RPM International Inc. Q4 FY2025 earnings call

Management Statement and Operational Highlights

• Fourth Quarter Results: Demonstrated solid top-line growth with improved operating efficiency via MAP 2025 initiatives. Fourth quarter sales, adjusted EBIT, and adjusted EPS were at record levels, with volume growth led by systems/turnkey solutions and maintenance/repair. 3 of 4 segments had record adjusted EBIT.
• MAP 2025 Impact: Compared to 2022, gross margins expanded near the 42% goal, adjusted EBIT margin by 260 basis points, and working capital as % of sales improved 320 basis points. Strong balance sheet with credit metrics near best ever.
• New Operating Structure: Shifted to 3 segments (CPG, PCG, Consumer) for synergies. Industrial Coatings joined PCG for improved collaboration on high-performance coatings, and Color Group joined Consumer for better specifications and streamlined overhead.
• Growth Strategy: Strategic capital allocation to organic and inorganic opportunities, leveraging data analytics, reallocating SG&A streamlining savings to growth areas (e.g., technical sales force, marketing), and cultural shift for collaboration.
• Acquisitions: Largest M&A year in RPM history in fiscal 2025, including the acquisition of Ready Seal in fiscal 2026.

Segment Performance

• Construction Products Group (CPG): Sales reached a record, driven by systems and turnkey roofing solutions for high-performance buildings. MAP 2025 initiatives and higher sales of Engineered Systems and services contributed to record adjusted EBIT.
• Performance Coatings Group (PCG): Achieved record sales led by turnkey flooring solutions, fiberglass reinforced plastic structure growth, and M&A. Adjusted EBIT was a record due to volume growth leveraging MAP 2025 benefits and sales mix improvement.
• Specialty Products Group (SPG): Sales improved, but had a $2.5 million bad debt expense from a customer bankruptcy and higher start-up expenses at a Resin Center of Excellence. Adjusted EBIT increased but faced challenges in fluorescent pigments and disaster restoration businesses.
• Consumer Group: Sales declined modestly due to DIY softness, but adjusted EBIT increased to a record driven by MAP 2025 benefits and SKU rationalization, which offset sales decline and raw material inflation.

Guidance

• Fiscal 2026 Full Year: Expect record sales and adjusted EBIT. Sales growth low to mid-single digits, adjusted EBIT growth high single to low double digits. Benefit from MAP 2025 carryovers, acquisitions, $15M SG&A streamlining savings reallocated to growth, consolidating 8 plants and opening 3 in fast-growing markets, and higher pricing.
• First Quarter 2026: Expect sales growth and record adjusted EBIT led by systems/turnkey and repair/maintenance, full quarter of Pink Stuff and Ready Seal acquisitions, with inflation impacting pricing but expecting positive momentum.

Risks

• Tariff Uncertainty: Ongoing uncertainty affecting the low to no growth environment.
• Consumer DIY Softness: Prolonged period of no or negative growth in DIY markets, at a 40-year low in housing turnover.
• Raw Material Inflation: Impact on costs, especially metal packaging (up 11-12%), propellants (up 13-14%), pigments (up double digits).
• Interest Rates: Elevated rates affecting existing home sales and new build nonresidential construction, increasing net interest expense to $105-115M for 2026.

Question and Answer

Q: Mike Sison with Wells Fargo asks about underlying demand or organic growth in 2026.

A: Frank Sullivan anticipates 2-3 points of organic growth, noting challenges with tariff issues and consumer DIY, but positive signs in CPG and PCG.

Q: John McNulty with BMO Capital Markets asks about MAP '25 savings in 2026 and working capital progress.

A: Frank Sullivan says MAP 2025 benefits in 2026 should be ~$70M, with still 200-300 basis points of working capital improvement expected.

Q: Kevin McCarthy with Vertical Research Partners asks about turnkey systems growth and One Beautiful Bill Act impact.

A: Frank Sullivan discusses turnkey systems growth in CPG and PCG, and Russell Gordon mentions the bill could spur investment and benefit depreciation.

Q: Patrick Cunningham with Citi asks about price cost in Q1 and pricing opportunities.

A: Frank Sullivan explains Q1 challenges with consumer raw material costs, plans for price increases in summer/fall, and momentum in industrial/commercial businesses.

Q: Mike Harrison with Seaport Research Partners asks about Q4 momentum and inflation drivers.

A: Frank Sullivan attributes Q4 momentum to new products, developing markets growth, and mitigating Q3 weather delays.

Q: Unidentified Analyst with Bank of America asks about flooring growth and SG&A from deals.

A: Frank Sullivan and Russell Gordon discuss flooring growth in data centers and SG&A deal costs being elevated but indicative of robust activity.

Q: Joshua Spector with UBS asks about raw material inflation latest view.

A: Frank Sullivan says consolidated inflation in Q1 is 1-2%, disproportionately in consumer packaging, propellants, and pigments.

Q: David Begleiter with Deutsche Bank asks about Consumer organic growth and raw material disconnect.

A: Frank Sullivan discusses DIY softness, Rust-Oleum challenges, and raw material inflation specifics in consumer vs. industrial.

Q: John Roberts with Mizuho asks about SPG customer stress and MAP 3.0.

A: Frank Sullivan says no customer stress signs, and a new MAP program is expected in spring/summer 2027 focusing on growth and efficiencies.

Q: Ghansham Panjabi with Baird asks about consumer volume outlook and fiscal 2026 guidance leverage.

A: Frank Sullivan and Russell Gordon discuss consumer new products, acquisitions aiding growth, and guidance driven by organic growth, acquisitions, and MAP benefits.

Q: Jeff Zekauskas with JPMorgan asks about EBIT growth leverage and COGS growth.

A: Frank Sullivan and Russell Gordon discuss EBIT growth from organic and acquisition growth, and COGS growth influenced by MAP initiatives and mix.