Welcome to RPM International’s Conference Call for the Fiscal 2022 Fourth Quarter and Yearend. 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 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. Please note that only financial analysts will be permitted to ask questions. At this time, I’d like to turn the call over to RPM’s Chairman and CEO, Mr. Frank Sullivan, for opening remarks. Please go ahead, sir.

Thank you, Michelle. Good morning and welcome to the RPM International Inc. investor call for our fiscal 2022 fourth quarter and yearend. Joining me on today’s call are Rusty Gordon, RPM’s Vice President and Chief Financial Officer; and Mike Laroche, Vice President, Controller and Chief Accounting Officer. I’ll share a broad commentary on our consolidated performance for the quarter and the year, then Mike will provide details on our financial results and Rusty will conclude our prepared remarks and our outlook for the first quarter of fiscal 2023. Please note that our comments will be on an as-adjusted basis and all comparisons are to the fourth quarter of fiscal 2021 unless otherwise indicated. We provided a supplemental slide presentation to support our comments on this call. It can be accessed in the Presentations and Webcasts section of the RPM website at www.rpminc.com. After our remarks, we'll be pleased to take your questions. We generated record fourth quarter performance, which reflected accelerating momentum across RPM throughout fiscal 2022. As we progress through the year, our nimble businesses responded quickly to address ever-changing supply chain constraints, inflationary challenges, and foreign exchange headwinds. I'd like to share a few examples for RPM. In response to the scarcity of some raw materials, we purchased a manufacturing facility in Texas last September. The dedicated team quickly ramped up production of alkyd resins, which were in very short supply due to a supplier explosion at one of our primary suppliers in the industry. In addition, our R&D professionals have been working around the clock to reformulate literally thousands of products to qualify different materials while maintaining high performance. Another example is our disaster restoration equipment business, which was hampered by the semiconductor chip shortage. It found an alternative supply and reconfigured its products to accommodate these challenges and deliver for its customers. As you can see on Slide 3, this chart reflects the quarter-by-quarter actions that we took to steadily generate momentum across our businesses throughout the year. Also having an impact were the investments we've been making to accelerate growth in the fastest-growing areas of our business, particularly our high-performance building construction and coating systems. Our associates' efforts, along with solid construction and industrial maintenance activity, as well as a rebound in energy markets culminated in the fourth quarter that produced consolidated record sales and record adjusted EBIT. On the next slide, you'll note driven by pricing adjustments and operational efficiencies, we achieved record results in all four segments in sales and record EBIT in three of our segments. The lone outlier was our consumer group, which began to narrow the year-over-year gap in adjusted EBIT results as price increases started to catch up with inflation and access to raw materials improved. Better materials availability was largely due to the production facility we acquired last fall. We also benefited from $17 million in incremental savings during the quarter from our ongoing operating improvement program efforts. On that subject, driving operating efficiency remains a top priority at RPM, and our teams have made significant progress in developing the follow-up plan to our highly successful NAFTA Growth operating improvement program, which concluded at the end of fiscal '21. We're calling the new program MAP 2025, and we will share details about it with you at an Investor Day to be scheduled in October around the time of our first quarter earnings release and Annual Meeting of Shareholders. We are confident that MAP 2025 will contribute to the momentum we are building for a successful fiscal 2023 and beyond. I'll now turn the call over to Mike Laroche to discuss our consolidated and segment financial results in more detail.

Thanks, Frank, and good morning, everyone. For the fourth quarter, we generated record consolidated net sales of $1.98 billion, an increase of 13.7% compared to the $1.74 billion reported in the same quarter of fiscal 2021. Organic sales growth of 15% or $261.9 million. Acquisitions contributed 0.9% to sales or $16.3 million, while foreign currency exchange was a headwind that decreased sales by 2.2% or $38.6 million. Adjusted diluted earnings per share were a record $1.42, which was an increase of 10.9% compared to the $1.28 reported in the year-ago quarter. Our consolidated adjusted EBIT was up 11.7% to a record $263.7 million compared to $236.2 million reported in the fiscal 2021 fourth quarter. Our Construction Products Group generated fourth quarter record net sales of $745.9 million, up 18.5% compared to the fiscal 2021 fourth quarter. Organic sales growth was 19.9%, and acquisitions contributed 1.6%. Foreign currency translation headwinds reduced sales by 3%. Despite comparisons to a strong prior year when sales and earnings were at record levels, CPG continued to generate high growth propelled by its differentiated service model as well as its unique building envelope and restoration solutions. The segment's business is producing the strongest sales growth were those providing roofing systems, insulated concrete forms, as well as admixtures and repair products for concrete. Results in international markets were mixed with Europe being challenged by macroeconomic headwinds, while Latin America experienced significant double-digit sales gains. CPG fiscal 2022 fourth quarter adjusted EBIT increased 10.9% to a record $122.4 million. This segment was able to offset significant raw material inflationary pressure with selling price increases and operational improvements. Our Performance Coatings Group fiscal 2022 fourth quarter net sales were a record $329.4 million, an increase of 16.3% over the year-ago period. Organic sales increased 17.4%, and acquisitions contributed 1.8%, which were partially offset by a foreign currency translation headwind of 2.9%. PCG's businesses providing flooring systems, protective coatings, and FRP grading, all generated double-digit sales growth. A rebound in international markets as well as ongoing success in the company's vertical end markets, including energy, technology, and food beverage helped drive PCG's results. In addition, improved sales management systems and price increases were major factors in the segment's excellent top-line results. Adjusted EBIT increased 37.3% to a record $42.6 million in the fourth quarter of fiscal 2022, driven by volume growth, selling price increases, revenue growth leveraging good product mix, and operational improvements. The Specialty Products Group reported record net sales of $225.8 million for the fourth quarter of fiscal 2022, an increase of 11.4% compared to the fiscal 2021 fourth quarter. Organic sales increased 12.2%, and acquisitions added 0.5%, which were offset by unfavorable foreign currency translation of 1.3%. The majority of SPG's businesses experienced double-digit sales growth. Leading the way were its OEM coatings companies as well as its food coatings and additives business, which has improved performance under new management. Its disaster restoration equipment business continued to rebound as it cleared backlogs caused by semiconductor chip shortages and grew sales in the teens despite a difficult comparison to a strong prior year that had high demand for its products driven by winter storm Uri. SPG's adjusted EBIT was a record $44.2 million in the fiscal 2022 fourth quarter, an increase of 21.8% compared to adjusted EBIT of $36.3 million in last year's quarter. The segment's increase in adjusted EBIT was bolstered by the favorable impact of higher sales which were leveraged to the bottom line due to selling price increases that began catching up with prior cost inflation. Our Consumer Group achieved record net sales of $682.8 million for the fourth quarter of fiscal 2022, an increase of 8.6% compared to the fourth quarter of fiscal 2021. Organic sales increased 10%, which was partially offset by unfavorable foreign currency translation of 1.4%. The Consumer Group's top-line growth was driven by improved supply of key alkyd resins produced by the manufacturing plant we acquired last September as well as price increases and high growth in product lines with professional remodelers including cost and sealants. While North American markets grew, European markets remained challenged due to macroeconomic headwinds in the region. Fiscal 2022 fourth quarter adjusted EBIT was $80.3 million, a decrease of 14.2% compared to adjusted EBIT of $93.6 million reported for the prior year period. Adjusted EBIT was impacted by continued raw material cost inflation and higher costs from ongoing shipping challenges and industry labor shortages. In response, the Consumer Group has been instituting price increases to catch up with inflation, building resilience in its supply chain, and investing in capacity and process improvements to better respond to customer demand. To wrap up, I have a few comments on capital allocation. Our significant liquidity enables us to fund internal growth initiatives, make acquisitions, and reward our investors with cash dividend payments and share repurchases. Since our last earnings release in April, we repurchased $50 million of our common stock. This is in addition to earlier share repurchases and early reduction of our convertible notes in November 2018 with roughly $200 million of cash. Combined, this puts us at $658 million towards our $1 billion repurchase goal that was established at the onset of our MAP to Growth program in 2018. Now I'll turn the call over to Rusty to discuss our outlook.

Thanks, Mike. Looking ahead to the first quarter of fiscal 2023, we will continue to focus on navigating a number of challenges. The strengthening US dollar is expected to be a headwind impacting the translation of our international results. We expect significant cost increases to continue for certain raw materials, labor, and packaging. We also anticipate continued higher costs from unreliable bulk transportation, which creates production inefficiencies, although they should have less of an impact moving forward, as well as fuel surcharges driven by high energy prices that have been exacerbated by the conflict in Ukraine. These cost pressures are expected to disproportionately affect our consumer segment. Despite these challenges, the proactive measures we took over the course of fiscal 2022 enabled RPM to accelerate momentum in the business and it is expected to carry over into fiscal 2023. We expect to continue implementing price increases as needed and continue improving operational efficiencies in order to minimize cost pressures and restore margins closer to historical levels. While there is a recessionary undercurrent in the economy, we anticipate that demand for our products and services will remain strong particularly in those that improve energy efficiency and extend the useful life of our customers' assets through protection and restoration. In addition, we are making strategic investments in organic growth initiatives focused on market opportunities and industry trends including future funding for infrastructure and onshoring of industries responsible for pharmaceutical, food, technology, and energy security. Based on these factors, we expect to generate fiscal 2023 first quarter consolidated sales growth in the mid-teens over last year's record first quarter sales. For each of our four segments, we anticipate sales growth in the teens. It is likely that the consumer group will generate the highest growth of the four segments due to: Number one, selling price increases that should allow it to catch up with inflation; number two, improved alkyd resin supply; and number three, investments made in new capacity and continuous improvement initiatives. Fiscal 2023 first quarter consolidated adjusted EBITDA is anticipated to increase 20% to 25% versus the same period last year. Lastly, I'd like to announce that we have hired Matt Schlarb as our Senior Director of Investor Relations. He previously held Investor Relations positions with other companies. We're pleased to have him join RPM and look forward to having him raise our Investor Relations function to a new level. Matt will be joining us on our equity analyst calls this week, and you'll be working more closely with them as we near the announcement of our first quarter results and the investor event that will provide details on our MAP 2025 initiative. This concludes our prepared remarks, and we will now be pleased to take your questions. Thank you.

Your first question comes from John Roberts from Credit Suisse. Please go ahead.

Good morning, and nice quarter. Does the alkyd resin capacity get you to the integration that you want, or would you like to have even further integration if possible? It's always a trade-off between having capital deployed versus having your margins higher?

Sure. I think the Corsicana plant is relatively unique. We have another kind of backward integrated business as well with our Stonhard Group, and I believe we have the backward integration that we desire at this point in time. We do plan to spend probably close to $100 million over the next three years at Corsicana to backward integrate into a few other categories as well as use that site for expansion of our new Dura product line. But we do not plan any additional significant investments in backward integration at this time other than internal investments on that site.

Okay. And then you noted the recessionary undertones to the economy. Which markets do you think are most at risk here for RPM?

For us, we're doing quite well in North America. Latin America is relatively strong compared to last year. The areas that we see the biggest challenges shouldn't be a surprise. It's principally Europe, and it's a function of some of the inflation hitting Europe later, slowing growth and most of which I would attribute to the Russian war on Ukraine and its impact, both on current economic activity and anticipated challenges in the energy markets in Europe, specifically.

The next question comes from Mike Harrison, Seaport Research Partners. Please go ahead.

Can you discuss the construction business and specifically break down the 20% organic growth into how much was due to pricing and how much was due to volume? Additionally, as you look ahead, how much impact do you anticipate from macro factors in the construction business if we enter a recession? Do you believe trends related to infrastructure spending and the reshoring you mentioned will be sufficient to maintain steady underlying growth?

Sure. We, in general, feel really good about the dynamics, particularly North America for our Construction Products Group and our Performance Coatings Group. In both cases, unit volume growth was in the mid- to high single digits. And it could have been better, particularly in our Construction Products Group, but we continue to face shortages that impact projects. Some of those shortages are related to intermediate chemicals that we purchase, and others of those shortages relate to fasteners, insulation board, or other types of components on a construction product project that we are not directly involved in but slow down projects. So that organic growth could have been better in the quarter, and we continue to face some of those challenges. I will tell you that the demand continues to be strong, and we feel pretty good about the literally hundreds of billions of dollars that came from the American Rescue Plan in February of '21 and the $1.9 trillion infrastructure bill, at least $800 billion of which will go into real hardcore infrastructure, both of which bode well for the dynamics in the markets that our Construction Products Group and Performance Coatings Group serve and again, those are principally driven in the United States.

All right. And maybe a question for Rusty. Obviously, we're in a pretty unusual situation as it relates to working capital, leading you guys to be free cash flow negative for Q4 as well as for all of fiscal '22. Can you give us some initial thoughts on working capital and CapEx for fiscal '23? I think we're all just trying to get a better sense of what the free cash flow might look like for this coming year.

We experienced a challenging year for cash flow in fiscal '22 due to decreasing margins and inflation, which are typically concerning for cash flow. Unreliable supply forced us to build up inventory, as both supply and transportation were inconsistent. Consequently, our inventories need to be better balanced, and despite an increase, we still lack sufficient finished goods to meet customer needs. However, we are seeing improvement as some supply issues have eased over the year. While we continue to face a few supply challenges, they are not as severe as last year. As noted in our guidance, we expect to expand EBIT margins, leading to a much better year for cash flow. Regarding capital expenditures, we plan to invest more in our businesses, particularly in high-growth areas like high-performance buildings. In fiscal '23, we expect to increase our spending. On the acquisition front, we are encountering high multiples but remain disciplined and will not pay excessive amounts. Therefore, we anticipate acquisition activity to be lower than historically typical.

The next question comes from John McNulty of BMO Capital Markets. Please go ahead.

Thanks for taking my questions. So I guess maybe the first one, high level, can you give us some color as to how to think about price versus volume in the quarter? And overall, if there are any segments that kind of stood out as the leaders or the laggards and how that may change as we kind of push into the half of fiscal '23 for you?

Sure. I provided the unit volume by group, with mid- to high single-digit growth in Construction Products and Performance Coatings. Unit volume was relatively flat across our Specialty Products segment, and we experienced a decline in consumer by high single digits for the quarter. Overall, from our perspective, it was a great quarter. We met the guidance we set. In the fourth quarter, we are ahead of the cost price mix in three of our four segments. In Q1, we expect to be ahead of the cost price and mix dynamics across all four segments, which means you will see higher EBIT growth in three of those segments, with EBIT margins approaching or reaching all-time records. In consumer, there is considerable catch-up to do, but a significant EBIT margin is anticipated for the recently concluded quarter. We are building momentum, especially around the cost price mix dynamics, and we anticipate even better performance in Q2.

Got it. No, that's helpful color. And then I guess maybe to that, back of the envelope, when I kind of look at 1Q, it looks like you're kind of assuming year-over-year, the margins improved by, whatever, 50 to 100 basis points for the corporate level. I guess how should we think about how that progresses through the year? I mean is that kind of a decent run rate? Do you continue to catch up with either more pricing or the raw materials maybe even giving away a little bit? I guess, how are you thinking about the potential for margin improvement throughout the year?

The largest improvement will be seen in our consumer group, resulting from our efforts to address cost price mix and enhance operating efficiency. This is particularly relevant given the challenges we faced in fiscal '22. As a result, we anticipate significant improvement and continued progress with reasonable leverage to the bottom line in our other three segments. In Q1, earnings growth is expected to be in the 20% to 25% range, with Q2 likely showing even better results. However, we're cautious about making further predictions due to fluctuating economic indicators regarding inflation and recession, especially in relation to the energy markets in Europe. This uncertainty makes it hard to forecast anything beyond the next few months. Nevertheless, we are confident that the upcoming two months will show strong sales growth, earnings growth, and improvements in EBIT across all our segments.

The next question comes from Vincent Andrews of Morgan Stanley. Please go ahead.

Could you provide more details about the EU, especially regarding the volatility in energy markets and the concerns surrounding the supply of natural gas and electricity? Can you discuss your exposure and the mitigation plans you have in place? Additionally, if there were to be a disruption, what impact would that have not only on your European business but also on other regions, whether positive, negative, or neutral?

The European business, on a consolidated basis, is approximately $1 billion. By the end of 2023, it may be lower than that. Demand is definitely weaker compared to North America. Additionally, foreign exchange translation and the strength of the dollar will further decrease or adversely affect the results when converted to U.S. dollars. There is generally slower demand across Europe, likely due to the economic challenges they are experiencing and significantly higher energy costs compared to the U.S. This situation is influenced by global oil and gas dynamics, as well as the situation with Russia and its impact on natural gas supply. Natural gas is the main feedstock for many of our major chemical suppliers in Europe and Russia. In some instances, it is also a primary feedstock for our construction product facilities. This is an area we will monitor closely. The situation is precarious, and while there are scenarios where the geopolitical and economic landscape improves, the risk of Russia cutting off natural gas to Germany and, by extension, Western Europe could lead to a rapid and negative shift in all manufacturing across Europe.

Just as a follow-up, in PCG, you mentioned sort of the sales management systems. And I guess two questions about that. One would be just sort of how much runway is left in that improvement process? And is there anything that you can take from your learnings in that segment and apply to your other segments? Or is this just a question of PCG catching up with where everybody else is?

A couple of things. First, PCG is seeing benefits, especially in our Carboline unit, due to increased spending in the oil and gas and energy markets. While this trend is cyclical, it's not indicative of a broader cyclical upturn. As mentioned earlier, significant funds from the infrastructure bill and the American Rescue Recovery Act are positively impacting our Performance Coatings business. The pricing advantages and commercial strategies we've implemented, backed by data, are contributing to this success. In some cases, RPM is catching up to industry standards, but it is benefiting us in numerous areas. These practices can be easily shared due to the similarities in our sales teams, market approaches, and compensation structures between our Performance Coatings Group and Construction Products Group.

The next question comes from Josh Spector of UBS. Please go ahead.

Question around construction and specifically margins in the quarter. I think typically you have relatively similar margins fourth quarter, first quarter and construction margins have been generally outperform over the past couple of years. So curious maybe you can give us some more comments about what drove the lower margins in construction and where you see those heading over the next year?

Sure. I want to highlight the challenges faced by the Construction Products Group. One issue is related to our Corsicana plant, which impacts our Consumer Group's alkyd resin production. This has resulted in a negative impact of around $8 million to $10 million for the year within construction products, but we expect this situation to improve as we make better use of the plant. Additionally, costs for silicones have risen dramatically, with an increase of over 200% year-over-year. Our Construction Products Group has seen silicone polymer costs rise by 211% compared to last year's fourth quarter, and this group is the largest buyer of silicone and silicone-related products for various sealants. We also purchase silicones for our DAP business. These are the main factors affecting performance. While acknowledging that this sounds a bit obvious, these two issues significantly hindered the construction products from achieving record EBIT. However, thanks to the MAP to Growth program, their consolidated EBIT figures have increased by almost 500 basis points, and we expect this upward trend to continue sustainably in the coming years.

That's helpful. And just another follow-up just on construction, but related with Europe. Are you able to quantify what you're seeing volumes in that segment in Europe relative to the rest of the world?

It’s generally flat to slightly down across all our businesses. In construction products, we have a well-established facility in Poland, but the situation there has been very challenging. We have the impacts of the conflict in Ukraine and Polish employees are accommodating Ukrainian families in their homes. There are numerous difficulties occurring in that region, which is particularly relevant for our construction products group due to our significant manufacturing presence in Poland. Aside from that, demand is quite weak, and there are concerns regarding energy costs throughout Europe, the U.K., and across all our segments.

The next question comes from Kevin McCarthy of Vertical. Please go ahead.

Bottom of Slide 3, you referenced product reformulations. And in your prepared remarks, I think you used the word thousands of products. I imagine that was quite an undertaking. Can you help us frame it in terms of what percentage of your sales would have been reformulated and whether that had any material cost impact, either positive or negative as you executed through that process?

Sure. I don't have an exact number at the moment, but we can look into that. Over fiscal '22, we reformulated thousands of products, which required recertification due to quality control checks. Initially, we faced some shortages of primary raw materials, making reformulation challenging. However, it was mainly the smaller intermediate chemicals that were difficult to source. One significant area affected was seed oils, where we have reformulated many coatings to include more bio-based seed oils, achieving favorable performance and a better environmental footprint. In some cases, we've used bio-based resins as examples. The reformulation and recertification processes involve working closely with customers to ensure quality control checks do not impact performance. This situation is not exclusive to RPM; many in our industry are dealing with similar challenges. During the COVID period, our lab teams have put in extra effort to address these issues. In terms of material costs, there's been about a 35% increase in material inflation compared to last year, with the primary factor for reformulation being the availability of intermediate chemical raw materials.

Okay. And then just to follow up on that latter comment. How do you expect that 35% inflation level to trend in the first quarter? Related to that, you commented on silicones and oil. So are there other sort of problem children in the family? And then also, are you starting to see relief anywhere among the raw material basket at this point?

The biggest challenges for us in the fourth quarter compared to last year were in areas like metal packaging, particularly affecting consumer products, which are up 50%. Quarter-over-quarter and year-over-year, these are up 115%. I noted that silicone is up over 200%. Other costs, particularly for some intermediate chemicals that we do not purchase directly but that affect our purchasing, are either flat or declining. You are definitely seeing oil prices move in a positive direction. However, that has not yet impacted the items we buy. The volatility is significant, making it difficult to predict, but we are currently in a time where core underlying chemicals and oil prices are moving in a favorable direction.

The next question comes from Frank Mitsch of Fermium Research. Please go ahead.

I appreciate the product shout out in one of your early answers highlighting rock solid. Well done and well played. It's under consideration. You mentioned that three out of the four segments are expected to achieve all-time record margins or near record margins. Was that a comment specific to the first quarter, or related to 2023? How should we interpret that comment you made?

The Performance Coatings Group has achieved record EBIT margins. Our Construction Products Group narrowly missed expectations, but we are close to last year's fourth quarter record margins. The main challenge has been the rising costs of silicones, which we purchase significantly. On a positive note, our Specialty Products Group also reached a record EBIT percentage in the fourth quarter, and we anticipate continued growth toward record EBIT margins in the upcoming quarters. For Q1, we expect to see year-over-year EBIT margin improvement across all segments, including consumer. We believe the consumer results in the next couple of quarters will be impressive, although they will be compared against relatively weak previous results. Overall, we were pleased with our performance in the fourth quarter, as we met the guidance we set. In terms of the cost price mix landscape, we feel we are ahead of the curve in three areas and will be in all four by the first quarter.

Very helpful. And if I could just follow up on the inventory question earlier. Obviously, you've had to increase your inventories given the supply chain issues. And I'm curious, when do you expect that to normalize? And how do you see your customers because you would assume that your customers are also seeing more inventories. How should we think about the inventories throughout the chain?

Sure. As everyone is aware, in general business, we're fortunate not to be in fast fashion, but many fashion retailers are left with a surplus of unwanted items and a scarcity of those in demand. This situation is evolving in various sectors. For us, we have temporarily set aside our working capital objectives, more details on which will be provided in our MAP 2025 and in our annual report that will be released in mid-August and further details in October. This year has been tough, so we have been trying hard to stock up on raw materials. In certain areas, we have been acquiring as much raw material as possible, but production has been on hold while waiting for specific valves or intermediate chemicals to commence operations. Consequently, we have a higher inventory level of raw materials than we've ever had. Interestingly, while we have a significant amount of one type of inventory, we have relatively little work-in-progress. For instance, in our Legend Brands business, or within our Construction Products Group or Consumer Group, there are partially finished products awaiting a key component, such as a chip or other materials. Inventory is scarce across the board, and many, including us, might have stockpiled more than they anticipated due to the raw material availability challenges. We expect substantial improvements in 2023. While I don't think we will reach record cash flows again, we anticipate returning to a positive cash flow situation. This is the first time in my experience that we have reported negative cash flows in both the fourth quarter and for the entire year. We aim to generate several hundred million dollars in free cash flow and more in fiscal 2023.

Very helpful. Thanks so much.

Thank you. The next question comes from Jeff Zekauskas of JPMorgan. Please go ahead.

You have FIFO inventory, and costs have been rising. Are your FIFO costs and LIFO costs nearly aligned, or is there still a significant difference? Given that difference, could it be possible that raw materials peak in the second quarter of next year? Would that be a reasonable assumption?

Yes. Jeff, this is Rusty here. As far as FIFO goes, you're correct in that we're going to continue to see increases go through the P&L from the last 3 months. On average, we hold about 90 days of inventory. So the latest quarter's purchase order inflation that we're seeing on actual POs will come through 90 days later in the first quarter. I would say our fourth quarter too was penalized somewhat again because of FIFO. A lot of people out work sick at our suppliers, freight carriers, and in our facilities too. So we had a lot of production inefficiencies around New Year that hit us in the fourth quarter. So on the good news front, that should be flowed through, and we should have better efficiency coming through our cost of sales from that standpoint in Q1.

In fiscal '22, were your consolidated volumes down low single digits?

For consolidated fiscal '22, our volume was pretty flat for the year, up a tad, but yeah, it was not down. It was up very marginally.

The next question comes from Steve Byrne of Bank of America. Please go ahead.

So Frank, you mentioned that your raw materials for alkyd resins have effectively doubled. Can we say that a significant factor behind this is the materials used in those resins, which have surged during your plant margins in either the first or possibly the second quarter of this fiscal year? Is that a reasonable expectation?

Yes. Steve, this is Rusty here. As far as alkyd resins go, you are correct. A lot of the plant-based oils have been rising since the Russian invasion of Ukraine. And alkyd resins have gone up more so because of the explosion a year ago that took out 30% of North America alkyd resin production capacity. So they continue to go up here as we speak in the first quarter. So buying alkyd resins externally is going to continue to be more expensive every day. And you are correct. We are ramping up our Corsicana, Texas plant and getting more of our alkyd supply in-house, and that progress is continuing. So we continue to make more different varieties of alkyd resins and should continue to get more of our alkyd resins sourcing done in-house.

And then Rusty, this plant was acquired by Tremco, right? Why isn't the Tremco plant considered an RPM plant when you mentioned that consumer businesses are obtaining resins from this plant? I'm unsure about who manages sourcing at a plant that was acquired by Tremco, and could you also provide some insights on how you encourage cost sharing between brand and businesses for production and sales?

Sure. We don't own any RPM plants; they are owned and operated by our four segments or their operating companies. Our expertise lies with them, and we have a robust manufacturing operations team in our Construction Products Group. Regarding the Corsicana plant, when we acquired it, they were not producing resins, which is our main focus for investment in fiscal '22. However, we plan to expand into other areas and use that site significantly for Nudura, which is also part of the Construction Products Group. Additionally, the cooperation and communication across our businesses after the MAP to Growth initiative have enabled better sharing of manufacturing assets, particularly in manufacturing and operations. This has worked exceptionally well, and the Consumer Group has been the largest beneficiary of that in fiscal '22, which we expect to continue into most of '23. This is a shared manufacturing asset across multiple RPM businesses, but it doesn't officially report to RPM as we lack the manufacturing expertise in-house.

The next question comes from Arun Viswanathan of RBC Capital Markets. Please go ahead.

So yes, I just wanted to get back to the inventory issue, I guess. I was just curious, within your Consumer Group, how would you characterize inventory levels at the big box? Obviously, we've heard elevated levels in other areas of the retail channel, but is that also what you would say for your big box partners?

Fill rates in the consumer segment across various categories remain below the desired levels. Currently, the industry is experiencing fill rates in the high 90s, while we are seeing rates in the 70s across multiple product categories. This indicates ongoing issues with core inventory, which we expect will be resolved as we transition into fiscal 2023. This situation regarding inventory has persisted for the last two years.

Okay. And in that group, is it possible that you actually see maybe see some outsized performance or increased demand in the small project category, if we do go into a more material recession? Have you seen that in prior cycles?

We have previously observed an increase in our consumer DIY business during past recessions. We expect to see a significant $70 million expansion of capacity in our consumer sector by the end of summer. We have resolved the issues related to raw material availability and freight. This puts us in a strong position in terms of costs and capacity, and we anticipate a favorable cost-price mix as we progress through the year with consumers. Overall, we are well-positioned, and historically, this has been a somewhat countercyclical aspect of RPM during past recessions.

Great. And then if I could, just one more quick one. So on the next MAP program, I guess, would the focus be a little bit more on capital allocation and cash flow? I know SG&A was really an initial focus for the initial MAP to Growth program but does this switch a little bit more to capital allocation? Thanks.

Sure. And so we'll get into the details, as Rusty indicated in October. But I do think in most areas, we have addressed SG&A. The new MAP program will be benefiting from improved cash flow, a particular focus on working capital and a particular focus on gross margin improvement along with some revenue growth expectations.

Our next question comes from Mike Sison of Wells Fargo. Please go ahead.

Just one quick one. Your outlook for the Q1 adjusted EBIT growth of 20%, 25%, it sounds like 2Q could even be better. How much of that growth will simply come from pricing, maybe catching up with raw materials and then the sort of volume growth and maybe some cost savings and such?

There is solid performance in North America and some growth in Latin America. Asia remains relatively small, while there are significant shifts and concerns about demand and weakness in Europe. As I mentioned earlier by segment, I anticipate seeing mid- to high single-digit unit growth in the Construction Products Group and Performance Coatings Group, potentially affected by challenges related to raw material availability that may arise for our products or for components in construction projects, which could cause delays. I also expect to see improved unit volume growth in our Specialty Products Group, which has been mostly stagnant for most of fiscal '22. Furthermore, I believe that most of our profitability improvement in the consumer segment over the next couple of quarters will stem from pricing finally aligning with costs, as well as from the operational efficiency initiatives we have been implementing over the last year, despite unit volumes remaining relatively flat; however, we will evaluate this on a quarter-by-quarter basis.

Our last question comes from Ghansham Panjabi of Baird.

This is Matt Krueger speaking in place of Ghansham. To start, can you discuss the current state of each of your businesses in relation to your pre-COVID baseline, focusing on volume or demand as you see fit?

In our Specialty Products Group, we have significantly improved sales growth compared to pre-COVID, driven by both pricing and unit sales. We've also enhanced our efficiency, although we are slightly below our record EBIT margin, which is over 17%. We anticipate returning to that level in fiscal '23. In our Construction Products Group, aside from the silicone issue and the Corsicana plant, we would have achieved all-time EBIT margins and expect to improve further in fiscal '23. Our Performance Coatings Group has generated record EBIT margins, and we plan to build on that success. The most dynamic area is our Consumer Group. As you may remember, fiscal '21 was exceptionally strong, with organic growth peaking at around 30% during the summer and fall, which was unprecedented. However, we faced operational challenges that impacted our consumer group more than our other segments. Currently, we are significantly ahead of our pre-COVID revenue in unit volume and have seen considerable profitability and margins in fiscal '21. As I mentioned earlier, we expect to recover a substantial portion of that performance, though not all of it. Our MAP to Growth goals will guide us by segment, and we expect it will take a couple of years to achieve the record profitability levels we had in our Consumer Group before COVID.

Got it. That makes sense. That's very helpful. And then just to round things out, I guess we talked quite a bit about raw material challenges and supply chain constraints. But I wanted to switch over to interest rates. So how do you expect higher interest rates to impact demand across your various business units? And have you seen any impact from higher rates across any of your housing affordability or other reasons?

I'll address that in two ways. First, from a RPM perspective, we have 70% fixed-rate at an average fixed rate of about 3.5%, which puts us in a strong position given the rising interest rate environment, particularly regarding our balance sheet and profit and loss statement. Concerning the broader markets, while we keep up with the news, we have not yet observed any impact in the United States. There's an interesting situation in new home construction, where there is still a shortage compared to demand, despite increasing rents and mortgage rates. It will be fascinating to see how these dynamics unfold over time, especially in our DAP business, which has a significant portion of its sales to professionals and in new home construction. Our professional segment is performing well with high single-digit unit volume growth, significantly outpacing DIY sales. The Construction Products Group, particularly our Nudura business, serves light commercial and residential sectors. The slowdown in completing some housing and light commercial projects is due to component issues, not a lack of demand. As we evaluate the current state of our business, we do not see evidence supporting the recessionary news headlines.

Thank you. There are no further questions at this time. Please continue.

This year is one of milestones across RPM. RPM is now in its 75th year in business. When my grandfather founded Republic Powdered Metals in 1947, he had one product, the heavy-duty aluminum roof coating called illumination. First-year sales were $90,000. To be in business for 7.5 decades and generate $6.7 billion of revenue this fiscal year is quite a feat considering our humble beginnings. Our Carboline business, a leading manufacturer of industrial corrosion control and fireproofing coatings, also is celebrating its 75th anniversary this year. Topping both is our Stonhard business, a producer of high-performance flooring systems, which is also celebrating this milestone. Achieving these milestones is especially impressive when you consider the average lifespan of an S&P 500 company is 15 years. The credit for this longevity belongs to our more than 16,000 associates worldwide and the hard work they put in every day to drive our growth and success, which was particularly challenging in the fiscal 2022 year just ended. Thank you for all you do to move the business forward and to build a better world. Our people, combined with positive market trends, innovative products and a strong balance sheet give us confidence that we have a bright future ahead of us. I would also like to thank our shareholders for their continued investment in RPM. We remain focused on fiscal 2023 first quarter results and to providing the MAP 2025 program in October. Thank you, and have a great day.

Ladies and gentlemen, this concludes your conference call for today. We thank you for your participation and ask that you please disconnect your lines.