RPM INTERNATIONAL INC/DE/ Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Strong Quarter Results: Record sales, adjusted EBIT, and adjusted EPS achieved despite macroeconomic challenges and a $4.4 million customer bankruptcy charge in the consumer group. Achieved record adjusted EBIT for the twelfth consecutive quarter.
• MAP 2025 Initiatives: Progress on facility consolidations and SG&A streamlining. Greenbelt program with over 400 associates trained globally, $36M+ in verified savings, improving working capital (working capital as % of sales down 100bps Y/Y), and reducing debt by $226M. Increased dividend for 51st consecutive year, returned $83.1M to shareholders.
• Geographic Performance: North America sales solid; Europe faced challenging macro conditions but MAP 2025 drove profitability; Africa/Middle East grew with technical solutions for high-performance projects; Latin America and Asia Pacific impacted by macro and comparisons.

Segment Performance

• Construction Products Group: Generated solid growth led by turnkey roofing systems and new products like UCO Tilt WB and Speed RMC. Achieved record adjusted EBIT despite hurricane impact in the Southeastern US. Contributed to overall sales growth with focus on restoration and direct sales.
• Performance Coatings Group: Record sales led by Flooring and Protective Coatings, strong growth in Europe and Africa/Middle East. Adjusted EBIT was a second-quarter record due to MAP 2025 benefits and sales growth.
• Specialty Products Group: Returned to sales growth led by disaster restoration and food coatings/additive. Residential OEM showed signs of stabilization, with adjusted EBIT growth driven by MAP 2025 benefits.
• Consumer Group: Returned to sales growth with market share gain and DIY takeaway stabilization. Record adjusted EBIT partially offset by $4.4 million bad debt from a customer bankruptcy.

Guidance

• Third Quarter: Mixed macro environment, weather headwinds, expected flat sales and low single-digit change in adjusted EBIT due to seasonal slowdown and weather impact.
• Full-Year 2025: Sales growth in low single digits, adjusted EBIT range narrowed to 6%-10% growth. Q4 expected to show incremental demand improvements. Residential market recovery potential later in the year, but elevated interest rates may delay recovery. Adjusted EBIT growth led by MAP 2025 improvements.

Risks

• Macroeconomic Uncertainty: Mixed macro environment, weather impact on DIY and construction activities, geopolitical risks like tariffs and port strikes.
• Customer Risks: Previous bad debt from a consumer group customer, potential for additional small customer challenges.
• Weather Impact: Seasonal winter weather negatively impacting DIY demand and some construction activities.

Question and Answer

Q: Mike Harrison on third-quarter guidance A: Frank Sullivan mentioned the seasonally slow quarter and weather headwinds offsetting MAP benefits, expecting strong sales and earnings growth to return in Q4 Q: John Roberts on bad debt reserve A: Frank Sullivan stated the bad debt reserve anticipates potential challenges but no immediate concerns on the horizon Q: Josh Spector on November quarter EBIT leverage A: Frank Sullivan explained unit volume growth but EBIT beat was partially offset by the customer bankruptcy charge, expecting solid leverage in Q4 Q: John McNulty on onshoring and MAP pipeline A: Frank Sullivan said onshoring impact is ongoing but early, MAP pipeline growing with potential $500M in savings by fiscal 2026 Q: Frank Mitsch on price and raw materials A: Frank Sullivan noted flat price in Q2, anticipating 1.5%-2% inflation in 2025, and limited exposure to Asian markets and import raw materials Q: David Wang on CPG hurricane impact A: Frank Sullivan said hurricane impact on CPG was delayed, with uncertain recovery timing based on weather Q: Kevin McCarthy on MAP program timing and new programs A: Frank Sullivan stated MAP 2025 benefits to be fully realized in fiscal 2026, with new strategic program to be communicated in fall Q: Jeff Zekauskas on gross profit margin and MAP impact on SG&A A: Frank Sullivan explained gross profit margin impact from services mix, and MAP initiatives affecting SG&A with strategic investments Q: Michael Sison on Q4 volume growth A: Frank Sullivan mentioned easier comps, new product introductions, and outperformance in Construction Products Group driving Q4 growth Q: Aleksey Yefremov on services business mix and pricing A: Frank Sullivan said services mix impact was quarter-specific, and pricing to cover raw material and labor inflation Q: Ghansham Panjabi on CPG uplift drivers and office construction A: Frank Sullivan noted agile sales forces and focus on growing areas offsetting office construction slowdown Q: Arun Viswanathan on consumer business stabilization and M&A targets A: Frank Sullivan mentioned pockets of growth in consumer business, with M&A targets in North America, Europe, and Latin America for strategic small to medium product lines Q: Stephen Byrne on headcount and M&A in Performance Coatings A: Frank Sullivan discussed headcount stability, shared service center growth, and M&A focus on accelerating growth