RPM Reports Record Fiscal 2024 Third-Quarter Results

• Record third-quarter net sales of $1.52 billion, up 0.4% from the prior year
• Record third-quarter net income of $61.2 million, record diluted EPS of $0.47, and record EBIT of $93.4 million
• Record third-quarter adjusted diluted EPS of $0.52 increased 40.5% over prior year and record adjusted EBIT increased 31.3% to $110.1 million
• Fourth consecutive quarter of record cash provided by operating activities, with $1.26 billion generated during the trailing 12 months
• Fiscal 2024 fourth-quarter outlook calls for sales to be approximately flat and adjusted EBIT growth of high-single-digits
• Fiscal full-year 2024 outlook calls for revenue growth near midpoint of previous outlook of up low-single digits and adjusted EBIT growth near midpoint of previous outlook of up low-double digits to mid-teens

RPM International Inc. (NYSE:RPM), a world leader in specialty coatings, sealants and building materials, today reported record financial results for its fiscal 2024 third quarter ended February 29, 2024.

"Thanks to the hard work of RPM associates, our third-quarter results demonstrated our continued ability to grow sales, expand margins and improve cash flow in a mixed economic environment. This is due to our strategic balance, our focus on repair and maintenance and our MAP 2025 operating improvement initiatives, which are driving structural financial improvements, and increasing collaboration across our businesses. MAP 2025 was also a key reason we generated our fourth consecutive quarter of record cash flow from operating activities, which totaled $1.26 billion during the trailing 12-month period. We continue to reinvest a portion of these gains back into the business to leverage our entrepreneurial culture and accelerate organic growth," stated Frank C. Sullivan, RPM chairman and CEO.

"Volume growth in Performance Coatings Group and Construction Products Group, combined with MAP 2025 initiatives and favorable timing of project completions, helped drive a 31.3% increase in consolidated adjusted EBIT to a third-quarter record. Consumer Group also leveraged MAP 2025 initiatives to generate record adjusted EBIT, despite continued softness in DIY end markets. While sales and adjusted EBIT declined at Specialty Products Group, there were signs of stabilization in specialty OEM end markets," Sullivan continued. "Additionally, our improved coordination in markets outside the U.S. is showing good progress with strong sales and profitability growth in emerging markets and significant margin expansion in Europe."

Third-Quarter 2024 Consolidated Results

Fiscal 2024 sales were a third-quarter record with positive pricing in all segments to catch up with cost inflation. Volume growth was strongest in businesses that were positioned to serve demand for infrastructure, reshoring, and high-performance building projects with engineered solutions, and was aided by favorable timing of project completions. This growth was offset by lower DIY consumer takeaway at retail stores and challenging comparisons in the disaster restoration business.

Geographically, sales growth was strongest in emerging markets with Africa/Middle East increasing 22.9% and Latin America increasing 13.5%. Engineered solutions for infrastructure projects were a key driver of the growth in these markets.

Sales included a 0.9% organic increase, a 0.1% decline from divestitures net of acquisitions, and a 0.4% decline from foreign currency translation.

Selling, general and administrative expenses increased due to incentives to sell higher-margin products and services; investments to accelerate long-term growth; and inflation in compensation and benefits. These increases were partially offset by expense reduction actions taken in the fourth quarter of fiscal 2023.

Fiscal 2024 third-quarter adjusted EBIT was a record. Adjusted EBIT margin expansion of 170 basis points was driven by MAP 2025 initiatives, including the commodity cycle recovery, a positive mix from shifting toward higher margin products and services, and improved fixed-cost leverage at businesses with volume growth. In Europe, sales declined slightly, driven by a previously announced divestiture, however, a focused strategy to improve profitability in the region resulted in strong adjusted EBIT margin expansion.

Third-Quarter 2024 Segment Sales and Earnings

CPG third-quarter sales were a record with strength in concrete admixtures and repair products as a result of increased demand for engineered solutions serving infrastructure and reshoring-related projects, as well as market share gains. Businesses serving high-performance building construction and renovation also performed well. Sales in Latin America were strong, driven by infrastructure-related demand.

Sales included 3.1% organic growth, 0.7% growth from acquisitions, and 0.5% growth from foreign currency translation.

Third-quarter adjusted EBIT was driven by MAP 2025 benefits, inclusive of the commodity cycle, favorable mix and improved fixed-cost leverage from volume growth. Variable compensation increased as a result of improved financial performance and was partially offset by expense reduction actions implemented at the end of fiscal 2023.

PCG generated record third-quarter sales, which were in addition to strong results in the prior-year period, driven by growth in engineered solutions serving reshoring capital projects, including the favorable timing of some project completions. Strong growth in Asia/Pacific and Africa/Middle East, which were all recently aligned under PCG, also contributed to the record sales, driven by demand for engineered solutions serving infrastructure projects.

Sales included 9.2% organic growth, a 0.7% decline from divestitures, and a currency translation headwind of 1.6%.

Record third-quarter adjusted EBIT was driven by sales growth, favorable mix, and MAP 2025 benefits, inclusive of the commodity cycle. Adjusted EBIT growth was achieved in addition to strong results in the prior-year period.

SPG's third-quarter sales decline was driven by challenging comparisons in the prior-year period when the disaster restoration business had strong results in response to freeze-related flooding that did not reoccur to the same extent this year, and the impact of the divested non-core furniture warranty business. Specialty OEM end markets showed signs of stabilization during the quarter.

Sales included a 6.4% organic decline, a 1.4% reduction from divestitures, and 0.2% growth from foreign currency translation.

Adjusted EBIT was negatively impacted by the sales decline and under absorption from lower volumes. The divestiture of the non-core furniture warranty business also contributed to the adjusted EBIT decline. Investments in long-term growth initiatives weighed on adjusted EBIT margins and were partially offset by expense-reduction actions in the fourth quarter of fiscal 2023.

The Consumer Group's third-quarter sales decline was driven by weaker DIY takeaway at retail stores, customers maintaining lean inventories, and the rationalization of lower-margin products, which were partially offset by market share gains.

Sales included a 3.2% organic decline, no impact from acquisitions, and foreign currency translation headwinds of 0.8%.

Record third-quarter adjusted EBIT was driven by margin expansion enabled by MAP 2025 benefits, inclusive of the commodity cycle, and the rationalization of lower margin products, partially offset by under absorption from lower volumes, and higher expenses from compensation and benefits.

Cash Flow and Financial Position

During the first nine months of fiscal 2024:

• Cash provided by operating activities was $941.1 million compared to $263.0 million in the prior-year period.
• Capital expenditures were $138.1 million compared to $179.7 million during the prior-year period, driven by the timing of investments, including those related to MAP 2025 initiatives.
• The company returned $210.1 million to stockholders through cash dividends and share repurchases.

As of February 29, 2024:

• The 12-trailing month cash provided by operating activities was $1.26 billion, compared to $285.8 million in the prior year period.
• Total debt was $2.19 billion compared to $2.82 billion a year ago, with the $629.2 million reduction driven by improved cash flow being used to repay higher cost debt.
• Total liquidity, including cash and committed revolving credit facilities, was $1.29 billion, compared to $843.5 million a year ago.

Business Outlook

"Our strategic balance and consistent execution of MAP 2025 initiatives are expected to drive margin improvements in the fourth quarter, resulting in the 10^th consecutive quarter of record adjusted EBIT, as well as record sales and adjusted EBIT for the full fiscal year that is squarely in the guidance we previously provided. By segment, the secular tailwinds of infrastructure and reshoring spending benefitting CPG and PCG are expected to continue, although PCG will face some temporary headwinds in the fourth quarter from the timing of project completions, included those that were pulled forward into the third quarter. SPG business conditions have shown early signs of stabilization, however some end markets remain soft, and the Consumer Group continues to face DIY pressures," Sullivan added. "While end markets remain mixed, the investments we are making now position us to accelerate volume growth when end markets recover and will allow us to fully realize the benefits of the margin achievement initiatives we have put in place through MAP 2025."

The company expects the following in the fiscal 2024 fourth quarter:

• Consolidated sales to be approximately flat compared to prior-year record results.
• CPG sales to increase in the low- to mid-single-digit percentage range compared to prior-year record results.
• PCG sales to be approximately flat compared to prior-year record results.
• SPG sales to decrease in the mid-single-digit percentage range compared to prior-year results.
• Consumer Group sales to decrease in the mid-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-year fiscal 2024:

• Consolidated sales to increase near the midpoint of the previous outlook, which was an increase in the low-single-digit percentage range compared to prior-year record results.
• Consolidated adjusted EBIT to increase near the midpoint of the previous outlook, which was an increase in the low-double-digit to mid-teen percentage range compared to prior-year record results.

Earnings Webcast and Conference Call Information

Management will host a conference call to discuss these results beginning at 10:00 a.m. ET today. The call can be accessed via webcast at www.RPMinc.com/Investors/Presentations-Webcasts or by dialing 1-844-481-2915 or 1-412-317-0708 for international callers and asking to join the RPM International call. Participants are asked to call the assigned number approximately 10 minutes before the conference call begins. The call, which will last approximately one hour, will be open to the public, but only financial analysts will be permitted to ask questions. The media and all other participants will be in a listen-only mode.

For those unable to listen to the live call, a replay will be available from April 4, 2024, until April 11, 2024. The replay can be accessed by dialing 1-877-344-7529 or 1-412-317-0088 for international callers. The access code is 6539229. The call also will be available for replay and as a written transcript via the RPM website at www.RPMinc.com.

About RPM

RPM International Inc. owns subsidiaries that are world leaders in specialty coatings, sealants, building materials and related services. The company operates across four reportable segments: consumer, construction products, performance coatings and specialty products. RPM has a diverse portfolio of market-leading brands, including Rust-Oleum, DAP, Zinsser, Varathane, DayGlo, Legend Brands, Stonhard, Carboline, Tremco and Dryvit. From homes and workplaces, to infrastructure and precious landmarks, RPM's brands are trusted by consumers and professionals alike to help build a better world. The company employs approximately 17,300 individuals worldwide. Visit www.RPMinc.com to learn more.

For more information, contact Matt Schlarb, Senior Director of Investor Relations, at 330-220-6064 or [email protected].

Use of Non-GAAP Financial Information

To supplement the financial information presented in accordance with Generally Accepted Accounting Principles in the United States ("GAAP") in this earnings release, we use EBIT, adjusted EBIT and adjusted earnings per share, which are all non-GAAP financial measures. EBIT is defined as earnings (loss) before interest and taxes, with adjusted EBIT and adjusted earnings per share provided for the purpose of adjusting for one-off items impacting revenues and/or expenses that are not considered by management to be indicative of ongoing operations. We evaluate the profit performance of our segments based on income before income taxes, but also look to EBIT as a performance evaluation measure because interest income (expense), net is essentially related to corporate functions, as opposed to segment operations. For that reason, we believe EBIT is also useful to investors as a metric in their investment decisions. EBIT should not be considered an alternative to, or more meaningful than, income before income taxes as determined in accordance with GAAP, since EBIT omits the impact of interest and investment income or expense in determining operating performance, which represent items necessary to our continued operations, given our level of indebtedness. Nonetheless, EBIT is a key measure expected by and useful to our fixed income investors, rating agencies and the banking community all of whom believe, and we concur, that this measure is critical to the capital markets' analysis of our segments' core operating performance. We also evaluate EBIT because it is clear that movements in EBIT impact our ability to attract financing. Our underwriters and bankers consistently require inclusion of this measure in offering memoranda in conjunction with any debt underwriting or bank financing. EBIT may not be indicative of our historical operating results, nor is it meant to be predictive of potential future results. See the financial statement section of this earnings release for a reconciliation of EBIT and adjusted EBIT to income before income taxes, and adjusted earnings per share to earnings per share. We have not provided a reconciliation of our fourth-quarter fiscal 2024 or full-year fiscal 2024 adjusted EBIT guidance because material terms that impact such measure are not in our control and/or cannot be reasonably predicted, and therefore a reconciliation of such measure is not available without unreasonable effort.

Forward-Looking Statements

This press release contains "forward-looking statements" relating to our business. These forward-looking statements, or other statements made by us, are made based on our expectations and beliefs concerning future events impacting us and are subject to uncertainties and factors (including those specified below), which are difficult to predict and, in many instances, are beyond our control. As a result, our actual results could differ materially from those expressed in or implied by any such forward-looking statements. These uncertainties and factors include (a) global markets and general economic conditions, including uncertainties surrounding the volatility in financial markets, the availability of capital, and the viability of banks and other financial institutions; (b) the prices, supply and availability of raw materials, including assorted pigments, resins, solvents, and other natural gas- and oil-based materials; packaging, including plastic and metal containers; and transportation services, including fuel surcharges; (c) continued growth in demand for our products; (d) legal, environmental and litigation risks inherent in our businesses and risks related to the adequacy of our insurance coverage for such matters; (e) the effect of changes in interest rates; (f) the effect of fluctuations in currency exchange rates upon our foreign operations; (g) the effect of non-currency risks of investing in and conducting operations in foreign countries, including those relating to domestic and international political, social, economic and regulatory factors; (h) risks and uncertainties associated with our ongoing acquisition and divestiture activities; (i) the timing of and the realization of anticipated cost savings from restructuring initiatives and the ability to identify additional cost savings opportunities; (j) risks related to the adequacy of our contingent liability reserves; (k) risks relating to a public health crisis similar to the Covid pandemic; (l) risks related to acts of war similar to the Russian invasion of Ukraine; (m) risks related to the transition or physical impacts of climate change and other natural disasters or meeting sustainability-related voluntary goals or regulatory requirements; (n) risks related to our use of technology, artificial intelligence, data breaches and data privacy violations; and (o) other risks detailed in our filings with the Securities and Exchange Commission, including the risk factors set forth in our Form 10-K for the year ended May 31, 2023, as the same may be updated from time to time. We do not undertake any obligation to publicly update or revise any forward-looking statements to reflect future events, information or circumstances that arise after the filing date of this release.

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