uh from map would go into 26 that's an incremental number correct

that's

correct so

you know we formally concluded the map 25 program at may 31 but there were activities throughout fiscal 25 and turning some plant closures and some other activities on operating efficiencies within our plants that will benefit and including some plant closures that are in process but not completed in fiscal 26 that will positively impact this new fiscal year and that 70 million is incremental that's

correct all right terrific so i if i add that to fiscal 25 assuming that's incremental then you're basically at the low end of the guide for the full year so hopefully we have a better economic environment to get to the high end and beyond and then on europe let

me just address that frank you know you know not just on the flow to the bottom line you know the inflation that we haven't talked about is on the non-material side um you know wages are up uh and salaries are up about three and a half four percent we're seeing huge increases in insurance costs and in medical costs so there's a lot of moving parts in any business and sort of a lot of a lot of moving parts at rpm but you got to offset a portion of that 70 million with a wage salary increase in the three and a half to four percent healthcare costs and insurance costs that i mentioned so there are tens of millions of dollars of rising costs across our business that are not associated with wrong materials that we're also managing that's

a that's a good qualifier appreciate it and then and then lastly uh you know europe obviously very impressive performance uh part of that mna related can you talk about the sustain you know how much of that 15 was coming from mna and you know how sustainable is that uh improvement in europe have you seen the bottom there and um and and you're and you know how's the outlook please

sure most of the growth was mna we're seeing a nice improvement in profitability through bringing the map initiatives maybe later than than where we started in north america to europe uh dave denstead who uh was president of our performance group moved his family to europe a couple years ago to oversee and drive a lot of these operating improvement initiatives so on a core basis our revenues have been relatively flat most of that fourth quarter uh pickup was mna a big chunk of that is the pink stuff which is a disproportionate a chunk of its business in europe uk and europe but the margin profile there is improving and the cash flow there is improving and there's more to come on that very helpful thank you thank you

the next question is from vincent andrews with morgan stanley please go ahead

morning vince uh thanks thanks good morning most of my questions have been answered so i'm just going to look for some clarification on something that i'm hearing different points of view on in the investment community which is is there going to be a formal map 3.0 program and if so when do you think you'll introduce it to us and i think from your prior comments it seems like if so it'll be much more of a revenue oriented or growth oriented program from a revenue perspective rather than a lot more on the cost side of the equation so any any any thoughts on that would be helpful

sure the answer is yes there will be a new program what we call it is still up for debate i think given the uncertainty around tariffs and and the stop starts change next week and the decision that you know we came to over the last six months or so to think about all right what's the right structure going forward in this move from four segments to three segments i think all those are dynamics that we want to get settled and so i would expect a new map program probably to be unveiled in the spring or summer of next year but we are absolutely working on a continuing the operating efficiencies that we gained through map you know we've got two or three hundred basis points as i mentioned earlier of additional improvement in the pipeline on working capital which will enhance cash flow and we fully intend to implement a new three-year plan and then at some point in the next call it six to nine months figure out you know what the appropriate communication on that is externally okay thanks very much appreciate it thank you

the next question is for Gancham Punjabi with Baird please go ahead

morning morning morning Frank um you know i'm sorry if i missed this if you already said this already but what are you embedding for consumer volumes uh for fiscal year 26 and how should we think about the sequencing of that in context of it doesn't sound like there's much improvement but you have some you know from an underlying market standpoint but you have some new products etc

i think that's right i russi can comment on some of the outlook we provided by segment but we're introducing new products we're focusing on cleaning as an entirely new category along with our small project paints and spray paints clocks and sealants abrasives so we've got a we're broadening the breadth of the product categories that we're involved in very deliberately introducing new products and i think when you look at our performance versus our performance by itself has been flattened down for eight quarters in a row in terms of volume not a happy thing but to their credit we we have performed at or better than many of our peers in terms of what's been a very difficult environment

yeah that's right i i would say that if you look at the outlook for depot and lows and the performance of our biggest competitors at those two accounts i think our results hold up pretty well we are not expecting a lot of growth but like frank says we try to outrun it with innovation and bringing new products and new platforms to the retailers and

so one last comment i'd make there is is that pink stuff's a real dynamic brand it gets us into new channels but there's things in cooperation with rustoleum we can do to accelerate accelerate the u.s growth of that brand ready and seal great business great franchise in partnership with rustoleum things that we can do to accelerate organic growth of that acquired business beyond what they could do on their own and so acquisitions will also play into improved results for our consumer segment

got it thanks for that frank and just one final one obviously your guidance for fiscal year 26 sales low to mid single digits and then significant operating leverage on ebit almost 2x that is that a function of your confidence that the volume outlook is better for the company you know perhaps versus your thoughts coming into fiscal year 25 or is it on the cost side that you have a lot of confidence on or or both how would you have us think think about that

sure it's it's a mostly a function of our efforts throughout fiscal 25 mostly internally although i referenced this on a couple of our calls to pivot to growth we we've spent seven years not only executing the map initiatives consolidating production bringing lean manufacturing disciplines on an effective and sustainable basis indoor operations working on what was an obvious opportunity to improve cash flow with better working capital performance but the cultural shift that we've made to greater collaboration and to a leadership level that thinks as much about rpm as they do their individual businesses and then really a pivot to growth to to really focus on how can we allocate more dollars to working and and be a little more deliberate that way leads us to believe that we'll be able to generate a year of organic growth in the two to three percent range complemented by acquisition activity complemented at least in the first part of the year by some additional price and as we start the year some favorable effects so there's a you know a lot of things that are i would just caveat that with the two night dynamics i mentioned earlier certainty finality around this tariff issue seems to be in sight who knows and so if that gets worse instead of better that could temper all of this and at some point the worm is going to turn for the consumer diy because while we're looking at mna and while we're introducing new products the negative performance in the diy markets broadly has existed for almost eight quarters and we've never seen that before and eventually the broader economic dynamics there i think will improve couldn't tell you when but when it when it does happen we'll be ready

thank you so

much

thank

you the next question is from jeff zacoskas with jp morgan please go ahead

um morning jeff hi good morning um you expect your ebit to grow roughly 10 next year um do you think of that as about half from acquisition benefits and half from organic and other factors

um i i'm not sure i would cut it i can tell you from a revenue perspective it'll be about half acquisition and half organic growth and so um i suppose that you could think of ebit growing that way as we get into quarter by quarter it'll really be a balance of how those acquisitions grow what we can do with them but also how organic growth leverage leverages to our bottom line if if we get to the high end of range it's because we will be generating better unit volume growth than we anticipate and if that happens you'll see a nice leverage from our core operations

and then in the quarter your cost of goods sold went up a little bit less than two percent and your revenues went up i don't know so cost of goods sold rose less than revenues and really a lot of your revenue growth was acquisitions and organic volume and you know you talked about raw materials being higher cost inflation for employees being higher how did you achieve the lower rate of cost of goods sales growth and did you say how much the map initiative helped for this year

sure yeah we uh in terms of the map initiatives we've been running roughly throughout the program at about a hundred million dollar a year run rate for incremental map initiatives and jeff what was your question on so well

rusty's

looking

at that in the map initiatives um you know you're looking at meaningfully improved conversion costs both from consolidating production uh and closing plants uh as well as introducing lean manufacturing disciplines that driving a higher higher level of throughput and so all those have been meaningful in terms of our gross margin improvement some of it jeff is driven dramatically by mix and you know across rpm we could spend hours on this but i'll just give you one good example in terms of where mix improves gross margin in ways that has nothing to do with raw material costs in our roofing business we have a straight material component and then our wti contracting component and while their ebit contributions are roughly equal the gross margin in our material sales is dramatically higher than the gross margin in our wti contracting business which is lower than rpms average so construction products roofing the mix between wti contracting and material can drive a meaningful difference in profitability at the segment level and then marginally for rpm so a lot of moving factors in that question

okay great thank you so much

thank

you the next question is from alexi yefremov with key bank capital markets please go ahead

morning good morning fiberglass grew 20 percent this quarter uh can you keep growing in this range in fiscal 26 and could you size this business for us please

sure i don't know the specific detail on that i don't know that we've disclosed you know specific fiber grade growth rate but i can tell you that our fiber grade business has been growing it's part of our performance coatings group it's been growing at a level higher than certainly and in double digits a lot of it is the benefits of some acquisitions in the past we put bison with our fiber grade business that's the rooftop decking commercial decking we acquired a business in the middle of the year in europe which is the bison of europe called tmp convert and they do a lot of diy stuff but also commercial but organically we're also seeing really strong growth that business has benefited most from data centers of any of the businesses at rpm because of the non-conductive nature versus steal of their products and our team's ability to meet the specifications and the speed requirements once these things start in terms of construction so it's been a real bright star for us both in terms of acquisition and growing that business from what was predominantly a u.s business to something more global entering into diy actually through a partnership with our dap business and then also broadly not only organic growth but their benefit in the data center activity

thanks frank

thank you

again if you have a question please press star then one the next question is from a rune of this one athon with rbc capital markets please go ahead

morning arun

arun your line is open on our end perhaps you have it muted

so apologies for that guys uh on mute there sorry about that um yeah congrats on those strong results um maybe i'll just ask one question on the map savings so uh for a little while there frank i think you were alluding to the fact that you guys had taken out a lot of costs um but unfortunately the volume environment was such that you you couldn't really see the benefits drop to the right direction but maybe you can just comment on how much more margin growth you expect to see if you do kind of hit that mid single digit organic growth that you just spoke about um and if there's any leverage that would come from the acquisitions as well thanks and and how much i.e how much more improvement in margins we could expect over the next little while thanks

sure i appreciate that question so as most on this call knows we've been talking about a 16 even margin since the fall of 2018 and our efforts to attain that have been interrupted by covid supply chain challenges inflation you name it but it is still a target that is very deeply embedded within rpm i think if you try and average out all the crazy volatility that the whole world and certainly business has been through in the last seven or eight years we've been able to sustain about a 40 or 50 basis point improvement in margin year by year and i fully expect over the next two or three years that we're going to get to that 16 percent market margin target it didn't come as quickly as we wanted but it's still front of mind it still has some incentive compensation tied to it and it's still a goal that we expect to achieve we will not get to a 16 percent even margin in fiscal 26 but we'll make progress

thanks for that frank and then just one more quick one if i could you know you guys have have often noted mna is maybe a principal area for capital allocation but that's been a focus mostly on bolt-ons is that still the the expectation that we should expect you guys to kind of head in that direction or would you consider larger deals and maybe some adjacencies into say you know more gallon oriented paint maybe you can just offer your thoughts on where you're headed mna wise thanks

sure i think the peak paint stuff is a good example of opportunities that we see that are in adjacencies or new product categories that fit with some of our strengths and so we're very excited to become a bigger player in the cleaner space in our consumer group so we will continue to look for acquisitions like that that are a little more sizable than than what we've done in the past but the pipeline for bolt-ons pretty good and particularly in places like our construction products group where they're out looking for components that they can add to these system sales we'll continue to go look for 10 and 50 million product lines that not only help us complete that more complete wall system sale or additions to asset management but where we think that our sales force can double or triple the revenues in a relatively short period of time and so hopefully that answers your question you know we don't see paying huge multiples for billion dollar deals but where there are four and five hundred million dollar nice size businesses like the pink stuff acquisition we're going to go after them and in the meantime the bolt-on pipeline is pretty good

thanks a lot

thank you

this concludes our question and answer session i would like to turn the conference back over to frank sullivan for any closing remarks

thank you to everybody for your participation on our calendar we have the opportunity to celebrate the new year twice at rpm and so i would like to wish everybody a happy rpm new year and we look forward to talking to you about our 26 results in october when we report our first quarter results and have our annual meeting of stockholders thank you and have a great day

the conference is now concluded thank you for attending today's presentation you may now disconnect