RPM International inc (RPM) Q4 2021 Earnings Call Transcript | AlphaStreet

RPM International Inc (NYSE: RPM) Q4 2021 earnings call dated Jul. 26, 2021.

Corporate Participants:

Frank C. Sullivan — Chairman and Chief Executive Officer

Matthew T. Ratajczak — Vice President, Global Tax & Treasurer

Russell L. Gordon — Vice President and Chief Financial Officer

Analysts:

John McNulty — BMO Capital Markets — Analyst

Frank Mitsch — Fermium Research — Analyst

Rosemarie Morbelli — Gabelli & Company — Analyst

Ghansham Panjabi — Robert W. Baird & Co. — Analyst

Vincent Andrews — Morgan Stanley — Analyst

Kevin McCarthy — Vertical Research PA — Analyst

Richard — Wells Fargo — Analyst

Luke Washer — Bank of America Merrill Lynch — Analyst

Joshua Spector — UBS — Analyst

Jeff Zekauskas — J.P. Morgan Securities, Inc. — Analyst

Michael Harrison — Seaport Global Securities — Analyst

Arun Viswanathan — RBC Capital Markets — Analyst

Presentation:

Operator

Welcome to RPM International’s Conference Call for the Fiscal 2021 Fourth Quarter and Year-End. Today’s call is being recorded. 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, 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.

Following today’s presentation, there will be a question-and-answer session. [Operator Instructions] Please note that only financial analysts will be permitted to ask questions.

At this time, I would now like to turn the call over to RPM’s Chairman and CEO, Mr. Frank Sullivan, for opening remarks. Please go ahead, sir.

Frank C. Sullivan — Chairman and Chief Executive Officer

Thank you, Angelica. Good morning, and welcome to the RPM International, Inc. investor call for our fiscal 2021 fourth quarter and for the full year ended May 31, 2021. With me on today’s call are Rusty Gordon, RPM’s Vice President and Chief Financial Officer; and Matt Ratajczak, our Vice President of Global Tax and Treasury, who supports our Investor Relation activities.

On today’s call, I’ll provide details on the successful completion of our MAP to Growth operating improvement program. Matt will then review our fourth quarter results in some detail, and Rusty will conclude with comments on our outlook for the first half of fiscal 2022. We’ll then be pleased to answer your questions.

On our April investor call, we referenced rising inflation across our P&L at structurally high-single digits with some select spikes of 150% to 200%. Some in our call[Phonetic] today thought by now raw material costs and availability would have gotten better, it’s a point of pressure from some customers to get back price. That was wrong in April and way wrong today. Raw material costs have increased to levels on average in the high teens. More importantly, certain critical raw material shortages across our industry are negatively impacting our ability to produce and meet market demand.

In Q4, this raw material availability cost us an estimated $100 million in revenue. It’s likely to cost us more in Q1 and we anticipate having more raw material availability lost production days in Q1 this year than we had from the impact of COVID shutdowns in Q1 last year. These challenges notwithstanding, thanks to our successful MAP to Growth operating improvement program, we generated strong results for our 2021 fiscal year.

Our full-year consolidated sales increased 11% to $6.1 billion. Our EBIT margin increased by 150 basis points and adjusted EBIT was up 26.5%. Operating cash flow climbed nearly 40% to a record $766.2 million, and our adjusted EBIT margin climbed to 12.8%, which was also a record.

Our MAP to Growth program has been the principal driver of this strong financial performance. The successful execution of our MAP to Growth operating improvement plan, especially in light of the incredible disruptions caused by the COVID pandemic and more recently by unprecedented supply chain challenges, is a true testament to the dedication and resilience of the RPM associates worldwide.

At the program’s onset, we recognized that RPM had reached the point where a center-led approach in selected areas of the business was required to take it to the next level of growth.

In manufacturing, we formed a center-led team that has created a lasting culture of manufacturing excellence and continuous improvement disciplines across the organization. This team launched our MS-168 manufacturing system, which is allowing us to produce better products more quickly, more cost effectively and more sustainably. In addition, we reduced our global manufacturing footprint by 28 facilities, consolidating production to more strategically advantageous plants. Our original target was 31 plants, but consolidation efforts were slowed by the COVID pandemic. We expect to exceed the original target in the coming year.

We also created a center-led procurement team that has consolidated material spending across our operating companies, negotiated improved payment terms with our supplier base, and it’s helped us reduce working capital. These initiatives have created millions of dollars of cost savings. With stronger supplier partnerships, longer-term contracts, we are in a much better position to secure necessary raw materials and control costs through the current raw material supply shortages than we would have been just three years ago.

Additionally, we took significant steps to streamline many of our administrative functions. Through our financial realignment, we consolidated 46 accounting locations, improved controls, developed more effective and efficient accounting processes, and reduced cost. Similar initiatives were undertaken in our IT infrastructure as we have migrated 75% of our organization to one of four group-level ERP platforms. Additionally, we have reduced number of data centers we manage by shifting systems and hardware to the cloud, and we are creating a number of platforms for centralized data-driven decision making.

Over the course of the three-year MAP to Growth program, we have returned $1.1 billion of capital to shareholders through a combination of cash dividends and share repurchases.

Aside from a significantly improved profit margin profile and stronger cash generation as reflected in the cumulative total return generated by RPM which has exceeded our peer group over the three years of the MAP to Growth program, the lasting legacy of our MAP to Growth operating improvement plan is a revolutionary change in how people work together at RPM.

Our operating company leadership is managing today with a broader view of RPM as a whole, allowing us to better leverage resources. Another permanent change has been the operational disciplines we developed that will continue to generate improvements in profitability, cash flow and operating efficiency well into the future. Perhaps more significant, it’s been our ability to maintain our unique entrepreneurial growth-oriented culture, evidenced by the fact that our revenues continued to grow at or above industry averages throughout the MAP to Growth program.

The real heroes behind the MAP to Growth success were our associates worldwide, particularly our frontline workers who kept our manufacturing distribution centers operating during the COVID pandemic. We also owe a debt of gratitude to my good friend and one of RPM’s great operating leaders, Steve Knoop, who is the architect of the MAP to Growth program and passed away prematurely in 2019.

Additionally, I’d like to recognize…