Thank you for joining us for the First Quarter 2021 RPM International Earnings Conference Call. Please note that today's conference may be recorded. I will now turn the call over to Mr. Frank Sullivan, Chairman and CEO. Please proceed.

Thank you, Liz. Good morning, and welcome to the RPM International Inc. investor call for our fiscal 2021 first quarter. Joining 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 is supporting our Investor Relation activities. I'll share insights behind our strong financial performance for the quarter, as well as an update on our MAP to Growth operating improvement program. Then Matt will walk you through a review of our first quarter adjusted financial results. Rusty will conclude our formal remarks with our outlook for the remainder of fiscal '21, after which we'll take your questions. Our strategically balanced business model, the resiliency of our operating companies and our MAP to Growth operating improvement program have enabled RPM to pull through the depths of the economic slowdown created by the COVID-19 pandemic. With the dual benefit of improved margins and better working capital management, our businesses are generating excellent cash flow, which allowed us to pay down nearly $200 million of debt during the first quarter. Today our liquidity is up to $1.5 billion. We have pivoted back to investing for accelerating growth as demonstrated by the acquisition of Ali Industries, as well as our strong organic growth in a number of our segments in the first quarter. During our fiscal '21 first quarter, selected segments of the global economy began to gain momentum as stay-at-home orders were relaxed. This freed pent-up demand from last year's fourth quarter and helped drive our record top line results, which grew 9.1% over the prior year period. This was in sharp contrast to the COVID-19 related sales decline we reported for the fiscal 2020 fourth quarter. Our two largest segments posted positive growth in the first quarter, while two of our segments declined. Overall, RPM's results benefited from the positive impact of our MAP to Growth operating improvement program and our balanced business model where strength in one segment offsets weakness in another. In addition, much credit for our strong performance is due to our management philosophy, which keeps customer centric decision-making at the operating level and enables our companies to be very nimble and adapting to change. Some examples around RPM of leaning into the pandemic's disruption include Rust-Oleum, tinting wall paint, and shipping to residents through a new e-commerce program hosted by a big box home center. Tremco developing innovative indoor air quality services with a global MRO distributor for use on its customer's facilities and our Legend Brands business pivoting from disaster remediation to disinfecting and air purification in response to the evolution of its contractors' business needs. The most significant driver of RPM's first quarter growth was our consumer segment, which had already been experiencing unprecedented demand for small project paints, caulk, sealants, stains, cleaners, and patch repair products as consumers completed more DIY home improvement projects. On a consolidated basis, international markets rebounded with 2% growth after a 26% drop during the difficult fourth quarter when construction or hardware channels were not deemed essential and were thus locked down in most of the international markets we serve. We continue to benefit from successfully implementing our MAP to Growth program, which enabled us to leverage the first quarter sales growth into even stronger bottom line results with adjusted EBIT that increased nearly 40%. During the first quarter, we announced the closure of one additional plant, which brings our total to 23 out of the previously announced 31 plants that were originally targeted in our MAP to Growth operating improvement program. The momentum behind our MAP to Growth program continues to accelerate as it drives efficiency and operational excellence throughout our businesses. We are on track to reach the targeted run rate of $290 million in annualized savings by the conclusion of our current fiscal year, which ends May 31 '21. The projected benefits from our center-led procurement initiatives are ahead of plan, and our administrative improvements and ERP consolidations will continue into fiscal '22. In regard to our IT investments, we are currently enhancing our capabilities in analytics by centralizing systems and databases. This is allowing RPM to harness more complete information across its multiple business units and build decision support tools to improve the effectiveness of our procurement, distribution, and sales teams. We're leveraging our information resources to make RPM stronger, and our success is a direct result of the cooperation of buying of our associates across RPM. While the MAP to Growth operating improvement program will be reaching its annualized cost savings target by the end of the fiscal year, we will run through that target as a result of continuing opportunities in the MAP to Growth pipeline, including consolidation to more accounting locations after the setup of new ERP systems is completed. In addition, we are establishing a culture of continuous improvement and operational excellence that will benefit RPM's bottom line for years to come. Most importantly, I'm proud of the efforts of our plant managers who have made our workers' health and safety a top priority during the pandemic. Supported by Mike Sullivan and Ken Armstrong here at the corporate office, our operations personnel have successfully minimized workplace transmission of COVID-19 at a very low level. I'll now turn the call over to Matt Ratajczak, who will review our fiscal 2021 first quarter results on an adjusted basis.

Thanks, Frank, and good morning, everyone. Please note that my comments will be on an as-adjusted basis. During the first quarter, we generated consolidated net sales of $1.61 billion, an increase of 9.1% compared to the $1.47 billion reported during the same quarter of fiscal 2020. Organic sales increased 9.3% or $136.6 million. Acquisitions contributed 0.5% to sales or $7.4 million. Foreign exchange was a headwind that reduced sales by 0.7% or $10.1 million. Adjusted diluted earnings per share were $1.44, an increase of 51.6% compared to $0.95 in the year ago quarter. Our consolidated adjusted earnings before interest and taxes, EBIT, increased 39.8% to $269.2 million compared to $192.6 million reported in the fiscal 2020 first quarter. Now I will discuss our segments results. Sales at our Construction Products Group increased 2.2% to $547.7 million compared to $536.1 million a year ago. Organic sales increased 3.6% or $18.9 million. There was no impact from acquisitions and foreign currency translation reduced sales by 1.4% or $7.3 million. Adjusted EBIT in the Construction Products Group increased 17.7% to $102.3 million compared to adjusted EBIT of $86.9 million during last year's first quarter. The segments commercial sealants and roofing businesses in North America performed well, driven by continued success in its restoration and building envelope systems initiatives. Sales were boosted by orders that were deferred during the fiscal 2020 fourth quarter. This segment also benefited from easier comparisons to last year's first quarter when extremely wet weather in North America slowed construction activity. MAP to Growth initiatives, price increases, and strong cost management enabled the segment's bottom line to vastly outpace its relatively modest sales growth. Sales in our Performance Coatings Group were down 12.6% to $259.8 million compared to the $297.2 million we reported during last year's first quarter. Organic sales declined 12.2% or $36.4 million. Acquisitions contributed $0.8 million or 0.3% to sales. Foreign exchange was a headwind of 0.7% or $1.9 million. The segments adjusted EBIT was down 16.4% to $30.9 million compared to $36.9 million during last year's first quarter. Similar to the fourth quarter, the segments top line continued to be impacted by poor energy market conditions that resulted in deferred industrial maintenance spending as well as by COVID-19 restrictions that limited outside contractors access to facilities and construction sites. In response, the segment has managed its detrimental margins well by aggressively cutting fixed costs and reducing its breakeven point. Cost savings that resulted from MAP to Growth operational improvements benefited the segments earnings. Adjusted EBIT margins would have improved during the quarter had it not been for the impact of transactional foreign exchange expense. Finally, we announced one more facility closing in this segment during the quarter. As Frank mentioned, there was unprecedented demand for our consumer products, which drove incredibly strong Consumer Group sales. They increased 33.8% to $641.2 million from $479.3 million during last year's first quarter. Organic sales increased 34% or $163.2 million. There was no impact from acquisitions and foreign currency translation reduced sales by 0.2% or $1.3 million. Adjusted EBIT in the Consumer Group increased 121.6% to $136.7 million compared to $61.7 million in the prior year period. Results were up significantly in the segment due to robust DIY demand as consumers spent more time in their homes, completing improvement projects during the pandemic. Our Consumer Group was a large beneficiary of this trend due to our market leadership position and many years of building our retail distribution network. We are working around the clock to meet this unprecedented demand and are also making significant investments in plants, equipment, and operational disciplines to expand our capacity. The segment also benefited from an easier comparison to the prior year's first quarter when its product sales were tempered by extremely wet weather. The segments bottom line increased as a result of volume, leveraging MAP to Growth savings, temporary reduction to discretionary spending, favorable product mix, and moderation in some raw material categories. However, future cost pressure is anticipated due to recent inflation in certain raw materials and packaging as well as additional overhead expenses resulting from ongoing investments in capacity. We anticipate that we will see elevated demand over the next few quarters as housing turnover improves and more DIYers gain successful experience with new projects. Specialty Products Group sales were $158 million through the fiscal 2021 first quarter, a decline of 1.3% compared to sales of $160.1 million in the prior year period. Organic sales decreased 5.7% or $9.1 million, which was partially offset by acquisitions, which contributed 4.1% or $6.6 million to sales. Foreign currency translation increased sales by 0.3% or $0.4 million. Adjusted EBIT in the segment was down 15.9% to $24.1 million in the fiscal 2021 first quarter compared to $28.6 million in fiscal 2020. The segment's first quarter of sales rebounded and were nearly flat as compared to last year's first quarter. This was due to more favorable market conditions that drove demand for some of its products. Marine Coatings were boosted by increased outdoor activity, wet protectants were boosted by stronger lumber sales and nail enamels increased because of greater demand for home beauty care. The unfavorable impact to the bottom line from product mix, operating disruptions associated with COVID-19, and deleveraging on lower volumes was partially offset by savings from the MAP to Growth operating improvement program. Now Rusty will walk you through our outlook for the remainder of fiscal 2021.

Thanks, Matt. For the second quarter of fiscal 2021, we expect to generate consolidated sales growth in the low to mid single digits with strong leverage to the bottom line for more than 20% adjusted EBIT growth, which are growth rates that are more in line with recent quarters prior to the outbreak of COVID-19. Our MAP to Growth momentum continues to be excellent, and the Ali acquisition, excluding acquisition-related costs, will contribute towards good results in our second quarter. Our first quarter consolidated growth of 9.1% was a bit of an anomaly due to double-digit growth in the month of June as lockdown restrictions were eased in several markets. Looking ahead to the full year of fiscal 2021, our guidance is relatively unchanged from the direction we provided in our fiscal 2020 fourth-quarter earnings release. We anticipate that our Construction Products Group and Performance Coatings Group could experience sales declines for the next two quarters and then turned positive in the fourth quarter. Our Consumer Group should continue its strong sales momentum throughout the fiscal year. The Specialty Products Group is likely to face flat sales comparisons during the second quarter, which should turn in the second half of the year. These estimates assume that we do not experience a surge in COVID-19 that results in a second round of stay-at-home orders. Due to continued economic uncertainty related to the impacts of COVID-19 and the upcoming U.S election, we are not providing fiscal 2021 full year earnings guidance. This wraps up our formal comments. We will now be pleased to take your questions.

Our first question comes from John McNulty with BMO Capital Markets. Your line is now open.

Yes. Good morning. Thanks for taking my question and congratulations on a really solid set of results. I guess one of the questions I had, like you did have some really strong numbers, and I think some of it was expected. I think there was a lot of hope on the DIY side picking up and that type of thing, but you also had a lot of big new initiatives that you were launching some with Home Depot and Walmart. And I think even Grainger may have been on the list as well. So I guess, can you help us unpack how much of it came from kind of just core traditional growth versus how much of it came from kind of new product introductions and some of the initiatives that you're pushing there? How should we think about that?

I believe most of the growth came from our core traditional business and the increase in DIY activity in North America. We're also beginning to see a similar trend in the U.K. and parts of Europe. Additionally, there are new initiatives we're testing in the wall paint category and a few other areas that I expect will have a more significant impact in the upcoming quarters and next year.

Got it. That's helpful. It seems the MAP to Growth initiative is projected to reach a $290 million run rate by the end of fiscal '21, which is actually a bit sooner than we anticipated. You also suggested that there are additional gains expected in '22 as the ERP system becomes operational. Can you share what potential incremental savings you foresee beyond the original $290 million target?

You know, I think we'll certainly run through $300 million and then some as we get into '22. There's outperformance in the benefits of consolidating procurement areas. There are continuing benefits and outperforming in the manufacturing sector, it's a combination. We're getting what we expected from the plant consolidations, but the benefits of the lean manufacturing disciplines and continuous improvement activities will actually result in probably $100 million of savings in the manufacturing sector versus the $75 million we originally projected.

Got it. That's helpful. And then maybe just one last one, if I can sneak it in. On the cash flow side, your cash flow from operations was huge. I mean, it's probably double what you normally run. I guess, can you speak to how much of it is, is kind of one-time-ish in terms of some of the cleaning up and tightening up of working capital that you've been working on versus how much we should be thinking about it being sustainable. And then I guess just uses for that cash, are you starting to see the bid ask spread starting to narrow in terms of M&A, or do you see buyback opportunities picking up, how should we be thinking about that?

Sure. I believe we overlooked an important point in our prepared remarks regarding the improvements in cash flow and balance sheet this quarter, which are quite remarkable. Most of these improvements appear sustainable. However, some of the working capital gains in our consumer segment may be temporary, as our inventory levels are not as high as we would like compared to the 34% organic growth and our ongoing need to expand capacity. Additionally, we experienced approximately $15 million in one-time benefits related to COVID this quarter. Overall, the strong cash flow reflects the operational efficiencies we’ve been focusing on and enhancements in our working capital that should be mostly permanent, along with the elevated margin profile we can capitalize on due to our sales growth. We also paid down $200 million in debt this quarter, and more repayments are planned, which I see as a significant highlight of the quarter.

Thanks very much for the color.

Thank you, John.

Our next question comes from Frank Mitsch with Fermium Research. Your line is now open.

Thank you very much. Good morning, and I want to congratulate everyone on the strong start to the year. Rusty, you mentioned that June experienced double-digit sales growth. Could you break down the performance for the rest of the quarter and provide insights on what you've observed so far in September?

Sure. Yes. For the rest of the month, other than June where we had extraordinary double-digit growth as lockdown restrictions eased. We are in the low to mid single-digit range, so that's why we projected Q2 similarly.

All right. Terrific. And Frank, you mentioned that you've closed 23 of the 31 plants. What is the timing on completing all of the plant rationalizations and how do we think about the financial impacts of the shutdowns impacting your bottom line?

Sure.

In terms of timing and pace.

Sure. As we'd indicated in the past quarterly investor calls, the pace of some of our activities has been slowed by the impact of the COVID-19 pandemic. And so like most companies, we have kept independent contractors out of our plant facilities and offices, so it slowed the pace of the completion of some of our ERP implementations. It's also slowed the pace of some of the plant closure activities, and in related areas slowed our ability to get into now kind of mid to smaller size manufacturing facilities with what we call fit events, which are really the kickoffs of the lean manufacturing disciplines and continuous improvement activities that are paying big dividends for us. And so we're probably 6 to 12 months beyond the original December 31, 2020 target date that we communicated a couple of years ago, only as a result of the slowdown from the pandemic and our ability to get people into plants and/or offices to complete these activities.

And is that chunky in any way shape or form in terms of in the back half of this year, you'll see a nice increase in the financials or is it kind of evenly spread? How do we think about that?

There were concerns in the investment community that after the first year of our MAP to Growth program, its benefits might diminish. However, we saw an acceleration in the second year of the program, and we believe that this momentum will continue. There’s still plenty of potential for growth.

Got you. And hopefully your brownies will continue to not lose steam. Congrats. Thanks.

Thank you, Frank.

Our next question comes from Rosemarie Morbelli with G Research. Your line is now open.

Thank you. Good morning, everyone, and congratulations once again. Following up on the MAP benefit, your savings were approximately $20 million in the third quarter of last year, followed by $25 million in the fourth quarter. What was the benefit in the first quarter of this year?

Just a little more than $30 million.

Okay. And you expect to generate the $290 million run rate by the end of the year. What would be the actual dollar amount that you expect to achieve in 2021?

I think roughly a $100 million, could be a little bit more. Keep in mind that a lot of the benefits here have been in cost of goods sold in the manufacturing area. So it flows through our P&L with the seasonality of our revenues. So you can't just take a $30 million or $32 million benefit in our seasonally high first quarter and flow it evenly across months or quarters, but we'll get a $100 million this year. And we're probably $50 million ahead of our original targets through Wave 2. Some of that is pulling forward things that we plan for Wave 3. So not necessarily additional saving to our original goal and then others of it, our additional savings. I think that's why we're confident by the time we get through May 31, '21 we'll have achieved the $290 million. And then we believe there's another collection of tens of millions that will show up in fiscal '22 as well, and we'll benefit subsequent quarters.

Thank you. Regarding the growth in the DIY segment, do you have any insight into whether your customers are building up inventory or replenishing what they had previously reduced? If that’s the case, you're increasing capacity while demand might shift to a more standard level. Do you think you might be overly optimistic about expanding this capacity, or is it necessary regardless of the expected decline in DIY growth next year?

Sure. A couple of things in that. Number one specific to DIY, I think in our categories and many others, and we have commented on this in the past. A good example is our wood stains and finishes category that's up big. That takes a greater skill set than just patching and repairing. And so we firmly believe and our big customers believe that the confident DIY base in North America has grown, and that bodes well for the DIY sector across a lot of categories. And so we see solid growth in the consumer segment for the balance of this year, and we think it will be on a new base that's higher than what any of us could have achieved on our own as a result of, I think one of the very few positive consequences of this pandemic in terms of driving that larger level of activity. The flip side is supply chains across all industries, and certainly in DIY have been disrupted mightily. We've seen some allocations on things like cans. Some of that's been driven by spikes in demand, some of it's been driven by plant closures associated with COVID-19 infections. So that's in our supply base. Inventory levels are not where they need to be in the DIY channel. Very few companies and we're one of them sit around with idle capacity of 40% or 50%. And so the 34% organic growth that we experienced in the first quarter along with some of the supply chain disruptions has been challenging to us and everybody. And we're working hard to make sure that we can drive the efficiency to overcome that. So the long and the short of all that is we see solid performance in our consumer business for the balance of the year. We see a larger base that's going to be permanent, and we continue to introduce new products and take market share. So we're pretty excited about what we see for the next couple of years in consumer.

Thank you, Frank, and good luck.

Thank you. Thanks, Rosemarie.

Our next question comes from Mike Sison with Wells Fargo. Your line is now open.

Hey guys. How are you doing? Congrats on a good and a great quarter, and hope you're excited about the Browns as I am.

Absolutely.

In terms of DIY, we've had a really good run here. What are your thoughts on that business over the next year or two? Do you believe there will be sustained demand for DIY compared to professional services, and how long do you think this strong growth trend can last?

Sure. Well, I think the comments I just made in response to Rosemarie Morbelli answer that question in terms of a larger base. And I think really expectations by us and our customers of a continuation at least for the next couple of quarters of this larger than usual organic growth basis. You'll also see a pickup in the pro, and we're finally starting to see that and we would expect more of that in the new calendar year. Most of the big activity has been DIY as, at least over the late spring and early summer, homeowners were reticent to allow contractors in or around their homes. That's starting to change. And the pro business, particularly at some of our biggest customers will start to pick up. That has not been a big driver of demand so far, but we think it will be in the coming quarters in the next year.

Okay. You completed an acquisition in September, and the situation there is getting better. Is there potential for additional growth in the next few quarters?

Sure. We completed the acquisition of Ali Industries, a family business based in Ohio that specializes in abrasives, sandpaper products, and DIY solutions. This aligns well with our Rust-Oleum business and others. We are very excited to welcome the Ali family and their associates to RPM. We had arranged this deal before the pandemic, but most of our acquisition activities were paused. Now, with our strong financial performance and solid cash flow, we feel confident in resuming our acquisition efforts. I expect to see increased activity, especially in the small to medium-sized private company sector across all categories, particularly as we approach the end of the year due to concerns about potential tax changes with the incoming administration.

Got it. Thank you.

Thank you, Mike.

Our next question comes from Ghansham Panjabi with Baird. Your line is now open.

Hey, guys. Good morning.

Good morning. Frank, referencing the Construction segment which is clearly a source of improvement compared to our initial guidance, where did you identify this upside in relation to your earlier forecasts for the quarter? Additionally, why do you anticipate a decline in the second quarter, aside from the influence of pent-up demand? Is that the expectation for that segment? I think it may remain flat or slightly decline in Q2, but we expect it to turn modestly positive in the second half. The challenge is there, and our construction segment is closely tied to the economy. Our results from the first quarter and continuing into the spring indicate to us that we are gaining market share. We're experiencing moderate revenue growth that is positively impacting our bottom line. Some of our competitors, for whom we have data, are still seeing negative results. If the economy continues to improve and health interventions around vaccines and treatments help build confidence, there could be positive momentum for us for the remainder of the year and into 2022, primarily from our Construction Group and Construction Products Group. However, if there are setbacks related to the coronavirus and additional shutdowns, similar to what is occurring in Israel and selected parts of Europe, that would pose a challenge as we enter the new year. This is the main uncertainty that makes it difficult for us to provide more detailed guidance for the year. However, if current trends continue, we may perform better than we have indicated for the second half of the year and for the full fiscal year 2021.

Very clear. And then in terms of Performance Coatings, how would you characterize channel inventories for that segment? I mean, obviously there's some dislocations in the energy markets, but I would imagine that some of it would just be a deferral because I don't think you can defer the maintenance forever for that end market. And then just the final question for the consolidated portfolio. How did September actually play out for your company from a sales standpoint? Thank you.

Sure. I'll address the last question first. We'll echo what Rusty mentioned. We expect mid-level organic growth in the second quarter, which should positively contribute to EBIT growth of 20% or more. That's about all we can share regarding the second quarter. Concerning Performance Coatings, it's a segment worth approximately $1 billion to $1.1 billion in total. As you may remember, around 30% of the revenues are linked to the oil and gas sector and broader energy markets, which are currently facing challenges due to declining oil prices and reduced spending and activity. This segment will recover eventually; however, we do not expect to see any year-over-year positive numbers until we reach the fourth quarter.

Thanks so much, Frank.

Thanks, Ghansham.

Our next question comes from Arun Viswanathan with RBC Capital Markets. Your line is now open.

Good morning, Frank. Thanks for taking my questions.

Sure.

Regarding the margin performance, in the consumer segment, we saw really impressive margins, with a significant contribution from volume and possibly also from our MAP to Growth strategy. Can you help us understand what you consider to be a normal margin and whether you anticipate margins to adjust in the upcoming quarters as some of the DIY demand stabilizes? Additionally, I'd like to ask a similar question about Construction Products, as that aligns with our expectations. I'm trying to grasp how we should view the margin trajectory for both segments moving forward. Thank you.

Our initial MAP to Growth goals included achieving $1 billion in EBIT and a 16% consolidated EBIT margin. Despite starting this initiative a year ago, we faced challenges as our revenue growth did not meet expectations, along with several unexpected headwinds. We remain committed to reaching a 16% consolidated EBIT margin, although it will take longer than anticipated. However, we foresee opportunities for margin expansion in specific areas of RPM over the next 12 to 18 months. These targets remain a priority for us, and we expect to see improvements in EBIT margins, particularly outside of the consumer segment. Recent performance, influenced in part by COVID, has brought us back to historical margin levels. I anticipate ongoing margin enhancement in our Construction Products Group and the Specialty Products Group this year, with the Performance Coatings Group likely seeing improvements by 2022.

Thanks for that. Could you discuss the performance of your international businesses? It seems there are different trends in Europe, and you've mentioned potential lockdown risks outside of North America. Where do you believe you currently stand in the recovery of your international markets? Could you provide insight from an earnings perspective or as a percentage of recovery?

Sure. I'll let Rusty handle that.

Yes, thanks. Yes, in terms of international, Arun, we are pretty flat in Europe after having taken it on the chin, of course in April and May there due to tighter lockdown restrictions. Currency is not a headwind in Europe at the moment, so that's good news there as well. In Latin America, it's been really challenging as you can imagine in Brazil and other places. Mexico we've had challenging results and that's made worse by currencies that have weakened over time versus the U.S dollar. So Latin America has been a bit of a challenge and that's principally where most of our international business is. Canada did well in the first quarter. That was another place where they had tighter lockdown restrictions versus the U.S in April and May. So we had good performance there, and we have very strong consumer brands in Canada. So of course that business mix helps us and should help us looking ahead.

So I would just add to that that we're starting to see similar trends in the U.K and Europe in consumer takeaway that is building a bigger base than what we had before. And we would expect, for instance, in the second quarter, some pretty good organic growth in the U.K and Europe, assuming there are not further lockdowns as the DIY markets start to look a little bit like what we've experienced in North America.

Great. Thanks. And just a quick one, if I may. Just on price costs, are you experiencing any inflation, whether it be on the petrochemical side or input cost side or freight side? Could you just provide some commentary on those items? Thanks.

Yes, sure. Yes, we are seeing some inflation in select raw materials like acetone, for example, is one that really stands out. Also, as Frank mentioned due to some supply chain issues and metal packaging, we are having to find new sources often not with the same cost that we were used to from the old sources. So that'll certainly provide some cost pressure. Yes, I have heard of other raw materials and freight, as you mentioned, we expect that to go up by a modest, mid single-digit percentage next year, LTL freight, oil seems to go up and we expect more of the same.

And I would just add to that two things to keep in mind. One in general, the cost price mix is relatively flat. Now we haven't had meaningful price increases some time. We are benefiting from the fact, and we reminded folks of this in the past that we're one of the few of the major competitors that we get compared to that’s on FIFO accounting. And so, you'll see reflected in our results in the first quarter, things that we experienced in terms of cost price mix 60 or 90 days ago. And so that's worth keeping in mind as well as you think about RPM versus peers.

Thanks.

Thank you.

Our next question comes from Kevin McCarthy with Vertical Research. Your line is now open.

Yes. Good morning, everyone. Question on MAP to Growth, beyond sort of the discrete items around plant closures, procurements, and other facets to the program. My sense is that it's had a large impact on RPM's culture, in terms of operational excellence, continuous improvement, et cetera. If that's the case, Frank, can you speak to sustained productivity benefits? For example, some companies endeavor to offset inflation, ad infinitum, have you thought about future opportunities in those terms, and would be curious to understand what impact that may have beyond the formal end of the program and late fiscal '21?

Sure. We are currently in the midst of implementing lean manufacturing and continuous improvement practices beyond the factory floor, and we expect to see ongoing benefits. While the incremental gains may diminish over time, they will provide lasting advantages. The cultural shift within our organization and the enthusiastic embrace of these changes by our team has been remarkable. We are committed to sustaining these improvements and anticipate further advancements in this area. Discussing potential offsets to inflation is challenging since, as you know, our industry is heavily reliant on raw materials. We have demonstrated our capability to adapt through price increases, even if they haven't always been timely, along with improved operational efficiency. We believe we can maintain a consistent level of profitability over time, although fluctuations will occur, as they have in the past, depending on raw material costs. Additionally, we are expanding our MAP to Growth initiatives into more data-driven domains such as product mix, which should enhance our margins in the future.

Understood. Good to hear. And then secondly, if I may, Frank, you made a comment that working around the clock in Consumer and another comment that I think you expect to face increased overhead costs. Do you need to invest in more capacity at this point? And if so, what impact might that have on your capital expenditures for this year and beyond?

Sure. I'll have Rusty answer the CapEx question, but we are investing in more capacity particularly in consumer. And you know, we obviously a 34% organic growth rate isn't anything we expect to be sustained, but there is a higher base of business. And we're expanding to meet that, particularly in small project paints and cleaning categories. In the cleaning category, we've gone from what was a modest start seven years ago with Krud Kutter, an acquisition that was $5 million to what should be a product category at Rust-Oleum in excess of $100 million. And that could be a meaningfully larger category for us in the future. So those are two areas for instance, where we're expanding. We're also expanding capacity in the roof coating capabilities of our Construction Products Group.

Yes. So, Kevin, back in July, we said our CapEx would be about $130 million this year. Now because of this above expectation demand in consumer, the CapEx will probably be closer to $140 million, which will make it pretty comparable to last year when we did about $147 million.

I see. Thank you so much.

Thanks, Kevin.

Our next question comes from Jeff Zekauskas with J.P. Morgan. Your line is now open.

Hi. Thanks very much. Hi, good morning. You spoke about being on FIFO accounting.

Yes.

Was there FIFO benefits in the quarter? And if there were, how much were they, where did the FIFO benefits come in your second quarter, given that raw materials probably bottomed in, I don't know, April, May.

Sure. Again, I don't know that we would provide that kind of detail other than to just make clear that, on FIFO you're looking at across price mix that was in spot prices, what we experienced 60 or 90 days ago, as opposed to somebody on LIFO who would be reflecting spot prices as of today.

So if I understand what you're saying, you are not going to experience a negative impact from raw materials in the second quarter. However, you might notice it in the third quarter.

I think that's correct.

Okay. And then lastly, in other accrued liabilities, I think they went up from, maybe 272 to 365 sequentially. What's that about and where will that number go?

Sure. Yes, the other accrued liability went up and the reason is that customer rebates went up because of our strong DIY activity. And that also relates to the timing of tax payments. That was a big reason for the $67 million increase versus 12 months ago.

Where should that be at the end of the year?

Well, typically we pay our customer rebates at the end of their year, which should be in the winter time. So that aspect will go down on the timing of tax payments. Matt, you have any idea?

Yes. Some of that is some of the deferrals on the FICA stuff, but income tax payments will price spike a little bit in the second quarter or second quarter and then catch up in the latter half of the year.

So we communicated in the spring when companies were able to defer FICA about a $25 million benefit there? About a $25 million benefit and that's just a deferral into the next year. We did not choose to reduce the FICA payment of our payrolls that was an option and we chose not to pursue that.

Okay, great. Thank you so much.

Thank you.

Our next question comes from Josh Spector with UBS. Your line is now open.

Yes, hey guys. Hey, good morning. Thanks for taking my question. Just a question around the top line guidance range of low to mid single-digit. Just trying to think about what are the factors at this point that could move that from the top or bottom end of the guidance. Is it one particular sector, region or segment that you look at more?

We are feeling optimistic about our guidance for the second quarter. Looking at the latter half of the year, it really hinges on our Construction Products category, where we have introduced many new products and gained significant momentum. We are capturing market share and have successfully unified what was previously a disjointed collection of companies serving the construction and chemical industries, including areas like waterproofing, sealants, and floor coatings. This division is now well organized and led effectively, positioning us to perform strongly. Our performance will largely depend on economic activity as we move into the new calendar year, which influences our reluctance to offer more precise guidance. If the economic recovery progresses, we expect to exceed our projections this year. However, if circumstances relating to COVID and election-related disruptions lead to an economic downturn as we enter 2021, we may find ourselves at the lower end of our guidance range.

Okay. Thanks. And I mean, specifically for your fiscal second quarter, I mean, is it a fair base assumption to say that you're planning on consumer up maybe mid-teens and construction down low single-digit percent, or is it significantly different than that?

Yes, I wouldn't get into the segment details right now, other than to say kind of mid single-digit growth. We will continue to have outsize growth in consumer, although not to the extent that we had in the first quarter. And we should have a flat deposit of growth in our Construction Products Group, and I think the others go in line with what Rusty has talked about.

Okay, thanks. And then just maybe one quick one on working capital. So I mean, it's been mentioned a number of times that you've done better in the quarter-to-date. I don't know if you have an update of what you're thinking in terms of core working capital for the year overall, if you're kind of back on track to maybe improve that in fiscal 2021, or if that's going to be further delayed following plant closures.

Sure. Well it's delayed as we've communicated from our original projection. I think we just made bad assumptions at the beginning of MAP to Growth that the working capital improvements that we expected to generate originally about $230 million in cash would come evenly. And the fact of the matter is the way it happens is you get your plant improvements first, you begin to get the benefits of some of your consolidating activities, and then your working capital improvements follow. We are seeing that now and certainly over the next 12, 18 months, there's another $100 million of relative working capital improvement. I say relative, obviously the numbers will move based on revenue growth.

Got it. Thank you.

Thank you.

Our next question comes from Mike Harrison with Seaport Global Securities. Your line is now open.

Hey, good morning. Congrats on the nice quarter.

Thank you.

I was wondering if you can talk about the operational impact of COVID that you referenced in the specialty business. How much can you quantify that impact for us and maybe discuss whether you've overcome those disruptions at this point?

Sure. I can do it just generally, and by some examples we've provided in the past. Our Marine Coatings business in April and May, our Guardian Protective Products business that supplies furniture retailers and furniture manufacturers, businesses like that literally saw their revenues drop 50%, 60%, 70% in April and May, and it was pretty scary. We are seeing a significant return in the Marine Coatings business to be very positive. As retailers open up, we're seeing a bigger than anticipated return in the Guardian Protective Products business. So we're seeing a nice rebound in those businesses, and while the Specialty Products Group had negative results in the first quarter, you'll see positive results out of that group, I believe for the remainder of the fiscal year and it's for those reasons. But those were the disruptions that we saw. The disruptions in other parts of our business that have been hit and miss and are really referenced to the supply chain issue are in many cases around COVID-related plant closures. We had a protocol very quickly that if we had any infections, we would close the facility and do a disinfecting and cleaning. And if we've had very few if any work-related exposures, most of our exposures over the summer have been from people who had been working at home. But in a few places we had to close a facility for two weeks. We've had suppliers that have had to close facilities for weeks. And so those disruptions in different raw materials and/or different parts of the supply chain have been challenging. We're not seeing those today, although we're still suffering the impact for instance in the canned category.

All right. You mentioned price increases in the consumer business. What pricing changes did you notice? It seems there wasn't a formal increase announced. Is it more about reduced discounting or less promotional activity in a strong demand environment?

Yes, we did not implement any price increases over the summer or in the quarter. The price increases we experienced were primarily from a year ago, which were necessary to address a couple of years of raw material challenges. We have certainly benefited from this in the following quarters in terms of cost price mix. However, from a pricing standpoint across most of RPM, there have been little to no price increases in the last couple of quarters.

All right. And just lastly, can you comment on what you're seeing in TiO2 pricing right now?

Yes, I don't have a good answer for that question. We can get back to you.

All right. Sounds good. Thanks very much.

Thank you.

Our next question comes from Vincent Andrews with Morgan Stanley. Your line is now open.

Hi. Thanks for squeezing me here.

Hey, Vince. How are you?

And this is actually Steve on for Vincent. Sorry, should have let it at that. I think just to come back to consumer for a second, last quarter you had a comment that the full year would be kind of loaded in single digits and clearly outperformed in the first quarter versus initial expectations. So could you help us maybe kind of size how we should be thinking about that prior guide going forward?

Sure. I think consumer will be kind of mid to upper single digits for the balance of the year.

Okay. Thanks.

Excellent. Thank you.

Our next question comes from Steve Byrne with Bank of America. Your line is now open.

So Frank, I've seen massive purchases of Varathane in my house. I think my wife meaningfully contributed to your quarter. I just wanted to drill in on your consumer, your 34% organic growth, how much of that was volume and how much of it was price mix?

Ladies and gentlemen, please stand by. Your conference will resume momentarily. Okay. Please proceed with the call.

Thank you. Apparently we had a technology hiccup with line disconnection, but we're back on. If there are any further questions we will take them. And Liz, if there are no further questions, let me know.

Yes, no worries, Frank. So that 34% organic growth in consumer was that almost all volume or was there some price mix in there?

It was all volume and it was broadly across the entire category of small project paints, wood stains, and finishes caulks and sealants, patch and repair products. Cleaners were a big category. And so that was good.

And when you look at those trends and I believe you've indicated in the past that you have almost real-time visibility on purchases of your products from some of the home centers. Is there anything in particular that is driving that volume? I mean, is any particular categories that give you confidence of that; one, it's DIY driven and not pro, I'm not sure how you can differentiate that, but are there particular products that give you confidence that this DIY strength has some legs to it?

Sure. When we speak with our largest customers, they feel that the strength in DIY is sustainable. We agree that this unique situation has built a larger group of confident DIYers across many categories, including ours. This new, larger customer base is something neither we nor our major clients would have been able to create in typical conditions, but it has emerged. It's widespread across various categories and is continuing into the fall. Naturally, our business is seasonal, so we expect to see slowdowns as we enter the colder winter months. We expect solid results in the spring, whether they return to normal mid-single-digit growth or if there's still an increase when the season picks up again—that remains to be seen. However, we are quite optimistic about this entire category, the expanded customer base, and we're also running tests in areas like wall paint and a few others that may lead us into new categories, but time will ultimately reveal the outcomes.

And I recall last quarter, you mentioned e-commerce was somewhere in the tens of millions of revenue through homedepot.com and Amazon. How would you characterize it now? Is it continuing to post a doubler year-over-year?

Yes, it's increasing at a rate of double. It started on a relatively small base, call it 10 million, but we're seeing doubling of our e-commerce business through a number of platforms, but principally homedepot.com and Amazon.

And just lastly …

Those are the two biggest drivers. There are other platforms.

Is there any interest in Walmart to incorporate paint color mixing machines and develop that beyond just a grab-and-go approach?

So we have a tint-based program that is a direct ship that we are having tests with a couple of other customers. So we do have a tint-based program there. And on the Color Ready To Go program it's still in test at Walmart and it's going well. Walmart has other paint vendors that have tint-based programs and that's, we are the Color To Go program.

Okay. Thank you.

Thank you, Steve.

Ladies and gentlemen, please stand by. Your conference will resume momentarily.

Okay. Please proceed with the call. Thank you. Apparently, we had a technology hiccup with line disconnection, but we're back on. If there are any further questions we will take them.

Your conference will resume momentarily. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.