RPM International Inc.

Good day, and welcome to the RPM International Fiscal Second Quarter 2026 Earnings Conference Call. All participants will be in a 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 1 on a touchtone phone. To withdraw your question, please press star, then 2. 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, Betsy, and welcome to RPM International's conference call for the fiscal 2026 second quarter. 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. The 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, 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. Also, please note that our comments are on an as-adjusted basis, and all comparisons were made to the second quarter of fiscal 2025, less otherwise indicated. We have provided a supplemental slide presentation to support our comments on this call. It can be accessed in the presentations and webcast section of the RPM website at www.rpminc.com. As a reminder, certain businesses that were previously part of the specialty products group have been reallocated to other segments effective June 1st, 2025. As a result, all references today reflect the updated structure and prior year figures have been recast accordingly. There's no impact on consolidated results. Now, I will turn the call over to Frank.

Thank you, Matt. Today, I'll begin with an overview of our results and cover some recent actions we've taken followed by Mike LaRoche, who will cover the financials in more detail. Matt will then provide an update on cash flow, the balance sheet, and a recent acquisition. And then Rusty Gordon will conclude our prepared remarks with our outlook. As always, we'll be happy to answer your questions after our prepared remarks. Beginning on slide three, we achieved record sales during the second quarter, aided by our targeted growth investments. However, momentum slowed as the quarter progressed, We began the quarter with a solid September, actually better on the top line and bottom line than our first quarter results. Then the trend of longer construction project lead times became more pronounced. The DIY demand softened, particularly in late October and through November, resulting in sales declines for those months. The government shutdown contributed to this slowdown as we saw activity in certain construction sectors tied to government funding come to a near standstill and consumer confidence decline. All segments generated positive sales growth for the quarter. However, this was not enough to offset higher expenses, including growth investments and costs from temporary inefficiencies as we continue to consolidate plant and warehouse facilities, resulting in a decline in margins in the quarter. To better align our SG&A structure with current market demand, we are acting quickly to execute optimization actions across the organization. In many ways, this is an acceleration of the SG&A structural realignment we have been preparing as part of a new MAP 3.0 program. Importantly, we also continue to have focused investment in our highest growth opportunities. And on the following slide are some details about what we're doing. Turning to slide four, we estimate that once fully implemented, our optimization actions will yield an annual benefit of approximately $100 million. We will realize $5 million of the benefits in the third quarter with an incremental $20 million in the fourth quarter with the remaining $75 million in fiscal 2027. As we are currently in the process of implementing these changes, we have an estimate of the implementation cost by the time of our next earnings call in April. We're also continuing our focused investments in areas where we have seen good returns and have opportunities for continuing growth. These include high-performance buildings, business intelligence, and innovation. For high-performance buildings, we are expanding our technical sales force in areas like turnkey roofing and enhancing our system offering through acquisitions. As an example, we purchased an expansion floor joints company HCJ in fiscal 2025, which along with our other complementary RPM products enables us to meet the demanding requirements of high-performance floors. We expect additional acquisitions to expand our system offering similar to the recently announced agreement to acquire Calzip, which Matt will speak to in a few minutes. We're also investing in improved business intelligence. This includes capitalizing on the Pink Stuff's expertise in leveraging data to develop targeted marketing campaigns across multiple RPM businesses. Additionally, following several years of ERP integrations, we have been investing in business intelligence to better utilize data company-wide. It is helping to guide decisions and actions in areas such as marketing, pricing, and operations. Finally, innovation has been a core element of RPM's historical growth. And through investments in people and facilities like our Innovation Center of Excellence, we have enhanced our product offering across our segments. One example is AlphaGuard Puma, which is leading waterproofing technology and can be installed at temperatures as low as minus 20 degrees Fahrenheit. Another example is Yuko Tilt WB. It is a newly introduced water-based bond breaker that provides a clean separation of panels along with other benefits in the growing tilt-up construction market. In summary, we are accelerating actions to optimize SG&A levels in response to soft market conditions while remaining focused on supporting our best growth opportunities. With our growth investments and the quality of our people, we remain well-positioned to continue outpacing our markets, particularly as markets rebound. Lastly, in addition to the actions we announced today, we're in the process of developing our MAP 3.0 program and expect to provide details at an Investor Day event after the conclusion of our 2026 fiscal year. I'll now turn the call over to Mike LaRoche to cover the financials. Thank you, Frank.

On slide five, consolidated sales increased 3.5% to a record, driven by acquisitions and engineered solutions for high-performance buildings, partially offset by continued DIY softness and longer construction project lead times, partially due to the government shutdown. Adjusted EBIT decline as top-line growth and MAP 2025 benefits were more than offset by higher SG&A expenses from growth initiatives, M&A deal costs, healthcare, and temporary inefficiencies from plant and warehouse facility consolidations. Adjusted EPS declined, driven by lower adjusted EBIT and higher interest expense, resulting from higher debt levels to finance M&A activity. Geographic results are on slide six, with Europe the fastest growing region, driven by M&A and FX. North America grew approximately 2% as an increase in high-performance building solutions was partially offset by soft demand in DIY and in Canada. In emerging markets, growth was led by Africa and the Middle East as they continued to have success serving high-performance building and infrastructure projects. Moving to slide seven, construction products group sales grew to a record, led by solutions for high-performance buildings. Project lead times lengthened as the quarter progressed, driven by the extended government shutdown. Additionally, weak sales in the disaster restoration business due to lower storm activity this year was a drag on growth. SG&A growth investments, temporary inefficiencies from plant consolidations, and lower fixed cost absorption at businesses with volume declines more than offset MAP 2025 benefits and led to a decline in adjusted EBIT. Next, on slide eight, Performance Codings Group achieved record sales with broad-based growth across its businesses. Acquisitions also contributed to the growth. Adjusted EBIT was approximately flat as higher sales and MAP 2025 benefits were offset by growth investments and unfavorable mix. Consumer Group results are on slide nine. M&A and pricing to recover inflation drove the sales growth as volumes declined due to soft DIY demand, particularly in November. Additionally, some sales were delayed as a result of software system implementations and the transition to a shared distribution center in Europe. Continued product rationalization also negatively impacted sales. Adjusted EBIT declined due to lower volumes, temporary inefficiencies from footprint consolidation, and startup of the shared distribution center in Europe. Additionally, lower demand of the color group also weighed on margins. In our cleaners business, the integration of the Star Brands Group, the parent of the pink stuff, remains on track. However, we reversed a $12.7 million liability associated with an earn-out through this acquisition. This earn-out liability was originally calculated based on a probability-weighted sales forecast, and much of the value was driven by more aggressive sales scenarios. Current forecasts are more in line with our base case assumptions, and the aggressive targets needed to achieve the earn-out are unlikely to be met, which is driving the reversal. This $12.7 million gain has been excluded from our adjusted EBIT. Now I'll turn the call over to Matt, who will cover the balance sheet and cash flow.

Thank you, Mike. Starting with cash flow from operations on slide 10, it was up $66.3 million in the second quarter compared to the prior year, with the increase attributable to improved working capital efficiency. This is the second highest second quarter in the company's history and helped us pay down $127 million in debt in the first half of the year. And that's in addition to returning $169 million to shareholders through dividends and share purchases and spending $162 million on acquisitions. We are proud that in October, we increased our dividend for the 52nd consecutive year. This is a testament to our steady cash flow and our strategically balanced business model and focus on maintenance and repair. Equity remains strong at $1.1 billion, and combined with a strong balance sheet, we have a high level of flexibility in capital allocation decisions. As an example, yesterday, we announced an agreement to acquire a company that will strengthen our systems offering for high-performance buildings that Frank discussed earlier. Turning to slide 11, you'll see more information on the agreement to acquire CalSEP. They're a German-based leader in metal-based roofing and facades, which is a fast-growing part of the construction market because of their durability, lower maintenance, and high performance. The incorporation of CALSA products into our existing offerings will strengthen CPG's ability to provide building envelope systems that enhance efficiency, durability, and aesthetics, while also meeting or exceeding demanding specifications. The company had calendar year 2024 sales of approximately 75 million euros, and the acquisition is expected to close in the fiscal fourth quarter of 2026. Now, I'd like to turn the call over to Rusty to cover the outlook.

Thank you, Matt. Our outlook for the third quarter can be found on slide 12. Market conditions are expected to remain sluggish with soft DIY demand and continued longer lead times for construction projects. We are encouraged to see that construction pipelines remain solid, although visibility of when this pipeline converts to actual construction activity remains unclear. Despite these macro challenges, we expect to outgrow our underlying markets thanks to the targeted growth investments we have been making. We will also benefit from the implementation of SG&A-focused optimization actions, as Frank mentioned, although in the third quarter, that will be offset by continued healthcare inflation and M&A deal expenses. Overall, we expect consolidated sales to increase by mid-single digits in the quarter. High segment, consumers expected to grow sales moderately more than PCG and CPG due to acquisitions. We anticipate adjusted EBIT will grow mid to high single digits during the quarter. Moving to our fourth quarter outlook on slide 13, we expect sales to grow in the mid-single-digit range. With our solid construction project pipeline, we expect some of the projects that were recently delayed to convert into activity by the end of the year. Also, if weather delays some projects from the third quarter, as we saw last year, we expect most of these to be realized in the fourth quarter. We will continue to benefit from acquisitions and the targeted growth investments we have been making, along with our resilient repair and maintenance focus and ability to sell engineered systems and solutions to high-performance buildings. In the fourth quarter, we'll also see more of the incremental benefit from the SG&A focused actions that we are currently implementing. and should more than offset higher healthcare and M&A deal expenses. Taking all of this into account, we anticipate adjusted EBIT in the fourth quarter will be up low to high single digits, with volume growth being the key variable. This 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 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question today comes from Gansham Punjabi with Baird. Please go ahead.

Hey, guys.

Good morning, Gansham.

Happy New Year. Good morning, Frank. Happy New Year. Yep. Thank you. Thank you. So I guess, you know, starting off with maybe slide three where you have the organic sales breakdown during the quarter. I know it can vary quite a bit, you know, on a monthly basis depending on comps, et cetera. But could you give us a bit more color as to how the businesses specifically performed? You know, the three operating segments was trying to get a sense as to whether the deterioration was specific to construction and then also consumer or did performance also get impacted?

Sure. So, if you look at, you know, this is kind of unique, and I don't expect us to do this very often in the future, but when we provided guidance on our last investor call, the latest information we had was in September. And the unique element is talking about months, which we are in this call, Actually, in September, we saw margin improvement and solid growth at the construction products group and the performance coatings group, and some continued weakness, which has been pretty prevalent across the whole peer group and consumer. Pretty much across the board, as we got into the back half of October and into November, we saw deterioration across all three of our segments.

Gotcha. And then in terms of the $100 million SG&A initiative that you outlined, how much of that should we assume is temporary versus permanent? And is that just a reappropriation of spending relative to the previous growth investments? I'm just trying to get a sense as to whether you've curtailed some of those growth investments as well, just given the change in the operating conditions.

Sure. As you know, we've been working on a new MAP 3.0. Not sure what we're going to call it yet. And like a lot of folks, we've kind of put off longer-term forecasts in the midst of all the tariff disruptions and other elements. It's our expectation, regardless of where the markets are, that we would provide details this summer, whether it's on our July call or perhaps an investor day. So we have been preparing for that with our leadership team and our board. So to a certain extent, the disappointing kind of market downturn, which is hopefully temporary, accelerated some of our thinking there. The $100 million is roughly $70 million in personnel-related RIPs across the globe and about $30 million in discretionary expense reductions.

Got it. Perfect. Thank you so much. Thank you.

The next question comes from Matthew Dale with Bank of America. Please go ahead.

Morning. Morning. So the fiscal 3Q and 4Q guidance seems to imply, you know, much better incremental margins. Maybe not great, but certainly better than where we were. Can you help provide a little bit more confidence as to the, you know, rate of change of fixed cost absorption as we move through fiscal 3Q and into 4Q?

Sure. Sure. So a couple things. Number one, we're rounding easier comps, and so that will certainly help us. Secondly, the structural SG&A actions that we announced today and that we are implementing as we speak will add to that leverage in ways that we weren't seeing in the first half of the year. And then I think secondly, with some improvement in unit volume growth, which we anticipate, You'll see a reversal in absorption, which hurt us mightily in Q2 as unit volumes declined in October and November. And to the extent they improve in the third and fourth quarter, that'll be a nice swing both versus Q2 and also last year.

All right. And as I think about some of the acquisitions that are starting to layer in in a decent clip here, I mean, how should we think about EBIT accretion from this? Are these deals kind of like non-ebit accretive given DNA write-up, or is it at margin, above margin? How should we think about the layering in there?

Sure. It takes some time for these to get integrated into particularly in our construction products group where most of these have happened. One of the areas for real possible strength for us in the second half, for instance, is is Pure Air. It was an HVA reconditioning and rehabilitation project or product system that we acquired a couple of years ago. It took us longer than we thought to get properly certified in every state, and we are starting to get traction there. And so I think an 18-month to two-year cycle is the right way to think about For instance, at Calzip, high margin, unique metal roofing business in Germany, both some basic core stuff that we're in in terms of metal roofing and some high profile projects, principally a European business. So back to that 18 to 24 months, I think that's the right timeframe to think about how we can integrate that into a Tremco CPG distribution and sales effort more globally.

I guess I appreciate that from an operating integration perspective, but would that also kind of align with earnings accretion as well?

Absolutely. So in the early years of a pure error, not really accretive, and I believe as we get into calendar 26, and certainly the back half of fiscal 26, what's a relatively small acquisition will be nicely accretive.

Understood. Thank you.

The next question comes from Arun Viswanathan with RBC Capital Markets. Please go ahead.

Good morning, Brian. Great. Thanks for taking my question. Good morning, Frank. Hope you guys are well. Happy New Year. I guess I just wanted to ask about, you know, maybe some of the transitory costs you guys incurred this quarter. How much would you attribute maybe to the government shutdown and as well as SG&A, increased SG&A spending, and how do you see that trending as you go forward? Thanks.

Sure, Arun. This is Rusty here. In terms of some of the transitory costs, you know, We did get hit hard on absorption and higher conversion costs. Part of that is due to the plant shutdowns going on and transition of facilities. We also opened up a shared distribution center in Europe with some inefficiencies at the outset, which will be resolved as we get up to speed there. So in total, we lost almost a percentage point in margin just on higher conversion costs. Some of that was volume driven. Maybe four or five million of that was due to transition of facilities, whether it's shutdowns or changes in distribution. So hopefully that gives you some color.

Great, thanks. And as you look out maybe into the second half of fiscal 26 and into 27, What would be the run rate on some of this savings? I know that you will capture a portion, as you said, maybe $5 million here in the third quarter, but when do you expect to see the full amount of that savings kind of flowing through the P&L? Thanks.

Sure. I think the full amount will start to flow through in Q1 of 27. You know, we are executing, as we speak, what will be about a $25 million per quarter run rate. And we would expect most of that activity to be completed and announced internally by the end of Q3.

Thanks a lot.

The next question comes from John McNulty with BMO Capital Markets. Please go ahead. Yeah, good morning, John.

Maybe a question on the 4Q outlook, because 3Q is so seemingly light, it probably doesn't matter all that much. You've got a pretty wide range, low single-digit to high single-digit growth in EBIT. And I know in some prepared remarks, you commented that it's largely contingent on volumes. Is the high end of the range assuming the world starts to feel better again, or is that just the recapturing of maybe some lost business around the government shutdowns? I guess maybe you can peel back the onion a little bit in terms of what gets you to the low end of that range and what gets you to the high end.

Sure. As for the lost business relative to government shutdown, to the extent that's real, I would expect us to see that pick up in Q3. Q4 really is about volume. We will be rounding two years of challenging consumer takeaway unit volume growth in consumer, so we'll be seeing easier comps there. Part of the changes we've made with this SG&A structural realignment are in our consumer business with what we hope will be a positive effect to margin in the bottom line. And we have a really strong backlog in our industrial business in both CPG and PCG. If that becomes to be realized, again, you'll see us have a pretty good fourth quarter. But given the volatility that we're experiencing just in this quarter, a really solid by any measure September and then a really disappointing by any measure November makes us a little hesitant to be more specific about coming months because that volatility seems to be continuing.

Okay, fair enough. And then I guess just given the general weak environment that continues, if anything, maybe it got a little bit worse overall. I guess, can you speak to what you're seeing from a raw material perspective? Are you starting to see any signs of relief? I know Tariff's kind of made that a little more difficult over the last few quarters. I guess, what is your outlook as you're looking forward?

Sure. I'll let Matt provide some specifics. But generally, the trends that we're seeing, both in the marketplace and geopolitically, suggest that that should be a tailwind for us in the second half of the year.

Yeah, so absent tariffs, yeah, we are seeing raw material inflation coming down and even turning into deflation. But you have these pockets of inflation. Some of the categories we've talked about in the past, that continues. And these are really tariff-driven. So, excuse me, metal packaging, that's up low teens. Epoxy resins are actually up high single digits. And then we have some specific categories that really can only be sourced from Asia. These are more niche products, not a huge dollar spend, but when you're facing tariffs of 20, 30, 50%, it can add up. And so all in all, taking all into account, we expect a little bit of inflation in the third and fourth quarter, but that's all tariff driven.

And again, I think geopolitically and where underlying base chemicals are going, we would expect that to be a tailwind. And as we get into Q4 and certainly into fiscal 27, we will be annualizing the impact of tariffs, for instance, on steel packaging.

Okay, got it. Fair enough. And maybe if I could slip in one last one, just on the pink stuff, earn out, I know there were kind of a wide range of outcomes in terms of how much you kind of felt like you could really drive that business. I guess, what now are the base expectations since you took down that earn out a bit? I guess, how should we be thinking about where that business can go over the next few years.

Sure. The Pink Stuff acquisition is on track for our base case, as Mike alluded to. The earn out was a relatively short two-year earn out, and it was based on double-digit unit volume growth. And in this environment, we are not hitting double-digit unit volume growth, and we don't expect to in calendar 26. And so that was the basis for the reversal of the earn out. Got it. Fair enough. Thanks very much, Frank.

Thank you.

The next question comes from Patrick Cunningham with Citi. Please go ahead.

Hi. Good morning. Just on the weakness in consumer group, how much would you attribute to underlying market softness versus some of the other things you called out like sales delays or targeted product rationalization?

I think most of it has been underlying consumer takeaway. And again, it got weaker. It picked up a little bit in September. We had solid results across all our businesses in that month. And then it got weaker in the quarter as it progressed. Understanding how much of that is government shutdown and other issues is hard to know. We are also at approaching year end for a lot of the major retailers, so there continues to be working capital inventory management levels there. As I said earlier, we will be rounding, as we get into calendar 26, two years of easier comps. And so I think we will see better results in the second half of fiscal 26 and better results in fiscal 27 for consumer. We don't need a roaring comeback to start seeing unit volume going in the right direction, which will accrete to our bottom line nicely.

Understood. And then just on price realization, where did price shake out in fiscal 2Q? And has there been any tension on getting full realization in the consumer group given the weak demand environment and some disinflation on the raw side?

Price was less than 1% in Q2. and I would anticipate about the same in Q3 unless, of course, we see any material spikes. And we have not had a real challenge over the last couple of years in terms of getting price where needed. In consumer in particular, we did bump into some price elasticity issues relative to price points at retail, and we have adjusted accordingly. That was really a spring of 26, I'm sorry, spring of 25 phenomenon, not Q2. Understood. Thank you so much. Thank you.

The next question comes from Mike Harrison with Seaport Research Partners. Please go ahead.

Good morning, Mike. Hi, good morning. Happy New Year. I was hoping that we could just dig in a little bit more on this impact from the software system implementation in consumer sales, and it sounds like maybe EBIT too. Is that implementation now complete, or should we still expect maybe some delays or impacts in Q3? And I guess to the extent that sales were delayed, Are you realizing those sales then in Q3, or is it going to take longer for those sales to materialize?

Yeah, Mike, this is Rusty here. Yeah, that was temporary. We have resolved that. It was a simple matter of new systems as well as a new warehouse in Europe. The new system was implemented in a couple of places in consumer, but we are –

up and fully running so yeah that was a temporary situation all right and then within the performance coatings business you noted broad-based growth uh really across that business i was hoping you could give a little more color on on what portions of the business are particularly encouraging to you as you look out over the next few quarters

Sure. Our Stoneheart flooring business is continuing to grow nicely. Really industrial capital spending and onshoring. Fiber grate is benefiting from a lot of the data center build out. A lot of their functional systems are used in multiple areas there. And so those are two probably strongest areas. And we're also picking up some market share, a little bit of expense of margin in our carboline business.

All right. Thanks very much.

The next question comes from Frank Mitch with Fermion Research. Please go ahead. Hey, good morning.

Yes, thank you. Good morning and Happy New Year. Hey, I must say I am a fan of the granularity that you provided in slide three. Obviously, it shows how the quarter started out pretty good, therefore leading to some optimism in terms of the quarter, fiscal second quarter, but then deteriorated in October and November. That trend does not look like to be your friend. Here we are on January 8th. How did December turn out?

Sure. Well, as I said earlier, it's not been our habit, and I'd like very quickly in the next earnings call to get off this habit of talking about monthly results. December is over, and herein lies the conundrum of volatility. Our December sales were up 12.1%. Univolume was up 7%. And so how much of that is a pickup of Q2? government shutdown-related recovery and how much of that is underlying strength in the areas that we're continuing to invest in was actually across the board. So we did see a little pickup in consumer, but a significant pickup in construction products in our roofing business. So We're off to a great start in December. The challenge we have is understanding what that number means and how much of that is really a pickup of what was a temporarily weaker Q2, how much of that indicates that things are moving in the right direction. It's anybody's guess as to whether January and February will look like December or whether they'll look like November. I think that's why we have the wider range that we have in our Q3 and Q4 forecasts.

Wow. I did not expect that answer. And let me drill down just a little bit. I know you're not in the habit of giving monthly sales, but I'm just curious. It begs the question, is there anything with the year-ago result? Was there an artificially depressed December of 2014? Was there a super November of 24? Is there anything in the year-ago comps that would have led to the negative 6 November, positive 12 December? Or this is really the kind of underlying business as you see it right now?

You'll recall we had a weak third quarter last year. A lot of that was winter weather related. So certainly we're rounding. some easier comps. And I think that's a part of why we're confident in the second half, albeit within a range of generating solid sales and earnings growth in Q3 and Q4. And so that's part of the answer. Got you. All right. Thank you so much. Thank you, Frank.

The next question comes from John Roberts with Mizuho. Please go ahead.

Thank you. Aside from disaster restoration, would you say that weather was not a factor in either the quarter or December so far?

No, I think weather was a factor. You know, we got hit pretty hard across the country in the Thanksgiving, kind of late November period with heavy snow, and that continued into December. We're certainly seeing a relief in that right now. And so I don't expect year over year for that to be a big issue in Q3 because we got clobbered last year. And so year over year, I think the trends are moving in the right direction, both versus easier comps, how we're starting the quarter, and the impact of the acceleration of our SG&A realignment, which will not necessarily impact Q3 much. It will impact Q3 in the last month. but will start to be realized more fully in Q4.

And do you compete at all against BASF's industrial coatings business or any of the areas of overlap between Exalta and AXO's industrial coatings businesses? I don't perceive there's a lot of opportunities for share gain as there's maybe some disruption across those businesses, but are there any key areas of overlap?

We have a $400 million high-performance industrial coatings business that's part of our performance coatings group. They're really focused on wood stains and finishes. We have a real nice market share in what's left of that business, cabinetry, doors, windows in North America. And that business is actually growing. We're picking up share in a couple places. It incorporates our TCI powder coatings business as well as a small but growing OEM liquid metal business. And so that's an area where I would expect us to continue to grow. We reorganized that into a comprehensive business from about four or five different separate pieces. And that reorganization, what we're doing at the R&D Center in Greensboro, which is primarily owned by our RPM OEM coatings business, is actually a bright spot for us right now, despite economic problems. Great. Thank you.

The next question comes from Kevin McCarthy with Vertical Research Partners. Please go ahead.

Good morning, Kevin. Good morning. Happy New Year to you, Frank. Question on M&A. Can you talk through why you decided to pursue CalZip? And then more broadly, if I look at the recent acquisitions, many of them are domiciled in Europe. And I was wondering if you could speak to that. Is that Strategic on your part or just simply function of where you're seeing the best value or opportunities now?

So the simple answer is yes to both. Very strategic, but in M&A it's also what's available for sale at a value that makes sense for us. We sell tens of millions of dollars of purchase for resale metal roofing in the U.S., And we have been looking for opportunities to enhance that purchase for resale with stuff that we own and control. CalZip's a unique asset, German-based. Their specialty is actually a lot of high-profile projects, which we're not in. And so we're pretty excited about the ability to take some of their patented technology, bring it to the U.S., and accelerate the metal roofing elements of what some of our Tremco roofing salesmen are already selling, as well as helping to expand that metal roofing capability globally. CalSIP has had projects in Europe, Middle East, and Asia, areas where our Tremco roofing business is not really present. So we're pretty excited about it. As I commented earlier, it's a real strategic play. It's going to take us some time to take that technology and bring it into the U.S. But when we do, the opportunities for us to add tens of millions of dollars or more in the U.S. market where we have our awesome sales force on top of what's about a 75 million euro revenue business is something we're pretty excited about.

Very good. And then secondly, if I may, I want to revisit the subject of pricing. I think you said in response to a prior question that the price contribution was less than 1% in the quarter. And I was somewhat surprised to hear that. My recollection was that you were targeting higher contributions and acceleration into the fiscal second quarter. So I just wonder if you could just unpack that and talk a little bit about where you're seeing the most and least traction and maybe segment contributions and whether or not you might anticipate any acceleration on price in the back half of the year.

Sure. Again, it will be circumstantial. We're past the period of heavy inflation that drove price increases meaningfully across all of our businesses. And so in the quarter, less than 1%, but we got more price in consumer because that's the place where we're having the biggest challenge. Again, it's the place where metal packaging has got the biggest impact across RPM. And then selectively, for instance, around epoxy resins and a few other places, we're getting price in selected product categories, but not across the board like we were a few years ago.

Thanks very much.

The next question comes from Mike Sison with Wells Fargo. Please go ahead.

Good morning, Mike. Hey, good morning. Happy New Year. I guess with your outlook for the third and fourth quarter for sales growth, how much are you expecting that to be organic sales growth and acquisitions? And I know you have a lot of acquisitions in there. So Just curious if you had sort of a feel for how much organic growth is embedded in the third and fourth quarter sales outlook.

Okay. Okay, I think we're back on. Temporary drop there. In response to Mike Sasson's question, can you hear me?

Yeah, I can hear you. That's fine.

Okay, thank you. So I'll just point back to the monthly – information we provided. You saw what we talked about in Q1. We talked about on slide three, the unit volume growth month by month, September, October, November. I just provided it for December. And, you know, it's our expectation that the focus growth investments that we are talking about drive organic growth. That's how we're going to leverage to the bottom line. And, you know, we provide quarter by quarter the breakout between organic growth, FX, and acquisitions. But it's our expectation that we will be seeing better organic growth in the second half as a result of the comments we've made earlier. Easier comps, focused growth investments, and hopefully some improvement in market dynamics. But given the volatility we're seeing, again, it's anybody's guess as to whether January and February and subsequent months look like November or December that were starkly different, and perhaps a little bit of an average given the impact of the government shutdown. It's hard for us to know what that is, but I can tell you for us in every business, the negative impact of the shutdown was greater than zero.

Got it. And then I guess for the third quarter, with the outlook being mid-single digits in December doing, you know, pretty strong. I mean, does that imply that January and February has tough comps and might be negative, or do you think we'll just be positive for the rest of the way?

I think we'll be positive, but I don't know. And we will learn in January, for instance, how much of the real strength in December was picking up lost business in Q2 because of the government shutdown, or how much of it is a release, for instance, of some of the good backlog that we continue to build in our construction products group and our performance coatings group. And so if we had higher confidence, we'd be putting out maybe a better forecast. But given the volatility we're experiencing, it's hard to know as we sit here today.

Got it. Understood. Thank you.

The next question comes from Josh Bechter with UBS. Please go ahead.

Good morning, Josh.

Hey, good morning, Frank. I just have two quick follow-ups here. First, just going back to the transitory costs, I think last quarter you guys framed it at about $30 million, and you had roughly equal buckets between health care, some of the plant consolidation, and then SG&A growth. Is that the right number that was in the August quarter, and can you help us think about what that looks like over the next couple quarters?

Sure. Yeah, Josh, looking at second quarter, health care was still an issue. We had, you know, probably in the six, seven million range of higher health care costs. In terms of the unfavorable impact on conversion costs. Like I mentioned, that was about 1% of sales hitting our margins, so that's close to $20 million. And what was the third category you talked about?

I believe you had the plant consolidation. The SG&A investment, I think, is the third one.

Yeah, the SG&A investment is continuing, of course, on a more selective basis given the risk activity we're talking about.

Okay. I guess then just on that last point with the SG&A, I mean, someone asked earlier about your saving costs, your investing. Are you then investing less in some of the savings is that you're moving people around there, or are you cutting people around that? And I think just one other follow-up to sneak in there is that You said the cash costs, we won't know until April, I believe, but you think those costs are going to be ramping up over the next couple months. So wouldn't there be like a $60, $70 million charge for that coming up shortly?

Yeah, the details we'll provide in April, but two-thirds of that will be realized here in the next few weeks, and a third will play out. into the spring, particularly related to notice provisions and things like that in certain countries outside of the U.S. In terms of your earlier question, some of our expense reduction activities on a gross basis will be higher than the numbers we provided, and then we are reallocating some of those dollars into our best opportunities for growth. And so certain of this is expense reduction and a structural realignment that we have been working on for some time. Given the challenging performance in October and November, we saw that as an opportunity to accelerate that. And others of it is a reallocation of growth capital in our P&L from certain areas that aren't growing to areas that are growing nicely, and we intend to continue to support that.

Okay, thank you.

The next question comes from David Begliger with Deutsche Bank. Please go ahead.

Thank you. Frank, staying on the cost issue, of the MAP 3.0 savings, how much is being pulled into this program? Is it the majority? Is it a minority? Or is it a large amount?

You know, as we've laid out, the plans that we're executing today on a net basis will have about $100 million impact. Seventy-five million of that will be a net additional to fiscal 27. And then we will provide more detail, as I said, either in a July call or in a separate investor day about the details of MAP 3.0 that will incorporate manufacturing efficiency procurement, as well as a more methodical approach to SG&A. And so it will be at least $75 million, but likely higher. Again, the details will be provided this summer.

And of these costs you laid out today, how much are manufacturing versus SG&A? And Are you closing plans? Obviously, you're firing people, but what functions are those people doing today and how are they being replaced?

So in some instances, it's a reallocation of certain spending from one place to another. Of the 100 million, probably 10 or 15 will impact cost of goods sold, but the balance of it will be an SG&A. And, again, in terms of more specifics, we'll provide it in April as we are in the midst of executing right now.

Thank you.

The next question comes from Vincent Andrews with Morgan Stanley. Please go ahead.

Thank you, and good morning. If I could ask on the government – thanks, Gornich. On the government shutdown, can you just talk a little bit about, you know, how much of your sales are sold directly to government contractors in the different segments versus, you know, sales to traditional customers that, you know, are working on projects that might be funded by the government? Are we talking, you know, 5% plus or minus? Is that the order of magnitude? And so when that goes to zero, it's meaningful. Maybe we could start there.

Sure. We don't sell a lot direct to the federal government. A lot of it has to do with state and local spending that's tied to some government subsidies. So, for instance, in schools, you know, there are a number of state and federal programs, education particularly impacting our construction products group, probably 20% of their revenues is tied to the education market. And so you saw both government shutdown-wise and let's call it Washington dysfunction-wise, some dynamics that froze the different funding elements of public education. We're starting to see that unfreeze, which is a good thing. And so it's more the follow-on effect of education funding and some infrastructure as opposed to any specific direct business. We don't do much, if any, direct GSA business, for instance.

Okay, that's helpful. And then on the 100 million, if you could just help us think about how that's going to be spread across the three segments, that would be helpful.

We'll provide that detail in April. We are in the midst of executing, and people deserve to understand what's happening within RPM before people hear it publicly. It's pretty much that simple.

Okay. Fair enough. Thank you very much.

Thank you.

The next question comes from Jeff Soukakis with J.P. Morgan. Please go ahead.

Morning, Jeff. Hi. Good morning. Happy New Year. Happy New Year. In fiscal 2025, your SG&A, you know, growth was pretty flat. And for the first two quarters of the year, it's up about 10%, which is about 50 million a quarter. Can you speak in general to, you know, what exactly has happened? And when you talk about 100 million reduction in SG&A, What are you trying to accomplish with this? You know, what would happen to the overall rate of your SG&A growth?

Sure. I would tell you, broadly speaking, in terms of expenses, I think of it as in three categories. One is some higher corporate expenses related to health care, insurance, and in particular, which is extraordinary, M&A. We've done a lot of M&A transactions overseas, and they – have a higher complete cost rate versus what we do in the U.S., and so that's part of it. The second one is some of the follow-on to the MAP initiatives in terms of finalizing plant consolidations and or consolidating distribution and warehousing. I'll give you one example of what that is practically. The largest North American plant, actually the largest plant globally for Tremco was in Canada. We sold that plant two years ago and have had a window to move all that production to mostly the United States. It has nothing to do with geopolitics. It was a plant that was in the sticks 30 years ago. Suburban Toronto has been surrounding that plant, and so we had an opportunity to sell that for a nice price, recognizing we were getting regulatorily moved out of that space. We are incurring duplicate inventory. We are incurring duplicate production costs as we move that mostly from Toronto to Georgia and Texas, and that should be completed by the end of March. So that is the type of duplicate conversion cost that we're seeing there. We're also seeing it in Europe and parts of the US as we consolidate distribution, all of which should make us more efficient in the future, but which right now is hurting us. And then the third category, Jeff, is what we talked about, growth investments. We had a deliberate belief that we could invest in certain areas after a frustrating year and a half of low growth, no growth, or two years of low growth, no growth environment. And that was proving true through five months. You know, we had better growth rates in most categories than our peers. September reinforced that because sales, organic growth, and leverage to the bottom line was actually better than year one. And for some reasons we understand and some reasons we're just guessing at, that fell apart in October and November. Last comment I'll make is that the structural SD&A changes are things that we've been working on for some time. And as I commented, we made the decision to put off communications on a new long-term strategic plan until this summer. So a lot of this is work in progress as opposed to a quick reaction to hopefully a short-term temporary downturn.

And thank you for that. And then quickly, for your acquisition effects in fiscal 26, are they accretive to your margins or do they trim your margins?

So in fiscal 26, end of fiscal 25 and fiscal 26, they have hurt our margins. Most of that is transaction costs. You know, we have significant transaction costs. for instance, on the Pink Stuff and Ready Seal that was at the end of last fiscal year and into the first quarter. Most of these small transactions that I've talked about have been overseas in our construction products group. We're very excited about them, but they carry a relatively higher transaction cost in terms of legal fees and due diligence fees relative to the size of their revenues. Excluding transaction costs, which of course flow through our P&L, They're modestly accretive, and we expect them to be very nicely accretive in the coming years. But for the first half of fiscal 26, they have hurt us and been dilutive principally because of the high costs, and we referenced that as part of the higher corporate expense. Yep. Okay. Thank you very much.

Thank you.

As a reminder, if you would like to ask a question, please press star then one to join the question queue. The next question comes from Alexey Yefremov with KeyBank Capital Markets. Please go ahead.

Good morning. I think you mentioned earlier backlogs remain healthy. So should we take it as Your backlogs today are same or higher than three months ago, or have your backlogs declined?

So our backlogs are stable in our performance coatings group, and our backlogs continue to grow in the construction products group.

Got it. And in terms of facilities consolidations, and you talked about first half of this fiscal year, could you give us any sense of what to expect in terms of future actions in the second half of 26 and perhaps in 27, even directionally, are facilities consolidations going to continue at about the same pace or a higher or lower pace of costs related to these actions?

So we're developing that, and again, details on a broader, longer-term approach are something we expect to communicate publicly this summer.

Okay. Thanks a lot.

Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Frank Sullivan, Chairman and CEO, for any closing remarks.

Thank you, and thank you for participating on today's call. We're executing an SG&A structural realignment that we see as a down payment on our new long-term strategic plan. We look forward to providing details on a new MAP 3.0 later this year. In the meantime, we are focused on outgrowing our underlying markets and controlling what we can. This strategy will help us navigate the current economic challenges and volatility and position us for outperformance as markets recover. Thank you again for your participation on our call today, and we wish everybody a happy new year.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.