RPM(US:RPM)2022-04-06 21:48Financial Data and Key Metrics Changes - RPM International Inc. reported consolidated net sales of $1.43 billion for Q3 2022, a 13% increase from $1.27 billion in Q3 2021. Organic sales growth was 13.4% or $170.1 million, while acquisitions contributed 1.4% or $17.8 million. However, foreign exchange negatively impacted sales by 1.8% or $23.4 million [17] - Adjusted diluted earnings per share remained unchanged at $0.38 compared to the previous year, while consolidated adjusted EBIT increased by 0.8% to a record $80.6 million [18] - The company achieved double- or triple-digit growth in sales, EBIT, net income, diluted EPS, and adjusted diluted EPS when comparing Q3 2022 to pre-pandemic Q3 of FY 2020 [18] Business Line Data and Key Metrics Changes - The Construction Products Group generated record net sales of $482 million, up 21.7% compared to Q3 2021, with organic sales growth of 23.2% [22] - The Performance Coatings Group reported record net sales of $270.9 million, a 19.6% increase over the previous year, with organic sales growth of 17.8% [26] - The Specialty Products Group achieved record net sales of $189.4 million, an 11.9% increase compared to Q3 2021, with organic sales growth of 11.9% [29] - The Consumer Group reported net sales of $491.6 million, a modest increase of 2.9% compared to the previous year, with organic sales growth of 3.6% [33] Market Data and Key Metrics Changes - The company faced significant raw material cost inflation, with primary raw material costs up more than 40% on average compared to the previous year [11] - The Consumer Group was disproportionately impacted by inflation and supply chain disruptions, leading to a decline in adjusted EBIT for the fourth consecutive quarter [21] Company Strategy and Development Direction - RPM is focused on accelerating organic growth and making significant capital investments in high-performance building, construction, and coding systems [15] - The company is implementing price increases to address raw material cost inflation, particularly in the Consumer Group [51][55] - RPM is also investing in capacity and process improvements to enhance resilience in its supply chain [37] Management's Comments on Operating Environment and Future Outlook - Management anticipates ongoing supply chain challenges and raw material shortages will impact revenues and productivity in Q4 2022 [40] - Despite these challenges, RPM expects consolidated sales growth in the low teens for Q4 2022, with adjusted EBIT also expected to increase in the low teens [42] - The company is optimistic about achieving record results in Q1 2023 across all segments, driven by strong momentum and strategic actions taken [113] Other Important Information - RPM has significant liquidity, enabling it to fund growth initiatives, make acquisitions, and reward investors with dividends and share repurchases [38] - The company has been proactive in addressing supply chain challenges by scaling up in-house resin production [12] Q&A Session Summary Question: Raw material price trends and concerns - Management noted that raw material prices had been flattening but have recently increased again due to geopolitical issues, particularly the war in Ukraine [48] Question: Impact of alkyd resin supply on Consumer business - The Texas facility has improved alkyd resin production, but overall supply remains challenging due to market dynamics [62] Question: Capacity expansion in Construction Products - Management expects significant capacity expansion in roof restoration coatings and Nudura, potentially unlocking $50 million to $100 million in additional capacity [73] Question: Operating conditions in Europe and Asia - RPM's business in Asia remains stable, while Europe is recovering slowly, with no significant disruptions noted yet [80] Question: Consumer segment pricing process - The Consumer segment faces delays in price adjustments due to negotiations with large customers, necessitating multiple price increases [91] Question: Operating cash flow and working capital - Operating cash flows have been negatively impacted by working capital issues, but management expects some recovery in Q4 [101]