RPM Reports Record Fiscal 2023 Fourth-Quarter and Full-Year Results

RPM International Inc. (NYSE: RPM), a world leader in specialty coatings, sealants and building materials, today reported financial results for its fiscal 2023 fourth quarter and year ended May 31, 2023.

“RPM generated a sixth consecutive quarter of record sales and adjusted EBIT. While prioritizing cash flow over profitability, we were still able to achieve adjusted EBIT growth primarily through our MAP 2025 initiatives. Our progress on inventory normalization initiatives drove a fourth-quarter record $314 million of cash flow from operations and allowed us to reduce debt by nearly $140 million. These impressive results were due to the hard work, collaboration and agility of our associates, which allowed us to capture growth opportunities and leverage MAP 2025 initiatives to operate more efficiently,” said Frank C. Sullivan, RPM Chairman and CEO.

Sullivan continued, “As challenging conditions impacted certain end markets, our nimbleness and balanced business model enabled our growth. Several businesses benefited from their pivot to selling engineered solutions into infrastructure and reshoring-related capital projects, and our strategic focus on maintenance and repair provided resilience in construction end markets. Our operational flexibility, which is a product of MAP 2025 initiatives and our entrepreneurial culture, allowed us to quickly meet a seasonal demand increase at the end of the quarter.”

Fourth-Quarter 2023 Consolidated Results

Consolidated

Three of the four segments achieved record fiscal 2023 fourth-quarter sales, which were driven by increased pricing in response to continued inflation, offset by lower volumes. Volumes grew in certain businesses that positioned themselves to benefit from increased maintenance and construction spending on infrastructure and reshoring capital projects. On a consolidated basis, volumes declined, due in large part to destocking. The volume declines were more pronounced in certain new commercial and residential construction sectors, as well as OEM markets. Customer take-away at retail stores was also negative during most of the quarter, which further compounded the volume declines caused by retailer destocking. However, demand increased late in the quarter with the arrival of warmer weather, and the Consumer Group was able to quickly respond because of process improvements put in place through MAP 2025.

Geographically, sales grew 1.4% in North America, declined 1.9% in Europe, and grew 9.3% in Latin America. Sales also grew 17.5% in Asia/Pacific and 7.9% in Africa and the Middle East, fueled by higher spending on infrastructure projects. Excluding the impact of foreign currency translation, all regions generated positive sales growth.

Sales included 2.6% organic growth and 0.4% growth from acquisitions net of divestitures, partially offset by foreign currency translation headwinds of 1.4%.

Record fiscal 2023 fourth-quarter adjusted EBIT was driven by sales growth, benefits from MAP 2025 initiatives and Consumer Group margin recovery toward historical averages. These were partially offset by unfavorable fixed-cost leverage due to lower volumes and internal inventory normalization initiatives, unfavorable foreign currency translation and continued cost inflation. During the fourth quarter, we took additional actions to reduce costs in certain businesses where volumes were declining.

Fourth-Quarter 2023 Segment Sales and Earnings

Construction Products Group

CPG achieved record fourth-quarter sales despite challenging comparisons to the prior year when sales grew 18.5%. Revenue growth was driven by price increases and strength in concrete admixtures and repair products, which experienced increased demand from capital spending on infrastructure and reshoring-related projects. Restoration systems for roofing, facades and parking structures also grew and benefited from a strategic focus on repair and maintenance and its differentiated service model. Offsetting this growth, demand was weak in new residential and certain commercial construction markets, which was accentuated by customer destocking.

Sales included 0.8% organic growth and 1.0% growth from acquisitions, partially offset by foreign currency translation headwinds of 1.5%.

Record fourth-quarter adjusted EBIT was driven by price increases and MAP 2025 initiatives. Adjusted EBIT was negatively impacted by reduced fixed-cost leverage at plants from lower volumes and internal initiatives to normalize inventories that resulted in reduced production. CPG took actions to reduce its cost structure during the fourth quarter of fiscal 2023.

Performance Coatings Group

PCG generated record fourth-quarter sales driven by volume growth in businesses that serve infrastructure and reshoring capital projects with engineered solutions, including fiberglass grating, protective coatings and flooring systems. Increased pricing and stronger demand from energy-related capital projects also contributed to growth.

Sales included 10.4% organic growth and 0.9% from acquisitions, partially offset by foreign currency translation headwinds of 2.5%.

Record fourth-quarter adjusted EBIT was driven by strong sales growth and MAP 2025 benefits. The adjusted EBIT growth was achieved on top of strong results in the prior-year period when adjusted EBIT grew 37.3%.

Specialty Products Group

SPG’s fourth-quarter sales decline was driven by lower volumes at businesses supplying OEM markets, including windows, doors, furniture, cabinets and RVs, where many customers were destocking. SPG faced challenging comparisons to the fiscal fourth quarter 2022 when the disaster restoration business had strong sales as it made significant progress resolving supply chain issues related to microchip shortages, and from the divestiture of the non-core furniture warranty business in the third quarter of fiscal 2023.

Sales included a 12.0% organic decline, a 1.8% reduction from divestitures net of acquisitions, and foreign currency translation headwinds of 0.5%.

Adjusted EBIT was negatively impacted by the sales decline, product mix, a $3.4 million expense related to the resolution of a legal matter, and unfavorable fixed-cost leverage at plants due to reduced volumes and inventory normalization initiatives that resulted in lower production. SPG was disproportionately impacted by RPM’s inventory normalization initiatives since this segment has the highest concentration of intercompany sales. SPG took actions to reduce its cost structure during the fourth quarter of fiscal 2023.

Consumer Group

The Consumer Group’s record fourth-quarter sales were driven by selling price increases in response to continued cost inflation. Volumes declined due to a slowdown in consumer takeaway at retail and customer destocking. However, MAP 2025 process improvements aided in quickly meeting demand following a seasonal increase in consumer takeaway at the end of the quarter. Share gains also helped limit the volume decline.

Sales included 5.6% organic growth and 0.3% growth from acquisitions, partially offset by foreign currency translation headwinds of 1.0%.

Fourth-quarter adjusted EBIT was driven by MAP 2025 benefits and sales increases, resulting in margins approaching historical averages following supply chain disruptions in the prior-year period.

Fiscal Year 2023 Consolidated Results

Consolidated

All four segments generated record sales results driven by increased pricing in response to inflation, strong demand for engineered solutions for infrastructure and reshoring capital projects, and improvements in supply chain conditions in the first half of the fiscal year. Partially offsetting this growth, volume was negatively impacted in the second half of the fiscal year by customer destocking, a slowdown in certain construction sectors and OEM demand, and reduced consumer takeaway at retailers.

Record adjusted EBIT was driven by sales growth and MAP 2025 initiatives. Partially offsetting this growth was unfavorable fixed-cost leverage at RPM facilities due to lower volumes and internal inventory normalization initiatives, as well as continued material cost inflation. Foreign currency translation headwinds also negatively impacted adjusted EBIT.

Cash Flow and Financial Position

During fiscal 2023:

• Cash provided by operating activities was $577.1 million compared to $178.7 million during the prior-year period, driven primarily by improved working capital management, MAP 2025 working capital initiatives and operating margin expansion.
• Capital expenditures were $254.4 million compared to $222.4 million during the prior-year period, driven by organic growth opportunities and MAP 2025 efficiency programs.
• The company returned $263.9 million to stockholders through cash dividends and share repurchases.

As of May 31, 2023:

• Total debt was $2.68 billion compared to $2.69 billion a year ago.
• Total debt was reduced by $138.8 million compared to February 28, 2023.
• Inventories decreased by $77.1 million compared to May 31, 2022, and decreased by $205.8 million compared to February 28, 2023, driven by internal inventory normalization actions and MAP 2025 initiatives.
• Total liquidity, including cash and committed revolving credit facilities, was $1.03 billion, compared to $1.31 billion a year ago. The liquidity decline was driven by increased revolver utilization associated with a bond maturity.

Business Outlook

“In the first quarter, we expect certain positive trends to continue, including increasing demand for our engineered solutions serving infrastructure and reshoring projects, and continued benefits from MAP 2025 initiatives. Additionally, several profitability headwinds are expected to moderate during the quarter including foreign currency translation, customer destocking, internal initiatives to normalize inventories and material cost inflation. These positive factors are expected to outweigh challenging market conditions in some businesses and result in a seventh consecutive quarter of record sales and adjusted EBIT, as well as improved cash flow from operations,” Sullivan added.

“Although demand trends remain volatile, we expect many of the positive first-quarter trends to continue throughout most of fiscal year 2024, and our growth will be aided by less challenging comparisons in the second half of the year. This, combined with our MAP 2025 initiatives, our focus on repair and maintenance, and our strategic balance between segments, is expected to result in another year of record revenue and profitability,” he concluded.

The company expects the following in the fiscal year 2024 first quarter:

• Consolidated sales to increase in the low-single-digit percentage range compared to prior-year record results.
• CPG sales to increase in the low-single-digit percentage range compared to prior-year record results.
• PCG sales to increase in the mid-single-digit percentage range compared to prior-year record results.
• SPG sales to decrease in the high-single-digit percentage range compared to prior-year record results.
• Consumer Group sales to increase in the low-single-digit percentage range compared to prior-year record results.
• Consolidated adjusted EBIT to increase in the high-single-digit percentage range compared to prior-year record results.

The company expects the following in the full fiscal year 2024:

• Modest economic growth.
• MAP 2025 benefits in line with fiscal year 2024 run-rate target of $160 million.
• Continued strength in infrastructure and reshoring-related capital spending.
• Moderating headwinds from inflation, destocking and foreign currency translation.
• Continuing uncertainty in commercial construction.
• Consolidated sales to increase in the mid-single-digit percentage range compared to prior-year record results.
• Consolidated adjusted EBIT to increase in the low-double-digit to mid-teen percentage range compared to prior-year record results, with stronger growth in the second half of the fiscal year, assuming that the economy does not enter a recession.

By segment, the company expects the following for full fiscal year 2024:

• CPG to benefit from stabilization in residential construction, strength in concrete admixtures and repair products, and higher demand for restoration systems for roofing, facades and parking structures, with uncertainty in commercial construction.
• PCG to benefit from continued strength in businesses that serve reshoring, infrast