Good morning, and welcome to the RPM International Fiscal First Quarter 2024 Earnings Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Matt Schlarb, Senior Director of Investor Relations. Please go ahead.

Thank you, Andrea, and welcome to RPM International's conference call for the fiscal 2024 first quarter. Today's call is being recorded. Joining today's call are Frank Sullivan, RPM's Chairman and CEO; Rusty Gordon, Vice President and Chief Financial Officer; and Michael Laroche, Vice President, Controller and Chief Accounting Officer. This call is also being webcast and can be accessed live or replayed on the RPM website at www.rpminc.com. Comments made on this call may include forward-looking statements based on current expectations that involve risks and uncertainties which could cause actual results to be materially different. For more information on these risks and uncertainties, please review RPM's reports filed with the SEC. During this conference call, references may be made to non-GAAP financial measures. To assist you in understanding these non-GAAP terms, RPM has posted reconciliations to the most directly comparable GAAP financial measures on the RPM website. Also, please note that our comments will be on an as-adjusted basis and all comparisons are to the first quarter of fiscal 2023, unless otherwise indicated. We have 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. Additionally, as we discussed on our most recent earnings call, certain businesses in Asia-Pacific that were previously part of the Construction Products Group are now being managed and reported under the Performance Coatings Group effective June 1, 2023. As a result, all references to CPG and PCG today reflect the updated structure. The recast businesses generate approximately $100 million in annual sales, and this change has no impact on consolidated results. At this time, I would like to turn the call over to Frank.

Thank you, Matt, and thank you to everyone for joining us on our call today. I'll begin today's call with an overview of our first quarter performance and then I'll turn the call over to Mike Laroche to discuss financials in more detail. Then Matt Schlarb will provide an update on one of our businesses. And then Rusty Gordon, our CFO, will cover our outlook for the next quarter and the balance of fiscal '24. At the conclusion of the prepared remarks, we'll be pleased to answer your questions. Beginning on Slide 3 of our investor deck. Our associates are, to put it simply, executing at a very high level. We generated 4.1% sales growth in what can be best described as a mixed economic environment resulting in record first quarter sales. Driven by the continued execution of our MAP 2025 initiatives, we expanded margins and grew adjusted EBIT by 12.3% to an all-time quarterly record. These results represent the seventh consecutive quarter of record sales and adjusted EBIT. Importantly, we remain focused on converting this profitability into cash flow, and this focus resulted in $359.2 million of cash generated from our operating activities during the quarter, which is an all-time record. Moving to Slide 4. Sales were driven by pricing, mainly from the wraparound effect of increases implemented in fiscal 2023 and strong unit volume growth in our Construction Products Group. Our CPG was our fastest-growing segment as the team there leveraged its strategic focus on repair and maintenance and differentiated turnkey service model. As we've highlighted in the past, several of our businesses in our Performance Coatings Group and Construction Products Group have positioned themselves to benefit from spending on infrastructure and reshoring capital projects, which continued during the quarter. The successful execution of our MAP 2025 initiatives led to margin expansion during the quarter, particularly in businesses where volumes grew as we were able to more fully leverage the structural efficiency improvements that we put into place. MAP 2025 was a key driver in growing adjusted EBIT to an all-time record of $309 million. As I mentioned, this growth is in addition to strong results in the prior year. And our two-year stack sales and adjusted EBIT growth rates were 22% and 49%, respectively. MAP 2025 initiatives are also contributing to structural improvements in working capital. Through improved coordination between sales operations, procurement and R&D as well as being a more data-driven decision-making organization, we have become more agile with more efficient inventory processes. This contributed to strong cash flow conversion during the quarter. While we still have significant work to do in improving in this area, I'm proud of the progress we are making on a sustainable basis. Looking at sales by geography on Slide 5. Sales growth was strongest in Africa, the Middle East and Latin America, driven by continued spending on infrastructure projects in these emerging markets. This growth is in addition to strong prior year results when sales in these regions were up double-digits. Europe is expanding for the first time in over a year, while economic growth in the region remains subdued, our teams captured growth opportunities and are leveraging MAP 2025 initiatives to expand margins. While on the surface, sales growth in North America may appear moderate, it is important to keep in mind that in the prior year revenues increased in North America nearly 23%. The two-year stack growth rate in North America is 26.1%. Overall, RPM has begun our fiscal year with positive momentum and our teams are executing at a high level on the things that we can control. We remain focused on executing our MAP 2025 program, leveraging our competitive strengths to capture growth opportunities, and bringing new products to market to continue growing throughout the fiscal year. I'd now like to turn the call over to Mike Laroche to cover our financial results in more detail.

Thanks, Frank. Starting on Slide 6. Consolidated sales increased 4.1% to a first quarter record $2.01 billion, driven by pricing with modest volume growth. Organic sales increased 3.9% with foreign currency translation and acquisitions less divestitures, both contributing 0.1% to sales. Adjusted EBIT grew by 12.3% to an all-time record of $309 million during the quarter. Gross margin expansion was the driver of this growth, led by MAP 2025 initiatives and improved fixed-cost utilization, particularly at businesses with growing volumes. All segments, except Consumer, generated commodity cycle benefits. Because of Consumer's raw material basket and in particular TiO2 in metal packaging, this segment's raw material inflation has been larger and continued longer than the other segments. SG&A as a percentage of sales increased during the quarter, driven by growth investments and higher variable compensation expenses due to the improved financial performance. Expense reduction actions implemented in the fourth quarter helped to offset the SG&A increase. Adjusted EPS grew 11.6% to $1.64, and was driven by adjusted EBIT growth. Turning to the segment results on Slide 7. Our Construction Products Group achieved all-time record sales of $783 million, an increase of 10.8% from the prior year period. Organic sales growth was 9.5% with acquisitions contributing 0.6%, and foreign currency translation adding 0.7% to sales. Sales growth was led by strength in our restoration systems for roofing, facades and parking structures, which benefited from the segment's strategic focus on repair and maintenance as well as its differentiated turnkey service model. Concrete admixtures and repair products also helped drive sales growth. After several quarters of sales declines, Europe returned to growth. As expected, new office construction was weak, but stronger demand in other end markets and our strategic focus on repair and maintenance more than offset this softness. Adjusted EBIT increased 33% to an all-time record $145 million, led by improved fixed cost leverage and MAP 2025 benefits, including commodity cycle benefits. As a result of improved financial performance, variable compensation increased and was partially offset by expense reduction actions put in place at the end of fiscal 2023. Additionally, as we recently announced, in the second quarter of fiscal 2024 CPG acquired a wall system fabricator to expand its offering in offsite panelized construction. The acquired business has annual sales of approximately $20 million. On Slide 8, the Performance Coatings Group achieved record net sales and adjusted EBIT. Revenue increased 4.1% to a record $379 million. Organic sales grew 4.0%, acquisitions added 0.8% and foreign currency translation was a 0.7% headwind. Sales were driven by strong demand for the segment's flooring systems and other engineered solutions for infrastructure and reshoring capital projects. Demand was strong internationally and increased pricing also contributed to growth. Adjusted EBIT increased 17.4% to an all-time record of $59 million. The growth was driven by strong sales and MAP 2025 benefits, led by commercial excellence programs in Europe and included commodity cycle benefits. These results are on top of a strong prior-year increase. Part of our MAP 2025 focus on improving profitability in Europe, PCG divested a non-core service business there. PCG incurred $14.6 million of charges related to this divested business, which are excluded from adjusted EBIT. Moving to the next slide, Specialty Products Group sales declined 10.7% to $181 million, organic sales declined 9.0%. Divestitures, net of acquisitions, reduced sales by 2.2%, and foreign currency translation was a tailwind of 0.5%. OEM demand was weak during the quarter, particularly in businesses that serve the residential sector, including coatings for furniture, doors, windows and cabinets. Additionally, SPG sales were negatively impacted by customers holding inventory levels below historical averages, which is pressuring volumes. The divestiture of the non-core furniture warranty business last fiscal year also reduced sales. Pricing helped to partially offset some of this weakness. SPG adjusted EBIT declined 39.6% to $18 million. The sales decline, product mix and unfavorable fixed cost leverage drove the decline. The divestiture of the non-core furniture warranty business also contributed to the adjusted EBIT decline. SG&A as a percentage of sales increased, driven by investments in growth initiatives and unfavorable impact of deleveraging a lower revenue. Expense reduction actions implemented at SPG in Q4 helped to offset this. Moving to Slide 10, the Consumer Group sales increased 1.5% to a first quarter record of $670 million. Organic sales increased 1.7%, foreign currency translation was a headwind of 0.2% and there was no impact from acquisitions. The sales growth was driven by increased pricing, primarily due to the large increase instituted during the first quarter of 2023 in response to inflation. Inflation, although less of a headwind, still persisted for the Consumer segment in the first quarter. As a reminder, Consumer faced the challenging prior year comparison as sales surged 22.5% in the first quarter of 2023, when it began restocking retailers after raw material availability improved. Volumes declined moderately driven by reduced customer takeaway and certain customers holding inventory levels below historical averages. Share gains helped to partially offset these volume pressures. Adjusted EBIT increased 3.5% to $121 million, driven by MAP 2025 benefits and the sales increase. Cost inflation continued in the quarter and was a headwind to adjusted EBIT as was lower fixed cost utilization as we slowed production to normalize inventories. We also received a $10.3 million business interruption insurance reimbursement during the first quarter. And the gain associated with this reimbursement has been excluded from adjusted EBIT. Now I'd like to turn the call over to Matt to go over the balance sheet and cash flow, and provide a business update.

Thank you, Mike. Moving to Slide 11. The progress we made improving working capital during the fourth quarter continued in the first quarter driven by our inventory normalization actions and MAP 2025 initiatives to structurally improve working capital. Inventories declined by $223 million compared to the first quarter of 2023. Working capital management and strong profitability growth resulted in an all-time record cash flow from operating activities of $359 million compared to $24 million in the prior year. This enabled us to return $54 million to shareholders through dividends in the first quarter. We have continued our share repurchase program and have bought back $25 million of shares from the beginning of the fiscal year through the end of September. We also reduced debt by $178 million during the quarter. Now, turning to Slide 12, we'd like to provide an update on Pure Air, the indoor quality and HVAC service business that CPG acquired in fiscal 2022. Pure Air provides turnkey solutions to address indoor air quality and HVAC performance issues. These include environmental consulting, building diagnostics and HVAC system cleaning and restoration. As commercial HVAC systems age, they can become dirty and worn down, resulting in reduced performance, efficiency and air quality. These issues negatively impact all buildings and can become critical problems in places like hospitals and schools, which are key end markets for CPG. Pure Air's turnkey solutions address these challenges and offer building owners the possibility of restoring their HVAC equipment instead of replacing it, resulting in significant savings and reduced disruption to the building's occupants. Pure Air expands CPG's role as a partner to building owners, offering products and services focused on the repair, maintenance and restoration of all six sides of a building, which drives increased efficiency, extended asset life, and lower costs. Sales over the last 12 months are more than double what they were when Pure Air joined RPM, and we are optimistic about its future. Now I'd like to turn the call over to Rusty to cover the outlook.

Thanks, Matt. Our outlook for the second quarter is on Slide 13. Many of the trends we experienced in the first quarter are expected to continue into the second quarter. On the positive side, the tailwinds include MAP 2025 including the commodity cycle, infrastructure and reshoring demand, reduced destocking, and resilient demand for repair and maintenance. As a reminder, some of our MAP 2025 benefits are more dependent on volumes to be fully realized. So they will naturally be lower in our seasonally lower-volume quarters of Q2 and Q3, and higher and stronger in higher-volume quarters, Q4 and Q1. Some of the challenges we expect to face in the second quarter are continued weakness in OEM demand, softness in some new construction end markets, and a reduced benefit from pricing, although pricing is still expected to be positive. We also face challenging comparisons to the prior year when sales grew 9% and adjusted EBIT increased by 36%. Taking all of this into account, we are forecasting sales to increase in the low-single-digit range on a consolidated basis, led by CPG and PCG with Specialty still showing declines. We expect adjusted EBIT margins to expand and to generate consolidated adjusted EBIT growth of high-single-digits to low-double-digits. Turning to Slide 14. For our full year outlook, we still expect modest economic growth. Despite the soft macro backdrop, we are focused on leveraging the growth drivers we control including, number one, MAP 2025; number two, our strong position serving infrastructure and reshoring demand with our engineered solutions; and number three, our strategic focus on repair and maintenance. We also continue to expect to benefit from reduced inflation, reduced destockings and easier comparison in the second half of the year. As was the case last quarter, we anticipate weakness in certain new construction markets throughout the year and weakness in OEM demand, at least in the first half of the year. Our current outlook for 2024 on a consolidated basis remains unchanged. Sales are expected to increase in the mid-single-digit range, with adjusted EBIT growing in the low-double-digit to mid-teen range. This concludes our prepared remarks. We are now pleased to answer your questions.

And our first question comes from Mike Harrison of Seaport Research Partners. Please go ahead.

Good morning, Mike.

Hi. Good morning. Congrats on a nice start to the year.

Thank you.

It seems like the Construction business was pretty strong across the board. Just curious, where are you expecting to see momentum continue? Where could we potentially see some choppiness? And can you break down the 9.5% organic growth between volume and pricing?

Sure. Two-thirds to three quarters of their growth in the quarter was unit volume growth, and it was pretty strong at the Tremco Roofing and WTI businesses, Tremco Sealants business, and Euclid. Broadly, this is mostly our Construction Products Group and our Performance Coatings Group in the Southern Hemisphere and developing countries, where real good strength occurred. In many instances, we're bucking trends. As we talked about in the past, we've had a real focused effort on investing in growth initiatives. One of the real starts this year is Pure Air, which is finally gaining some traction after its first year, which we got off to a slow start. We had to integrate it into WTI and into our Roofing sales force, and it's going very well. So that's one example of some of the very specific initiatives that we're investing in that's starting to pay off and allowing us to buck some of the trends in the construction markets.

All right. And then over on the Specialty business, you mentioned that you're seeing weak demand from OEM customers, and it seems like that's going to continue into the November quarter. But any thoughts on what that business looks like once it stabilizes? Maybe talk a little bit about your longer-term growth and margin expectations for that Specialty segment.

Sure. The biggest impact there is housing. We do a lot of wood stains and finishes into furniture, into windows and doors, kitchen cabinets. Notwithstanding the inventory mismatch for demand, particularly in this higher interest rate environment, the North American housing market is weak and continues to be weak, and that's hurt us. Some other categories that were strong, including manufactured housing and RVs, are weak after the post-COVID bump. All that notwithstanding, we have some very targeted initiatives in our Kop-Coat adjuvant business. There are patented products there that allow for a significant reduction in the use of herbicides and pesticides. We believe in the long-term benefit of that business, and we're investing in it. We're investing in expanding the MRO channel for our Legend Brands business that should reduce some of the storm-related cyclicality. Those are a few examples. The lower volume is hiding significant MAP 2025 improvements in our Specialty Products Group. But as Rusty highlighted, most of these improvements are on the manufacturing floor and are cost and mix-related. With improved conversion cost and better handling of mix, those benefits only show up when we sell something. So the lower volume is masking good operational improvements made by the Specialty Products Group and across RPM executing on the MAP '25 initiative.

All right. Thank you very much.

Thanks, Mike.

The next question comes from Ghansham Panjabi of Baird. Please go ahead.

Good morning, Ghansham.

Good morning, Frank. Good morning, everybody. Thanks for fitting me in. I guess as a follow-up to the last question on construction and the margin improvement that you saw there. Frank, you highlighted several factors: fixed cost improvement, raw materials, MAP savings, et cetera. How would you have us think about those dynamics from a stack rank standpoint in terms of the margin bridge year-over-year?

Could you repeat that? I'm not sure I understand the question, Ghansham.

Yes. So the margin improvement in CPG, I think, was up 310 basis points year-over-year. Just the main drivers as it relates to that.

So I think the main drivers are MAP 2025 initiatives where we're seeing improvement in conversion costs. We have a D3 initiative at RPM, which is data-driven decision-making. We are much better today at driving mix on a going-forward basis, and that's helping us. We are benefiting in the quarter from commodity cycle disinflation that we're starting to see in several places; construction products is certainly one of those. Then it really is very focused efforts in strategic initiatives around repair and maintenance. We're seeing real strong results in our core roofing business. We're 95% reroofing and repair on existing roofs, not new construction. Pure Air has been very strong, and we expect that to continue; we'll see tens of millions of dollars of new volume from that initiative. Panelization is something we've been working on for several years. We just added a significant piece with this Texas acquisition we announced this past week. So it's really focusing on things we can control that tend to be in large repair and maintenance areas. Hospitals have been a significant market for us, and we had booming business there during and coming out of COVID. Last year was not a good spending year for that sector, and that weighed on our performance in fiscal '23. We're seeing some pickup there and also some pickup on Nudura, which had a challenge in '23 because of what's happening in the residential market. It's a lot of self-help and very deliberate spending into specific initiatives across RPM, and you're seeing the results best impacting our Construction Products Group as we sit here today.

Yes. Perfect. Thank you for that, Frank. And then just in terms of the balance sheet, what do you expect the balance sheet to sort of end up at the end of fiscal year '24 on a net debt to EBITDA basis? And just related to that, how are you thinking about capital allocation in terms of - in context of where interest rates are and all the macroeconomic uncertainty? And I guess I'm referring specifically to your appetite for incremental acquisitions.

Great question. Let me step back and address what we're trying to do with MAP. We're trying to significantly improve our cash conversion cycle and it's working. We're also trying to be more data-driven in our decision-making with a focus on investing in specific organic growth initiatives. You're seeing that work, particularly in Construction Products. What that looks like is record cash from operations last quarter and this quarter, notwithstanding acquisitions and share repurchases. Year-over-year, we've reduced debt by $332 million. So that focus on cash conversion is working. We expect improvements to continue. The M&A market is relatively slow. We will continue to execute on good strategic small- to medium-sized deals, but the days of huge multiples are over for now. Incremental cost of capital is not near zero today. Given the choppiness in the markets and the MAP initiatives improving conversion costs and efficiency, we are focusing on driving organic growth where we can. It's easier said than done in an environment that feels like a rolling recession, both geographically and across sectors.

Understood. Thank you.

Thank you.

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

Good morning, John.

Good morning. Thanks for taking my question. So I guess the first one would just be on raw materials. Your previous destocking over the last few quarters that you guys were implementing and FIFO makes it a little bit complicated to think about how raws are really trending for you. So, can you help us to think about it — it looks like you got some improvement in the first quarter. How should we think about that continuing to flow through in terms of deflation throughout the rest of the year? And has the move in oil recently had any impact upward on some of the raw material trends that you pay attention to? How should we be thinking about that?

I'll address your last portion first. The only area where the move in oil prices impacts us immediately is in acetone. That affects a number of our coatings businesses, particularly Rust-Oleum. In our industry, commodity cycle increases are followed with lagging price increases, creating margin compression, and then as the commodity cycle moves down, we typically recover margin. We are experiencing recovery in Q1 in most segments, except Consumer. We would expect to begin to see that in Consumer in Q2. We're watching metal packaging increases that were extreme and tariff activity around tin plate. TiO2 is up modestly year-over-year and acetone is the only raw material reacting to current price increases. The commodity cycle benefited us in Construction Products and Performance Coatings in Q1, and we would expect it to continue to be a benefit to margin expansion in Q2 as well. As a reminder, these benefits are volume-driven; you get the benefit when you sell something.

Got it. Okay. No, fair enough. And then maybe just on the Consumer segment. So you spoke to — it sounds like some of your customers are drawing down inventory below normal levels. Has that largely played out at this point or is there still a disconnect between point of sale and what you're seeing in terms of pull? And as an add-on, you mentioned some share gains. Can you speak to those as well?

Our Consumer segment is performing at a good level. Most of the inventory adjustments are behind us; they were significant last year. Consumer takeaway has improved, though it still trends slightly negative across different product categories and channels, in the low- to mid-single-digit negative range, which is an improvement from the second half of last year. We lost some share in a major big-box account due to supply challenges; those supply challenges are over and fill rates are solid. Through MAP, we have created efficiencies equivalent to 40 to 50 million units of volume. Product gains include Rust-Oleum universal picking up share in new accounts, Rust-Oleum five-in-one spray showing incremental gains, and new product introductions at DAP — a two-component spray foam in one can and a textured spray — are being received well. New product introductions drove positive unit volume growth in the quarter at DAP.

Got it. Thanks very much for the color.

Sure. Thanks, John.

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

Good morning, Steve.

Good morning, Frank. I've got a question for you on CPG. Do you have a view as to how much of the revenue in that segment is generated from service versus selling materials? That could be complicated given turnkey projects, but I asked about the service component because it seems like you're expanding into the Pure Air model which is service and your restoration and maintenance on roofing has a service component. Any estimate? And more importantly, would you see that model potentially expanding into other areas of service such as cleaning or water treatment, something beyond air quality inside the building?

Great question. Generally, Construction Products Group revenues are about 30%, maybe slightly higher, service revenues with roughly 70% driven by product sales. There's ambiguity because services often go hand in glove with material sales, for example on reroofing projects. I would expect the service share to expand over time. Pure Air addresses indoor air quality and provides assessments and capabilities to clean, disinfect, and repair HVAC components. It was a $20 million business when acquired; we expect a few tens of millions of dollars of revenue growth this year and the potential for much more. The benefits are about one-third the cost of total replacement and immediate improvements in efficiency and indoor air quality, which is compelling for hospitals and schools.

And Frank, any thoughts about expanding some of that service to go into other issues such as cleaning services or water?

Expansion will come where we can add value. Pure Air is a good example — we add value versus replacement. We'll look for other opportunities but they'll be limited to areas where we truly add value as opposed to commodity-like services. It's not just service, but adding material or cleaning or repair components. Another factor is workforce: staffing is a challenge in these sectors. We solved that with Pure Air by leveraging our WTI roofing workforce. Having our people on the job on time and staying to get it done gives us a competitive advantage in roofing, HVAC restoration, and industrial flooring markets.

Okay. Thank you. One quick one on Nudura. Do you see the value proposition of that product more in its insulation value for cold or hot climates or more for its hurricane and tornado protective value? How are you marketing based on those two value propositions?

The simple answer is both. It's one of the most energy-efficient building systems for residential and commercial structures and also highly durable. We continue to educate the market. For example, we got approval for Nudura for schools in Kentucky after a tornado; durability in hurricanes is becoming better known. It's a combination: energy efficiency for net-zero targets and durability against climate-driven weather events. We completed the first net-zero school in Kentucky a year ago, which demonstrates the potential.

Thank you.

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

Good morning, Josh.

Hi. Good morning, Frank. I wanted to ask on group pricing overall and maybe drill into the segments a bit more beyond Construction. Based on what you've given, it seems like price was up about 3.5%. Our math on a multi-year stack suggests a step down sequentially. Is that consistent? How do you think pricing would trend in the various segments through the rest of the year?

We don't provide detailed segment-level pricing by quarter, but on a consolidated basis pricing was about 3.5% in the quarter. Across businesses, price impact might be as low as 1.5% and as high as 5%, depending on product line and raw material dynamics. We are seeing a sequential step down in pricing impacts as the need for large price increases has diminished compared to prior periods.

Okay. So sequentially, is pricing moving up, down, or holding?

In the quarter, year-over-year, we're up about 3.5%. We would expect pricing to step down sequentially in the next couple of quarters as we lap some prior-year increases and raw material pressures subside. There are a few odd items we watch, like oil price moves and tin plate tariffs, but nothing prompting material additional price increases today.

Okay. Thank you.

The next question comes from Aleksey Yefremov of KeyBanc. Please go ahead.

Good morning, Aleksey.

Good morning. This is Ryan on for Aleksey. I understand there are different pockets of non-res construction. Can you walk through how demand is trending in each of those markets? Have you seen any signs of slowdown in backlogs in any of those markets?

There aren't many definitive statistics for construction markets. Residential construction is weak in North America where our exposure is highest. Commercial construction is not strong. The areas of strength for us are repair and maintenance, where we have deliberate initiatives. Our Construction Products Group has about 30 to 35% exposure in new construction between residential and commercial, meaning 65 to 70% is renovation, repair and reroofing markets, which are more stable and where we've been picking up share. The only area showing continued strength is industrial construction and capital spending driven by onshoring and government subsidies, which is impacting CPG and PCG.

Got you. That's helpful. Then on the Specialty Products Group you mentioned customers held inventories below historical levels. Does this mean destocking is over and there's been no restocking uptick? Can you parse that out for us?

I think it's largely over. Companies like RV and furniture makers returned to normal shutdowns in 2023 and adjusted inventories. Starting in December of last year, driven by better data and MAP initiatives, we deliberately shut some production to make permanent inventory adjustments. In the second half of '23 we had tens of millions of dollars of unabsorbed overhead from both market-driven lower volumes and deliberate production shutdowns to address inventory levels. Most of that is behind us.

The next question comes from David Huang of Deutsche Bank. Please go ahead.

Good morning, David.

In a deflation cycle historically you generated $100 million to $200 million price-cost tailwind. How much was the price-cost tailwind in FQ1 on a dollar basis? With higher oil prices now and lingering inflation in Consumer, how do you expect price-cost realization this cycle versus the historical range?

Big picture: in our MAP initiative we set a goal of $465 million of savings, and about $115 million of that was our expectation for commodity cycle recovery. Our target this year for MAP savings is a $160 million run rate. I would venture that half of that will be commodity cycle recovery. Depending on dynamics, it's possible to exceed the $115 million, but time will tell as future quarters unfold.

Got it. Then on SG&A, can you talk about the investments you're making and how much you could pare back if demand worsens? Also, can you quantify the year-over-year headwind on incentive compensation?

I'll let Rusty address incentive comp and SG&A details. Broadly, about 25 to 40% of SG&A increase in Q1 was driven by specific growth investments — what we call BIG initiatives — across segments. These include Pure Air, panelization and Nudura in CPG; C2B growth in PCG; DayGlo resin turnaround, Kop-Coat patented adjuvants, and MRO channel expansion for Legend Brands in SPG; and increased advertising and promotion and new product rollouts in Consumer. These are investments we plan to make to drive organic growth, and they can be cut back if the economy deteriorates quickly.

On SG&A for the quarter, a few areas of compensation increased: commissions went up when we sold more, especially higher-margin products, and bonus accruals were up a few million dollars. Basic salary and wage inflation and SG&A have typically been about 3% long-term, but are running in the 4% to 5% range now. Pay increases probably impacted SG&A by roughly $6 million to $7 million in the quarter.

Got it. Thank you.

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

Good morning, Mike.

Hi. This is Richard on for Mike. You saw strong growth in Europe, over 9% year-over-year. You divested a non-core business in Performance Coatings. Can you give color on what end markets were driving strong growth this quarter in Europe? And should we expect margins to improve somewhat from the divestiture?

Part of the Europe story is that Europe was negatively impacted by recessionary elements and the Russia-Ukraine war, making 2022 and much of fiscal '23 challenging. Some of the improvement is rounding easier comparisons. We're also accelerating MAP 2025 initiatives in Europe, including accelerating lean manufacturing and continuous improvement programs (MS-168). We positioned senior leadership to Europe to help drive efficiencies. The decision to divest a U.K. service business and close underperforming operations was part of that. These actions should bode favorably for growth and margin expansion in Europe over the next couple of years.

Great. And then a follow-up on CPG margin growth. Is there a limit to additional margin improvement there? You achieved 18.5%; maybe talk about specific benefits from MAP and pricing.

I wouldn't characterize it as a limit. There's a trade-off between expanding margins and investing in organic growth. Simplifying: internally we're trying to significantly improve cash conversion and ramp up organic growth initiatives. That's working and we saw that in this quarter's performance, particularly in CPG. We'll continue executing MAP initiatives and invest where appropriate.

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

Good morning, Frank.

Good morning, Frank. Nice start to the year. I want to come back to MAP 2025. I believe you mentioned before that you're expecting a benefit of $160 million in fiscal 2024 as a run rate. You expect about $100 million to impact the 2024 P&L. Is that correct?

That is correct. Thanks for clarifying.

What was the actual benefit you saw in the first quarter from MAP 2025 of the $309 million EBIT?

We ran at about the run rate you'd expect. It was roughly a quarter of the year's benefit, maybe a touch ahead.

So roughly $25 million to $30 million in the quarter, and we are on or slightly ahead of target for the $160 million run rate. About half of that is associated with commodity cycle benefits. This should be the year where the lion's share of commodity cycle benefits show up, unless surprised by oil or other spikes.

Got you. A bigger-picture question: your guide assumes no recession. Where do you stand on the hard landing, soft landing, or no landing for the U.S. economy for your fiscal year?

Rusty captures sentiment well; it feels like a rolling recession. The housing market is weak which shows in Specialty Products. POS trends are improving but remain mixed. Europe started earlier but is showing better performance now. There's more stability around the Russia-Ukraine impact. For us, much of this quarter's performance and our Q2 expectations are driven by self-help initiatives rather than macro optimism. If we see a soft landing, the back half could be strong, but we remain cautious.

Very helpful. Thank you so much.

Thank you.

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

Good morning, Kevin.

Good morning. Frank, I wanted to ask about the impact of fiscal stimulus. It seems infrastructure and reshoring contributions have gained traction. Can you speak to the magnitude and duration of that tailwind? Do you think it will continue to accelerate or flatten, and when might it peak?

I still think there's substantial fiscal stimulus coming. The bipartisan infrastructure bill had a large amount allocated. If even half is infrastructure, there's meaningful spending still to come. You can see it in highway construction, onshoring of manufacturing, and airport expansions. We see a runway for about 1.5 to two years. It doesn't impact residential construction much. There are two macro trends: federal subsidies versus rapid interest rate increases. For portions of our Construction Products and Performance Coatings Groups, we see good tailwinds.

Good segue to my second question. You mentioned higher rates make acquisitions less appealing but could make divestitures more attractive. As you look across the portfolio, do you think the next year or two could be a window for portfolio cleanup and divestitures similar to the Guardian example?

We're continuing to look for opportunities to improve margins by addressing low-margin, no-growth businesses as part of MAP 2025. The recent example in the U.K. where we sold a service element was one such action. There will be more of that to come over the next year — product-line or facility-level divestitures or restructurings. When executed, we'll provide details.

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

Good morning, Jeff.

Hi. Good morning. I think on an adjusted basis your SG&A costs were up about 11%. Isn't that too high? Over the long term should SG&A grow above, below, or at the rate of sales growth?

SG&A was up 10.9% in the quarter. A few drivers include continued wage inflation and insurance costs. We're more deliberate about driving mix with better data, which raises commissions when higher-margin products are sold. Also, targeted BIG growth initiatives increased SG&A. We intend to reinvest some MAP savings into these initiatives. If economic conditions worsen, we have predefined SG&A cuts we can make. Over the long run, SG&A should grow at or below the rate of sales growth.

Okay. Follow-up: should inventory levels change much this year? You were flat sequentially, raws are down, demand soft. And on Construction, you grew organically around 10% in Q1; why the step down to mid-single-digit growth in Q2?

On inventory, MAP objectives target reduced working capital, and inventory is a major part. You've seen progress. Going forward, we expect less pronounced safety stock build for seasonal demand because MAP improvements enable better response to typical seasonality.

I would expect roughly a 300 basis point improvement in working capital as a percent of sales this year, maybe more. We had record cash flow in Q4 and Q1, and inventory improvement is a meaningful part of that along with margin expansion.

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

Morning, Vince.

Hi, this is Steve Haynes on for Vincent. A question on guidance: Q1 was a bit better than expected and Q2 looks a bit better. What's keeping you from being more biased toward the high end of your guidance range?

Volatility over the last two to three years keeps us cautious. We've seen sharp turns that reversed unexpectedly. There are macro uncertainties including potential election-year impacts. We prefer to focus on what we can control. If the economy improves and our MAP initiatives continue, the back half could be very strong. For now, we remain cautious and will provide more detail in January.

Okay. Thank you. Helpful context.

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

Good morning, Arun.

Good morning, Frank. Why aren't you raising guidance for the full year despite a strong start? Many contacts say destocking and inventories have come down; you mentioned a 300 basis point improvement. Why are you cautious on volume? Shouldn't restocking lead to a coiled-spring effect? What's holding customers back from making greater commitments?

We're hesitant to comment beyond our second quarter outlook. We expect record second quarter performance versus last year's strong quarter, and we'll beat it. Broader hesitation stems from interest rates; the fastest rate increases in U.S. history create lagging effects across the economy. Factors like student loan repayments resuming also add pressure. We are seeing improved POS but remain cautious. Our focus is on self-help initiatives that are delivering results regardless of macro uncertainty.

Thanks. One quick follow-up: how much of MAP savings are volume-dependent?

MAP savings are largely volume-dependent because many are manufacturing efficiencies, conversion cost improvements, and working capital improvements. I'd say a substantial portion — the benefits show up as we sell more. That's why you're seeing leverage in Construction Products with positive unit volume alongside MAP improvements.

This concludes our question-and-answer session. I would like to turn the conference back over to Frank Sullivan for any closing remarks.

Andrea, thank you very much. 2024 started out with positive momentum, and we look forward to leveraging our strengths to build on this strong start for the rest of the fiscal year. We appreciate your joining us today and hope you will join our Annual Meeting of Stockholders online tomorrow. It will be done virtually. It's at 1:00 P.M. Eastern time, and it can be accessed through the RPM website, www.rpminc.com. At tomorrow's Board Meeting and our Annual Meeting, we will be announcing our 50th consecutive increase in cash dividends to our shareholders, and our Board will be deliberating tomorrow about what that will be. I'd like to put that in perspective. If you like the power of compounding interest, you'll love the power of an annually growing cash dividend. My father, Tom, started our consistent consecutive growth in cash dividends 50 years ago, in 1973. Since then, we have had a compounded annual growth rate over 15 years to our shareholders, including reinvested dividends of 15.1%. To put that in further perspective, if you invested $1,000 in the S&P 500 in August of 1973, today you would have $178,000. That same $1,000 invested in RPM stock in August of 1973 with reinvested dividends would deliver a $1,150,000 value today. And as far as I can tell, about a third of that value creation was driven by our annually growing dividend. It's a track record that we're very proud of. It speaks to the stability of RPM strategy and businesses, and we're excited about the outcome of our MAP 2025 initiative, where we are focused on significantly improving our cash conversion cycle and on reigniting organic growth in most of our businesses. Thank you for your participation in our investor call today, and we hope to hear from you and to have you join us for our Annual Meeting of Shareholders tomorrow. Thank you, and have a great day.

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.