Good day, and welcome to the RPM International Fiscal Year 2025 Second Quarter Earnings Call. All participants will be in a listen-only mode. Please note that this event is being recorded. I would now like to turn the conference over to Matt Larrb, Vice President of Investor Relations and Sustainability. Please go ahead.

Thank you, Nick, and welcome to RPM International's conference call for the fiscal 2025 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. This call is also being webcast and can be accessed live or replayed on the RPM website at www.rpminc.com. Comments made on this call may include forward-looking statements based on current expectations that involve risks and uncertainties that 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 will be on an as-adjusted basis, and all comparisons are to the second 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 presentations and webcast section of the RPM website. I would like to turn the call over to Frank.

Thanks, Matt. Thank you to everybody joining us for today's call. I'll start by providing a high-level review of our results, then Michael LaRoche will cover the financials in more detail. Matthew Schlarb will then give a balance sheet update and provide details on our MAP 2025 progress, and Rusty Gordon will provide our outlook. At the conclusion of our prepared remarks, we'll be happy to answer your questions. Our second-quarter highlights are on slide three. We had a strong quarter with records in several areas, including sales, adjusted EBIT margin, and adjusted EPS. We achieved these results in a continuing no-to-low growth macroeconomic environment and despite a $4.4 million earnings headwind from a customer bankruptcy charge in our consumer group. Additionally, we achieved record adjusted EBIT for the twelfth consecutive quarter. Over the last three years, our associates have consistently made progress implementing our MAP 2025 operating improvements while simultaneously demonstrating their ability to navigate mixed economic conditions to outgrow our markets. We are pleased with the structural improvements we've made through MAP 2025. Our pipeline of MAP improvements remains full and continues to grow, and we will implement these initiatives for the balance of the 2025 fiscal year and in fiscal 2026.

Turning to slide four, our ability to outgrow our markets was evident during the quarter as each one of our segments generated positive organic volume and sales in a mixed economic environment. Across our segments, we leveraged our focus on repair and maintenance and our entrepreneurial culture to capture growth opportunities. Demand for our technical products serving high-performance construction projects was strong, particularly in our construction product group's turnkey roofing systems business. Residentially focused markets, which have been under pressure for some time, showed signs of stabilizing in the second quarter, aided by favorable weather conditions through the first two months of the quarter. This was an incremental positive for our consumer and specialty products groups. Across all our segments, we continued executing on MAP 2025 initiatives, including SG&A streamlining. It's important to note that after more than a year of increasing, SG&A as a percent of sales declined during the quarter, which is due to our associates' focus on structuring and reducing expenses while improving efficiencies. These MAP 2025 improvements drove adjusted EBIT growth in each of our four segments. Rusty Gordon will cover this in more detail, but so far in the third quarter, we are facing a real winter compared to mild conditions in the prior year. This is putting pressure on some of our businesses, particularly in the consumer segment, which is offsetting growth in other areas of RPM and MAP 2025 initiatives that we put in place. RPM Associates continue to do an excellent job executing on the things within our control, and I want to thank them for their commitment to our MAP 2025 program and to growing their businesses and making RPM a structurally stronger organization. To summarize our current and expected results, our strong MAP 2025-driven performance is being temporarily interrupted by a real winter, but will continue in our spring fourth quarter where we expect to see a return to strong sales and earnings growth. I'd like to turn the call over to Michael LaRoche to provide details on our quarterly results.

Thanks, Frank. Starting with consolidated results on slide five, record sales were driven by positive volumes in sales in all four segments, with FX being a headwind, particularly in emerging markets. The commodity cycle was neutral on a consolidated basis, but there were pockets of inflation, particularly within our consumer group. Adjusted EBIT grew 7.7% to a second-quarter record driven by sales growth and MAP 2025 benefits, including progress on facility consolidations and continued SG&A streamlining, partially offset by unfavorable mix. Adjusted EBIT includes the negative impact of $4.4 million bad debt expense from a consumer group customer's bankruptcy. As Frank mentioned, adjusted EBIT margin of 13.8% was a second-quarter record. Adjusted EPS of $1.39 was also a second-quarter record and increased 13.9% compared to the prior year. This was primarily driven by adjusted EBIT growth and lower interest expense from $226.5 million in debt paydown over the past twelve months.

Turning next to geographic results on slide six, North American sales were generally solid across all segments. In Europe, macroeconomic conditions remained challenging. However, MAP 2025 improvements and improved collaboration in the region continue to drive strong profitability growth. In Africa and the Middle East, our management team's focused strategy on serving high-performance construction and infrastructure projects with technical solutions generated strong growth. OpEx headwinds drove the decline in Latin America sales, while Asia Pacific sales declined due to challenging comparisons to the prior year when large projects were completed. Next, moving to the segments on slide seven, the Construction Products Group generated another quarter of solid growth led by its turnkey roofing systems and services business. With its focus on restoration, direct sales model, and high level of service, the roofing business offers a compelling value proposition to high-performance building owners and has been outgrowing its markets. We've also introduced new products that contributed to sales growth. One example from our concrete admixtures and repair business includes a patent-pending bond breaker, UCO Tilt WB, which increases user productivity in the expanding tilt-up construction market by providing clean release of cast panels and reduces the need for repairs. In line with our Building a Better World sustainability program, it also has lower VOCs than competing products. We've also introduced their Speed RMC, which is a premixed product that can be used in multiple restoration situations. It has low permeability and freeze-thaw resistance to prevent cracking and is able to cure in only five hours to enhance productivity on the job site. CPG's second-quarter sales in the Southeastern US were negatively impacted by hurricane activity in the quarter. Despite this, CPG achieved record Q2 adjusted EBIT due to sales growth and MAP 2025 benefits, partially offset by unfavorable mix.

On slide eight, the Performance Coatings Group achieved record sales led by the Flooring and Protective Coatings businesses serving high-performance construction projects. European sales growth was strong, driven by improved collaboration through MAP 2025. Double-digit sales improvement in Africa and the Middle East also contributed to the growth. Adjusted EBIT was a second-quarter record, and it was driven by MAP 2025 benefits and sales growth. Moving to slide nine, the Specialty Products Group returned to sales growth led by the disaster restoration business as a response to hurricane activity resulted in higher demand for its products. The food coatings and additive business also grew during the second quarter, aided by a previous acquisition. Specialty OEM serves many residential-focused end markets and showed signs of stabilization during the quarter. Adjusted EBIT growth was driven by MAP 2025 benefits, as well as improved sales. On slide ten, the consumer group also returned to sales growth in the quarter as a gain in market share and DIY takeaway stabilized. This was also aided by favorable weather conditions in September and October. Customer inventory levels were steady during the quarter. International growth continued, primarily driven by targeted marketing campaigns focused directly on end users. Consumer generated record adjusted EBIT in the quarter due to MAP 2025 benefits, higher sales, and the rationalization of lower-margin products, partially offset by moderate inflation and the negative impact of the $4.4 million in bad debt expenses from a customer bankruptcy. I'll turn the call over to Matt, who will cover the balance sheet and cash flow and provide an update on MAP 2025 initiatives.

Thank you, Mike. On slide eleven, we continue to make progress on working capital efficiency. Working capital as a percentage of sales declined 100 basis points from last year and 670 basis points from two years ago, driven by MAP 2025 initiatives. This working capital efficiency and expanded margins resulted in operational cash flow of $279 million during the quarter, the second-highest amount in RPM's history. The record was in fiscal year 2024 when we benefited from a larger working capital increase as supply chains normalized. Strong cash flow over the past year has allowed us to reduce debt by $226 million. In the second quarter, we increased our dividend for the fifty-first consecutive year and returned $83.1 million to shareholders through dividends and share repurchases during the period. Liquidity remains strong at $1.5 billion.

Now I'd like to provide an update on our MAP 2025 initiatives on slide twelve. As Frank mentioned earlier, we are confident that we will be able to continue building on the structural progress we have made in MAP 2025, and our Greenbelt program is one example of why. Our Greenbelt program is part of MS 168. It is a process-driven program that helps our associates identify areas for improvement, create solutions to address those challenges, implement the solutions, and then monitor the results. What started as a small program focused on the US has expanded globally, and we now have over 400 associates who have completed training, which is now offered in seven different languages. Six of these Greenbelts have been promoted to plant managers. To date, more than $36 million in verified savings have been recorded, and that number grows monthly. Initially, a top-down program has evolved to become more collaborative and has resulted in sharing ideas and best practices across businesses. In addition to financial savings, we are realizing other benefits such as improving safety, reducing waste, and decreasing our environmental impact. A recent Greenbelt program at Rust-Oleum developed a solvent recovery system that is producing benefits in all these areas. Greenbelt projects have also been instrumental in our ability to increase effectiveness. One example, Stoneheart implemented a Greenbelt project that eliminated unnecessary steps in the manufacturing process to increase throughput and improve quality with limited capital investments. These are just a few examples of the ongoing work across our RPM businesses with several trainings and new projects in the pipeline. Now I'd like to turn the call over to Rusty to cover the outlook.

Thank you, Matt. Our outlook for the third quarter, which as a reminder is our seasonally slowest quarter, is on slide thirteen. We expect the mixed macro environment to continue, and weather conditions have now become headwinds, negatively impacting DIY demand and some construction activities. Additionally, at today's rates, FX will negatively impact sales and adjusted EBIT. On a consolidated basis, we expect sales growth in the third quarter to be flat compared to the prior year period. By segment, we expect low single-digit growth in our Construction Products Group, as we continue momentum in selling waterproofing solutions, partially offset by unfavorable weather when compared to unseasonably mild conditions in the prior year. In the Performance Coatings Group, we expect sales to be flat to up slightly, as underlying demand for high-performance buildings remains solid, but the segment faces challenging comparisons to the prior year period when organic sales increased 9.2% and were boosted by the timing of project completions. In residential end markets, which primarily impact our consumer and specialty products groups, we saw stabilization in the second quarter; however, favorable weather trends in the second quarter have now reversed, and mortgage rates remain elevated, delaying further market improvement. We expect sales in both these segments to decline in the low single-digit range. Consolidated third-quarter adjusted EBIT is expected to be up or down low single digits compared to a record prior year period, as MAP 2025 benefits, including structural SG&A reductions, are offset by the softness in residential end markets and moderate inflation in raw materials and labor. On the topic of raw material inflation, there is uncertainty as to the outcome of what potential tariffs and a port strike could have. However, no matter what materializes, we are as well-positioned to navigate any potential challenges as we've ever been. Because of our center-led procurement team, while we have modest imports from countries potentially subject to tariffs, our procurement team has developed contingency plans to mitigate potential risks from different scenarios.

Our fiscal 2025 full-year guidance is on slide fourteen. Our sales outlook remains unchanged with expected growth in the low single digits. We are narrowing our adjusted EBIT range to 6% to 10% growth from the previous outlook of mid-single digits to low double digits. We expect economic conditions to generally remain similar to the second quarter. And while there is clarity on the outcome of the US election, political uncertainty has increased in other large economies like Germany, France, Canada, and Korea. The impact and trajectory of interest rate changes are also not clear. We expect pricing to be positive in response to continued inflation in raw materials and labor. By segment, CPG is expected to outgrow its markets with continued strength in high-performance building and restoration projects. At PCG, we expect incremental demand improvements in the fourth quarter when comparisons become easier. At Consumer and SPG, we expect that residential end market demand has the potential for an improvement later in the fiscal year. Elevated interest rates for longer may push out the timing of this recovery. On a consolidated level, we expect adjusted EBIT growth to be led by MAP 2025 improvements, and the realization of these benefits on the P&L will be driven by how quickly volumes recover. This concludes our prepared comments. We will now be pleased to answer your questions. Please press star and then two. And our first question today will come from Mike Harrison with Seaport Research Partners. Please go ahead.

Hi, Mike. Hi. Good morning. Congrats on a nice quarter here. I wanted to ask about the third-quarter guidance. I understand that this is a seasonally slower quarter and a quarter where typically you can see a more pronounced impact of volume as it's being leveraged across your fixed costs. But I'm a little bit surprised to see that you're guiding to flat sales and flat EBIT. So I'm just kind of curious, why would you not expect to be able to show some EBIT growth despite flat sales because you have some MAP benefits? What are the negatives that are offsetting the MAP benefits? I guess, my question.

Sure. So first of all, I think the outlook for Q3 is real simple. We had a number of years, particularly last year, that was very mild, and it's in our Construction Products Group or early spring sales in our Consumer Group. We benefited by a very strong all-time record third quarter last year on top of a record third quarter the year before. All you need to do is look out the window almost anywhere in the country, and you're seeing snow and the return of a real winter. And we have been and remain seasonal. And so I think the simple story is the strong leverage to our bottom line and to volume growth, not just growth, but unit volume growth in each one of our segments is being interrupted by a real winter. We fully expect to see strong sales and earnings growth return in the spring. It's a combination of I think we've turned the corner in growth after a sluggish probably twelve or fifteen months. Our MAP benefits are continuing to leverage revenue growth to our bottom line. And we've got a number of new product introductions, particularly in consumer, that will be starting to ship in February and March. So we feel pretty good about where we are. We are a seasonal business and have been since our founding, and that seasonality is showing up this winter.

Alright. That's helpful. And then you mentioned in the fourth quarter for the consumer business and specialty business that you're seeing some benefits from stabilization in residential markets. Can you maybe give us a little bit more color? I know you called out specifically the residential OEM piece of specialty, and then maybe it's that some of your big box retailers have seen some stabilization in their inventory levels. But just talk about what what's giving you confidence that you're seeing stabilization in those resi markets.

Sure. Some of the takeaway comps, I think, as those on the call know, we suffered through an extraordinary period of time in our consumer group with a modestly negative consumer takeaway for many quarters. You know, we were the beneficiary of a COVID bump, and then we bumped into supply chain challenges, rising interest rates, you know, the old story. But we've never seen a twelve or fifteen-month flat to negative consumer takeaway in our consumer segment, and that's what we're coming out of. So some of these easier comps, you're starting to see some softening in what were historically low housing turnover rates relative to rising interest rates. And so housing turnover, home sales, and home construction are stabilizing and moving in the right direction, albeit in a choppy period. But, you know, my experience is when times are good and you start to see some choppy performance, it might be an indicator of a downswing. And when times have been tough and you see some choppy performance on the upswing, it might be an indication of a turn, and I think that's where we are. Quite honestly, the year-over-year weather impact is disappointing because we've really started focusing on a pivot to growth across RPM. On top of real strong MAP initiatives going back to the initiation of those in 2018. And the second quarter was very encouraging, and it's being interrupted. So I think the dynamics that we're looking at are starting to move in the right direction. But as Rusty said, there's certainly a lot of uncertainty relative to the pace of interest rate reductions and or what's coming geopolitically relative to threatened tariffs and other things. So we'll respond to those, I think, effectively. Put all that aside, it feels like we hit bottom in some of our more challenged specialty products group and consumer product lines that have had a difficult year, and they should be moving in the right direction.

Alright. Thanks very much.

And your next question today will come from John Roberts with Mizuho. Please go ahead.

Morning. In the consumer segment, are you seeing a significant bifurcation in your customers? I mean, you've got one that went bankrupt. Are you seeing like, above-average growth in the large home center area and these smaller customers are struggling and so the business is starting to bifurcate?

I think that's been truer over the last year, year and a half. You saw some challenges at some of the big boxes and strength in some of the dollar store and just chain, you know, large discount chain customers where we saw better consumer takeaway as consumers shifted in that direction. We also saw in response to that some of our larger customers' inventory adjustments over the last couple of years. And I think you're gonna start to see a return this spring to more traditional consumer takeaway across our entire supply chain or customer base. But your comments were certainly true over the last twelve or fifteen months. And we could see it in our consumer takeaway numbers with stronger results in certain areas and weaker results in others.

And do you think your bad debt reserve sort of anticipates any additional smaller customers going down?

Yes. And, you know, we don't see any challenges on the horizon. You know, this one hardware store co-op business was challenged. Its assets have been picked up by a related entity, and I think some of that business will return, but it was a little bit of a surprise to us and to others.

Thank you. And your next question today will come from Josh Spector with UBS. Please go ahead.

I wanted to ask just on the November quarter, I mean, really strong performance on sales. I assume that three percent beat versus your expectations was primarily volumes. But correct me if I'm wrong, but on that basis, your EBIT beat by about four percent. I guess I would have thought that there would have been a lot more leverage to that volume because a lot of the MAP savings we've talked about bigger leverage on bigger volumes. So why didn't we see that come through in a much stronger way in the December, sorry, November quarter?

Sure. So first of all, it was all unit volume. And each one of our segments was at three percent unit volume growth or better. And, you know, I think when you look across our segment performance, we did demonstrate some leverage to the bottom line with the exception of consumer. If you adjusted for the $4.4 million bankruptcy, you know, you would have seen a much better performance there on the EBIT line. And so that's kind of where we are there. And we would expect to see solid leverage. You'll see in our Q4 solid leverage if we have the right volume growth.

Thanks. I guess related to that is so to your point on the May quarter, I mean, my math is the midpoint of your guidance would be about fifteen percent. What volumes do you need to underwrite to achieve that?

You know, I don't know off the top of my head. But certainly, three percent unit volume growth that we've experienced in Q2 will be in the range of what we need to drive solid double-digit earnings growth in Q4.

Okay. Thank you.

Assuming there's not any, again, I think you have to adjust out the $4.4 million receivable write-off that we took in Q2 to get to a more reasonable leverage number.

Okay. Thank you.

Yes. One last comment on that. Q4 is a higher volume quarter as well. That's why you'll see better leverage. You know, back to seasonality, our strongest quarters are Q4 and Q1. Q2 is decidedly a lower revenue quarter, and Q3 is our seasonal low period.

And your next question today will come from Vincent Andrews with Morgan Stanley. Please go ahead.

Hi. Thank you. Good morning, everyone. Just two quick ones to clarify some things. First, the $4.4 million was that in the original guidance or the guidance for fiscal 2Q? Or did that, I guess you had to leave it in for certain reasons, but was that anticipated? And the numbers you gave us last quarter?

No. It was not. It was a late October event and not something we anticipated.

Okay. And then you've left the sales guidance alone for the full year, but you've narrowed the full-year EBIT range. I just want to understand, are you pointing us a little bit more towards the lower end of that sales guide and that's what's driving the narrowing of the range, or is there one or two items that's causing that?

Well, it's really the seasonality of Q3 and what it is doing to our expected results versus an all-time record Q3 last year. And then, you know, I think the variation there in Q4, which, again, we expect strong fourth quarter. Whether it's modestly strong or very strong depends on whether the seasonality and the impact of weather pushes sales that we otherwise would have had in Q3 and Q4 beyond what we expect. So I think there is, you know, there is some wide little bit of a wide range in terms of what we expect on the bottom line. We'll be double-digit. That's our at least our expectation today. Some of that's gonna be whether we pick up otherwise what would have been Q3 results in Q4.

Okay. Thanks very much.

And your next question today will come from John McNulty with BMO Capital Markets. Please go ahead.

Good morning. Thanks for taking my question. So I guess the first one is I know, you know, over the last couple of quarters, you had spoken to in terms of the onshoring. There was a little bit of a pause that was taking place in, like, the performance and the construction segments, but you thought that would pretty soon come to an end. I guess, is that still the case? Are we pretty much through that slow period? And also, I guess, with the election now having taken place and maybe there's a little bit more about US protectionism, are you seeing any signs of an increase around onshoring yet or is it a little too early to see that?

I think it's too early. We're seeing a continuation in kind of small to medium-sized projects in manufacturing, which is benefiting us. As we commented last quarter, some of the larger projects in Michael Arconics, things like that, that were committed to and already have some US dollar support behind, I believe, will play out over a longer period of time. And so if, for instance, there's a big Intel project here in our home state of Ohio, I don't see that being canceled or halted. But the expectations here now is it's gonna play out over a five to seven-year period as opposed to a three to five-year period. So it will even out some of this, but we don't expect any of it to go away.

Got it. Okay. No. That makes sense. And then on the MAP side, you indicated that you're seeing kind of the pipeline from MAP projects actually growing at this point. I guess, can you help to frame that in terms of size or potential uplift maybe to the, you know, to the past targets or anything like that?

Sure. Our original MAP program targeted $290 million of savings and efficiencies, and we shared that detail on how it would play out over a three-year MAP 2020 MAP's growth program. And when we concluded that program, we achieved actually about $325 million. When we introduced MAP 2025, I believe the number over the entire period was $465 million. You will see that in our P&L in fiscal 2026. As we are continuing to execute on initiatives, it's likely that the benefits of MAP 25 will reach $500 million. And so our people continue to perform pretty well. Matthew Schlarb highlighted again, and we shared some of what those initiatives look like, and I'll just reiterate, you know, RPM had a very entrepreneurial culture, a lot of independence, particularly in the manufacturing and operation side. Our ability to bring a central-led approach in the beginning to introduce lean manufacturing disciplines that are not new to manufacturing but have been relatively new to RPM over the last four or five years is having a really good impact. And so we expect to see that continue as we introduce these into the European and international markets. The impact of which was delayed by COVID. As you know, our initial focus is on North America. So I think the biggest change in our MAP initiatives while we've executed on a bunch of cost savings and efficiency programs and we can identify the number of plants that we've closed, we can identify the number of ERP systems that we consolidated. Probably the biggest harder to value measure is how it's changed our culture. There is a level of collaboration across our operations and our businesses today that quite candidly didn't exist seven years ago, and we're reaping the benefits of that. More to come.

Got it. Thanks very much, Frank.

Your next question today will come from Frank Mitsch with Fermium Research. Please go ahead.

Hey. Good morning to you as well, Frank. I'd like to talk about the interplay between price and raws. Last quarter, you indicated that deflation was about two percent in the fiscal first quarter. I was curious what the second quarter is and what your outlook is there. And it sounded like price was pretty close to flat in the fiscal second quarter. Just curious if you could provide any more color there.

Absolutely. It's a great question. And your assumption's correct. We're, you know, we're about flat in a kind of an odd period of some raw materials that have declined a little bit and some raw materials that are increasing. As we sit here today, it feels like as we get into calendar 2025, we're seeing what across the board will be somewhere in a one and a half to two percent inflation across our core raw materials. We have some modest price increases in one of our business units, especially products in one of our business categories, in our Construction Products Group announced both for the end of January and in March. But we are on high alert in terms of where inflation might go relative to threatened tariffs and or other factors. I think a lot of people have learned over the last couple of years both what are the tools to use to raise price where appropriate, and how to instill the courage in your sales force to go get it. And so we're certainly on alert for that. And I guess the last comment I would make is that we are not very exposed to the Asian markets, don't do much business in China. The Asia Pacific region is our smallest, and we also don't have a lot of exposure to import raw materials. Some of those will impact our food group to get some ingredients from China, our Leggett branch business to get some components from China. Broadly speaking, certain chemical raw materials, but I think our exposure is less than many of our peers.

Terrific. Very helpful. And then, you know, indicated that the balance sheet is, you know, about the best that it's been in a long time. You know, you obviously made an acquisition in the quarter, TMP Convert. You did some buybacks. Now with the stock down, you know, since Thanksgiving relatively significantly or materially. I'm just curious about the interplay between M&A versus buybacks.

Sure. So first of all, our balance sheet's in the best condition it's been since I joined RPM thirty-five years ago. Our cash flows are at record levels. As you saw in the quarter, we're continuing through the MAP initiatives to improve working capital efficiency. We're continuing to improve our cash conversion cycle. We continue to be focused on that. You know, we will moderate the opportunities between buybacks and acquisition opportunities. But I do not want to be the CEO that falls in love with his best-ever balance sheet and becomes afraid to use it. So when opportunities arise, at the right value that are good strategic fits, you know, we build balance sheet strength so we can put it to use smartly and strategically.

Thank you. And your next question today will come from David Wang with Deutsche Bank. Please go ahead.

Just on CPG, what percentage of volumes were negatively impacted by the hurricanes in Q2? Was that twenty-two percent? And I guess the majority of those delayed volumes probably won't be impacted much by the winter weather. Do you expect those to come back in Q3? Post insurance claim payouts, will Q4 see the actual pent-up volume improvement from all of the weather events in Q2 and Q3?

Sure. I don't have an exact answer to that. I can tell you that our Construction Products Group and our Performance Coatings Group had some disruptions at the beginning of the quarter because of the hurricanes. And how that plays out in Q3 or Q4 is difficult to know. You know, some of it, again, will be weather-related. If we continue with the severe cold weather and winter weather and snow across, you know, wide parts of the United States for another month or two, that would result in deferring, for instance, products sold to distribution in our Construction Products Group could be deferred till later in the year. February or March is supposed to now. That's reflected in our outlook. So, you know, it could have been a stronger quarter except for the early impact of the hurricanes and the write-off in our consumer group, but it is what it is.

Got it. And then I guess you touched on this for consumer, but on the various construction end markets you're exposed to, what are you seeing, you know, where are you seeing any incremental signs of either improvement or deterioration, or has your outlook potential recovery changed here?

Sure. So as I commented earlier, after twelve or fifteen months of negative consumer takeaway, we kind of are seeing signs of that stabilizing. And so that's one piece of it. We are seeing some choppy signs that the housing market in terms of home turnovers and new home constructions are starting to improve, and we've got a number of new product introductions coming out in our consumer business in a couple of categories, some in coatings, some in cleaning products, that we're excited about. And so it feels like both the dynamics and rounding some easier comps because of the challenges that we've talked about give us hope that we're gonna start to see better week-by-week and month-by-month consumer takeaway.

Okay, thanks.

And your next question today will come from Kevin McCarthy with Vertical Research Partners. Please go ahead.

Yes. Thank you. And good morning, and happy New Year to you, Frank. I wanted to follow up on two aspects of the prior discussion on the MAP program. First, you know, it has to do with timing. I think that previously, there was going to be some spillover of your savings into fiscal 2026. And now, you've upsized the target to $500 million. So I was wondering if you could comment on, you know, what amount of savings you would expect to fall into this year versus next year? And then secondly, on MAP, I think a couple of quarters ago, Frank, you hinted that you're working on potential for a new program, and just wanted to follow up on that. How would you characterize the likelihood and timing of any new programs?

Sure. You know, I don't have any specifics. Maybe one of my colleagues does on how we think about MAP this year and the next year other than our MAP 2025 program, and we communicated this in both the original 2020 MAP's growth and this one that we would achieve our results on an annualized run rate by May 31, 2025, meaning that, you know, the full impact would be realized in fiscal 2026. And so you're not gonna see the full impact of that $500 million until we get into fiscal 2026. You know, we have been running at about $30 million of MAP benefits per quarter. Keeping in mind, and this goes back to an earlier question, a lot of the MAP 2025 benefits have been at the conversion cost manufacturing level. So it's truly volume-driven. With lower volume, you're gonna get lower benefits. With higher volume, you'll get higher benefits as opposed to an SG&A cut that kind of is even across your monthly periods. We will be working on what follows MAP 2025 in our spring strategic planning process. And it's my anticipation, like we did in November of 2018 and like we did in November of 2022, that sometime this fall, we would have a communication on what follows MAP 2025. And I don't know if I would provide much more details on that part because we're working on it and in part because it's not finalized. Interesting to see what we call it. But in any event, there is more work to do, and we would anticipate providing some details around a new strategic planning and growth program this fall. I will tell you that the challenge for us in relationship to that great question about what's next is the need to embed, and we're doing it, the MAP learnings into our culture. And then pivot the organization to growth. And the second-quarter performance felt good in terms of that movement that we need to make. And it's disappointing to see it being interrupted by a real winter. But we anticipate seeing that focus come back in Q4, and we'll provide more details in the fall.

Sounds good. As a second question, experience in the month of December? And I'm thinking about two things there, Frank. First, clearly, weather is an important variable as you've talked about. Is that weather something that you've already experienced, you know, over the last several weeks, or something that you anticipate, you know, for January and February? And then the second thing would be, you know, just kind of destocking around the calendar year-end and, you know, how that impacted volumes, if at all, relative to a normal year.

Sure. I don't know that we would want to get into month-by-month performance criteria, but I can tell you our outlook is shaped by the early part of Q3. And certainly, our February results, again, you know, if you follow the hyperbole of the media, you know, with Snowmageddon and it's this horrible snow event in the southeast, it's an Alberta Clipper coming across the United States. It's just a real winter. And there's been snow on the ground. There's been cold weather in the southeast, you know, I could go on and on. It's just a real winter. And in comparison to two record third quarters after each other, we are experiencing the seasonality that's been normal throughout RPM's history. It started at the end of November. It's continuing in December. And as I look out the window, it doesn't feel like we're gonna see the green grass until sometime in February or March, and that is reflected in our outlook. I can tell you, and this is just a wish, that's something we would plan on. I'd like to see us work like hell to have a positive EBIT number in Q3. Not sure if that's in the cards based on how long this weather hangs around. But if we did, it would be our thirteenth consecutive quarter of record earnings results, and it'll be disappointing if that ends, but we'll pick up where we are and you'll see solid results in Q4.

Great. Thank you so much.

And your next question today will come from Jeff Zekauskas with JPMorgan. Please go ahead.

Hi. Good morning. So the gross profit margin was lower year over year despite the three percent sales growth. Why was that?

Principally around mix. In our Construction Products Group, we have a significant and growing services business for WTI Weatherproofing Technology. It's got a solid EBIT margin, but a significantly lower gross profit margin than our pure material sales. And so it was mixed in a number of places. It was mixed in consumer and a few of our other businesses. But the biggest mix impact was in our Construction Products Group. And that's what drove the essentially flat year-over-year gross profit. You know, we are attuned, as I commented earlier, to what we anticipate is coming in terms of raw material inflation. One and a half to perhaps two percent as we roll into the new year, and are already taking a look where we can at price increases to overcome that. To get back to a positive gross margin performance that we've been demonstrating for the last couple of years.

Thanks for that. In thinking about the MAP program longer term, is the point of the program to grow SG&A, you know, I don't know, one percent or one and a half percent or some number that's below your normalized volume growth rate, or is the point of the program something else?

So put aside the MAP initiatives, which are really focused on cash conversion cycle efficiency, operating improvements, and you can see that in our results. We are becoming more strategic about our SG&A spends, notwithstanding some past criticism a year or so ago when you could see our SG&A growing at a rate faster than sales. It was very targeted at some growth initiatives. After a year or so of that, we were able to pivot to focus our organization on kind of solidifying where we're having success with those initiatives and where we weren't, where we weren't cutting back. So I think we'll be better communicators about where we're for growth. There's some new product categories, for instance, and some cleaning products this spring in our consumer business. I would anticipate a higher SG&A spend as we introduce some of these new programs. We can provide details when they're in the market. We are having higher spends associated with capital investments that are hitting our P&L. For instance, you know, of course, the P&L was an acquisition of resin production that we acquired that's part of our Construction Products Group. Finally seeing a positive earnings out of that business, but it was vital in terms of what it provided for us during the challenge. We are investing heavily in a resin center of excellence as part of our Day-Glo Color Group in Europe. And so there's some areas where we're being very strategic that will impact our SG&A. When the results of those strategic investments in our P&L prove true, everybody will be happy. And when the results of those investments in our P&L aren't playing out, we'll come.

Okay. Thank you very much.

Thank you. Your next question today will come from Mike Sison with Wells Fargo. Please go ahead.

Hey, Michael. Hi, guys. Nice quarter. Yeah. Is this back to the volume growth in Q2? Pretty impressive three percent on what doesn't seem to be a very good economic environment. So in the fourth quarter, if the environment doesn't improve, is that, you know, how do you get to three percent? It sounds like your execution is doing really well amongst the segments. Maybe just a little bit of color of if we stay in this little sluggish environment, how you get to growth in the fourth quarter.

Sure. It starts with an easier comp. Last year was a challenging Q4 for us. And we had record earnings results driven by MAP, so real solid performance. But sales were relatively flat. And we do see some of the dynamics that we've talked about in the call today improving. And so I think we're highly confident in forward momentum in Q4. Rusty commented on the uncertainty around some geopolitical things and where all that goes. So, you know, who knows what the impacts of those things are. But I think we're pretty confident for momentum in Q4 relative to easier comps, relative to the new product introductions that we intend to launch, and relative to some of the outperformance that we're seeing in the Construction Products Group versus what some of the peers are putting up. So those dynamics are not changing.

Got it. And then as a follow-up, if you think about longer term, maybe 2026 to some degree, and the economic environment actually improves, which would be nice. You know, what type of volume growth should RPM sort of elevate to? And if you think about the cost savings and MAPs that you should get in 2026, I mean, could 2026 be one of these banner years and, you know, maybe you can keep pace with the Cavs next year as well?

Well, first of all, I'd love to be a fraction of what the Cleveland Cavaliers are doing. They have the best record in the NBA, and they're not getting a lot of recognition for it. That's fine with me. They can just quietly sneak up on everybody. So go Cavs. You know, I get a little philosophical here, and this is geopolitical, but it's hard to know what's coming with all the geopolitical changes out there. And so there's two big crazy scenarios. One is a smooth holly geopolitical mess that leads to a meaningful economic downturn. The other is a peace dividend, you know, and so with these new administrations in Europe and the US, if somehow there's a resolution to the Russia war in Ukraine, if the growing stability in the Middle East continues, our performance in Europe because of the MAP program is really strong in the bottom line, but economically, the European marketplace, which is both our second-largest region and an opera region with lots of opportunity, a return to growth in the UK and Europe would be very positive. And stability in foreign currencies in Latin America would be very positive because our underlying performance there has been pretty solid. And lastly, I'd comment on the platform approach we're taking to the developing world. It's really an RPM platform approach being driven by a leadership team out of South Africa, which is part of the strength that we're showing in our Middle East results. We're investing in new production in India, and we expect the same there. So we've got a lot of irons in the fire in terms of being prepared for a positive turn in the markets. Time will tell.

And your next question today will come from Alex Yefremov with KeyBanc. Please go ahead.

Good morning, Frank. Just wanted to follow up on the pricing. You mentioned some targeted price increases in the second half of the year, but are you expecting overall to cover the raw materials and labor inflation that you're talking about so that price cost in the second half of fiscal 2025 is neutral or negative or positive?

So we would expect to cover the raw material inflation if any and what is moderating, but still increasing labor costs. And as I said earlier, kind of anticipating a one and a half to two percent inflation in the second half. If it's less than that, that'll be good. If it's more than that, we will respond accordingly, and some of it is really a function of even the anticipation of seeing that. I think people are anticipating from a supply chain perspective and otherwise what's gonna happen to raw materials? What are they gonna do with pricing? What's gonna happen with supply relative to threatened tariffs? And so how much of that gets realized is something that everybody in our supply chain is heightened to. And I think positioned to move on as necessary.

And Frank, you mentioned growth in your services business affecting the mix, but they're still contributing. Is it this just happened to be a quarter where services grew faster, or is it something structural? And also, is this growth in services driving sales of materials and coatings as well?

So it's just the impact of the quarter. You know, in our Tremco Construction Products Group, our large units, our business, our roofing division, it's about, I would say, sixty percent material sales and forty percent today WTI, which is up meaningfully from where it was four or five years ago. And ultimately, yes, the services business drives material sales, in some cases, immediately, where our WTI business is acting as a general contractor and having subs do the work, which drives material sales. In other cases, it's the maintenance work that we're doing for large accounts that keeps us on the roof and keeps us connected with those businesses such that when there's meaningful opportunities from material sales three or five years down the road, we're their partner for those restoration projects. And I would expect to see that grow over time with an interesting mix of margin impact. PureAir, which is an HVAC restoration business that we acquired a few years ago, we're starting to grow. That's part of that. There's some other service areas that we're getting into. And so on the bottom line, we like it. And there's not a whole lot of difference in terms of the EBIT margin impact. In fact, over time, maybe we can improve that. There is a significant difference in the gross margin.

Got it. Thanks a lot.

And your next question today will come from Ghansham Panjabi with Baird. Please go ahead.

Thank you. Good morning and Happy New Year as well. Hello, Frank.

Thank you.

So, Frank, you know, just sort of summarizing some of the questions, just so I understand, obviously, there's many different micro trends across your operating segments. But as it stands today, do you think the volume outlook across your businesses on a consolidated basis is better from a trend line standpoint going forward? You know, it seems like CPG and PCG are delivering solid growth, and it looks like residential has plateaued as well. Of course, I'm adjusting for Q2 and Q3, which obviously, there's some weather nuances in there.

So I think the answer to that is yes. We saw a number of things not only MAP-related, but this pivot to growth-related show up in Q2. It's disappointing given the seasonality and where we're suffering that that's not gonna be realized in the subsequent months. And as I commented earlier, right off the bat, December, which is reflected in our outlook, we received the impact of weather seasonality that's traditional in our business and hasn't really been a factor for the last couple of winters. But the underlying trend line in growth is positive. And organizationally, we are at the beginning of what we think of as embedding the MAP learnings into our culture and pivoting the organization to growth. The details of that are still in process, and so we will be in a position to provide in more detail what that looks like and what our expectations are on that over a multiyear period sometime this fall.

Okay. And then just a second question on CPG specifically on Slide fourteen where you have all the uplift drivers for fiscal year 2025, you know, you call out office construction obviously as one of the negatives. Is that sort of equally offset by some of the other positives in there, you know, high-performance buildings and infrastructure, etcetera? Or is it a more substantial slowdown that you're expecting going forward?

No, it's an interesting mix. And I will tell you particularly for our Construction Products Group, for our Stoneheart business, for our Euclid Chemical business, I've been incredibly impressed, and this isn't patting ourselves on the back necessarily, but our sales forces have become more agile. And they have been able to move to where the money is. And so whether it was having a disproportionate share of, you know, flooring, fibers, floor toppings as Amazon was building out their distribution centers, for today, we're getting, I think, at least our fair share, if not more, in this data center build-out both here and in Europe. There's opportunities in other parts of the world like India we are working hard to catch up because we have real strength here. And so it's really been a combination of more agile sales forces and hats off to our businesses and our salespeople that have been doing that. And it's overcome some of the core business that mostly was sold through distribution and so broadly in expanding office building, expanding fast food chains, expanding hospitality, products would have been served in the past, for instance, for Tremco sealants to our distribution. That quite candidly has been relatively weak in the last couple of years, and a return to growth in those areas would be, I think, a benefit. What we've learned to be is more direct on major projects and categories that are growing.

Perfect. Thank you, Frank.

And your next question today will come from Arun Viswanathan with RBC Capital Markets. Please go ahead.

Morning, everyone. Good morning, Frank. Thanks for taking my question and happy New Year. So, yes, just I wanted to clarify some of your comments. I guess, you noted that you have seen some stabilization in some of the consumer DIY takeaway categories. Where is that occurring? And also, you noted some share gains. So I guess maybe if you could just help us understand where those are occurring. And if they are occurring in areas that you would attribute to housing market recovery or is it more just other specific items? Thanks.

I can give you a few examples in the DIY. It's new product-related. Our GAP business has introduced a new wall and cavity foam product. They've expanded distribution of a wall tech spray category that they weren't in in a big way in the past. So we're getting sell-in into some of these new product categories. In our Rust-Oleum business, we picked up some share in the automotive channels, so automotive retailers. The five-in-one spray that got off, I guess, to a slower start than we hoped. And, you know, part of it is you can introduce new products, but if you're introducing them into a negative consumer takeaway market, it's not gonna have the excitement that you want. Starting to see some expanded distribution and takeaway in the five-in-one and patented spray application for some of our Rust-Oleum spray paint products. And then also in Europe, part of our consumer segment, one of the few places in an otherwise very funky economic environment where we're seeing positive unit volume growth is in our consumer businesses in Europe. It's being driven by two things. One, a really strong focus on Zinsser primers into the European marketplace. You know, specialty primers aren't as or haven't been as ubiquitous in Europe and the UK as they are in the US. And so that's going really well. And we have what I think of as Paint Unlimited, but it's a direct-to-consumer e-commerce model of specialty paints, and it was launched in the UK. It's being expanded into parts of Europe. And that is growing double digits, and it's very exciting. And so those are the areas of positive results in our consumer business, notwithstanding the underlying challenging dynamics.

Okay. Great. Thanks for that. So it sounds like, as you said, the underlying dynamics are still challenging, but there's maybe some pockets of encouragement. And then just maybe I'll re-ask a question on M&A. There are some properties coming to market in the next, you know, say, six months or so. It sounds like, as you noted, you wouldn't want to sit idle with cash. What kind of targets would you be looking after? Would you be interested in going further into Latin America, Asia, and Europe, or would it be more focused on North America? Maybe you can just provide us some regional and category areas of interest. Thanks.

Sure. So I think our M&A activity would be focused on the areas that you talk about, North America, firstly, Europe and Latin America, not likely to see it in the developing world in the near term. We have been pretty good at small product lines that are highly strategic. And so if you could buy nice product lines, they might be five or ten million bucks, but if they fit a need in our product category, and we can double or triple the revenues, the IRRs are home runs. So it's part of really thinking about an earlier question, how do we drive three or four percent organic growth, and some of it is being very strategic about small to medium-sized product lines that we can integrate and expand across our distribution or sales forces such that in year two and three, it's adding to that organic growth number. So that's the first way that we think about it. Secondly, there will be some larger, perhaps, coatings and or specialty chemical construction products businesses coming to market out of private equity portfolios or otherwise. I think we have a balance sheet that can accommodate that. We've missed some of the acquisition growth over the last five or seven years because we've always had pretty strong discipline about M&A value. Our goal in M&A is not to get bigger. It's to get better and more profitable. And so we've got a balance sheet that's in good shape, and we will continue to look at opportunities as they come or as we can find them and execute on them.

Great. Thanks.

And your next question today will come from Stephen Byrne with Bank of America. Please go ahead.

One of the restructuring items is focused on accounting locations. Can you comment on how many accounting locations do you currently have and what was it a few years ago?

So I think where we started, Matt, in 2020, we were around a hundred accounting locations. We have significantly reduced that now. We're down to probably something in the forty or fifty-ish range. Got a lot of work leveraging the work we've done in consolidating ERPs as well as building out our accounting locations in our shared service centers in India and Mexico as well.

From, you know, just to add to that, from an ERP MAP initiative, we had essentially seventy-five versions or instances of ERPs, some common like SAP, but different instances. And we have shrunk that down RPM to somewhere in the mid-teens. Fourteen is a number that sticks in my head, but given some of our far-flung operations, it could be a few more than that. But that's a dramatic improvement from what was seventy-five identified different instances of ERP or IT systems.

Absolutely. Our goal is to just to finish that. Ultimately, our goal is to get those down to somewhere in the mid-single digits at least.

Okay. And what about total headcount, Frank? Where would RPM be at right now, and what would you target in a few years net of M&A activity?

Right now, it's about seventeen thousand, a little bit more. I think that number has been stable for the last couple of years. And we've had a disproportionate growth in some of our shared service centers, which five or six years ago were a few dozen and today are up to about four hundred. You know, those folks have more than paid for themselves. And, you know, the one area that we continue to look to expand, and it's been challenging, but I think we're net-net winning is Salesforce. It's been, you know, since COVID and through COVID and ups and downs, you know, if there are good paints and coatings for construction product salespeople, we are open for business and looking to expand Salesforce in our Performance Coatings business units, Construction Products business, in particular.

And just one quick one for you there, Frank, and that is, do you see any potential in moving any of the Performance Coatings products into a direct sales model similar to what you have in CPG?

Sure. Great question. As part of our MAP initiatives, going back to 2018, we look at our organization, look at our business units and our groups, and think about what's the best way for us to be organized going forward. I can tell you that as it relates to the original MAP programs, some of that reorganization was done with a mind to what's gonna make us more efficient. On a go-forward basis, if we make any changes, it's gonna be entirely driven by what will allow us to accelerate growth.

Very good. Thank you.

We'll conclude our question and answer session. I would like to turn the conference over to Mr. Frank Sullivan for any closing remarks.

Thank you very much, Nick. I want to conclude by recognizing someone who participated in all of our conference calls for more than fifteen years and was part of RPM's growth for more than thirty, which is Ed Moore, who retired as our Senior Vice President and General Counsel on December 31. He was the conscience of RPM and a significant part of our growth and success, and we wish Ed and his wife, Kim, and their family great joy and new adventures. And we are joined today by RPM's new General Counsel, Tracy Trandell, who's gonna bring the same wisdom and kind of stable, even-keeled approach to keeping RPM on the right path. So welcome, Tracy. Thank you, everybody, for your participation in our call today and your interest in RPM. Best wishes to all for a happy, healthy, and successful New Year. And we look forward to talking to you throughout the next couple of days and then again in April when we conclude our third quarter, and we'll be able to talk about a return to growth in Q4 and beyond. Have a great day.

Conference has now concluded.