Earnings Call Transcript
RPM INTERNATIONAL INC/DE/ (RPM)
Earnings Call Transcript - RPM Q1 2023
Operator, Operator
2023 First Quarter. My name is Waseem, and I will be your operator for today's call. After the presentation, we will have a question-and-answer session. Please note that our financial analyst will be allowed to ask questions. At this time, I would like to hand the call over to Matt Schlarb, Senior Director of Investor Relations at RPM. Please proceed, sir.
Matt Schlarb, Senior Director, Investor Relations
Thank you, Waseem, and welcome to RPM International's conference call for the fiscal 2023 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 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 visit 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 2022 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. At this time, I would like to turn the call over to Frank.
Frank Sullivan, Chairman and CEO
Thanks, Matt. Good morning. I'll share a broad commentary on our consolidated performance for the quarter, and then Mike Laroche will provide details on our financial results, after which Rusty Gordon will conclude our prepared remarks with our outlook. After our prepared remarks, we'll be pleased to take your questions. Before I begin discussing our results, I'd first like to send our best wishes and thoughts to all those impacted by Hurricane Ian, including many of our own associates. We're all grateful for the first responders and safety professionals who are playing a critical role in keeping people safe and rescuing those in danger. As people in the affected area work to rebuild their homes and property, our Legend Brands Disaster Restoration business and our Tremco Waterproofing business are responding to help return their lives to some sense of normalcy. For example, in our Tremco Weatherproofing Technologies, Inc. business, associates drove 8 hours to obtain additional supplies in preparation for the storm and used, in one instance, a chainsaw to clear downed trees to reach a commercial customer in need. These include hospitals and schools. Additionally, one of our supervisors in Central Florida, Steve Reeves, came in late Friday evening, the night before his son's wedding, to ensure that our crews would be able to patch a customer’s roof Saturday morning. These examples demonstrate the commitment we take in serving our customers, and we will do our part to help the affected regions recover as quickly as possible. Now turning to our results. If you look at Slide 3 in our PowerPoint presentation, the first quarter was a positive one for RPM despite several market and macroeconomic challenges. Revenues grew by double digits in all of our segments to reach a record for the first quarter, and our adjusted EBIT margins recovered, resulting in an all-time record high adjusted EBIT for RPM. While supply conditions remain tight, material availability did improve throughout the quarter. This is primarily a result of measures our teams have taken, including using our Corsicana, Texas plant for self-sourced raw materials. Our R&D and procurement personnel have fought throughout the supply chain challenges by identifying new sources of raw materials and qualifying them to ensure our customers receive the quality products they expect from us. This collaboration, which is occurring across RPM's businesses, has allowed us to better meet customer demand, add resiliency to our supply chain, and realize additional savings from our MAP 2025, Margin Achievement Plan. During the first quarter, we generated $30 million of incremental MAP savings, which were a key driver in achieving record adjusted EBIT. The positive momentum in sales growth we achieved in fiscal year '22 continued during the first quarter of fiscal 2023, and I'm exceedingly proud of our associates' ability to overcome macroeconomic headwinds and supply chain challenges and convert this sales growth into expanded margins and improving profitability. Turning to Slide 4. You'll see all four segments generated double-digit sales growth resulting in record first quarter revenue. Consolidated unit volume increased approximately 5%, while pricing on a consolidated basis increased on average 15%, as we work to catch up with continuing cost inflation that increased year-over-year 28% in the first quarter. Driven by operational efficiencies, including the $30 million of MAP 2025 savings, pricing initiatives in three of our four segments achieved strong adjusted EBIT growth, with our Performance Coatings Group and Specialty Products Group achieving record results, and consolidated EBIT margins expanded by approximately 170 basis points. Looking at sales by geography on Slide 5, growth was led by North America, our largest market, which generated 80% of our first quarter revenue. Demand in North America was strong, and we generated good sales growth across all of our segments. Emerging markets also performed well during the first quarter with double-digit revenue growth in Latin America, Asia-Pacific, and Africa and the Middle East. Europe, which comprised 13% of overall sales in the first quarter, was the outlier with revenue down 8.5%, which drove operating earnings down in the region 35% quarter-over-quarter. These declines resulted from the challenging macroeconomic conditions in Europe exacerbated by rapid inflation. Our Construction Products Group and Performance Coatings Group, which have a relatively sizable presence in Europe, felt the impact of these challenging market conditions most acutely. I'll now turn the call over to Michael Laroche to discuss our consolidated segment financial results in more detail.
Michael Laroche, Vice President, Controller and Chief Accounting Officer
Thanks, Frank. We generated record first quarter consolidated net sales of $1.93 billion, an increase of 17.1% compared to the $1.65 billion reported in the prior fiscal year period. Organic sales growth was 19.5% or $321.9 million. Acquisitions contributed 1% to sales, or $16 million, while foreign exchange was a headwind that decreased sales by 3.4% or $56 million. Adjusted diluted earnings per share were a record $1.47 and represent an increase of 36.1% compared to the $1.08 reported in the year-ago quarter. Our consolidated adjusted EBIT increased 33.1% to an all-time record $275.3 million compared to $206.8 million reported in the prior year period. Our Construction Products Group generated first quarter record net sales of $729.7 million, an increase of 13.2% compared to the fiscal 2022 first quarter. Organic sales growth was 15.8%, with acquisitions contributing 1.9% and foreign currency translation headwinds reducing sales by 4.5%. Roofing systems generated strong growth and benefited from increased public sector spending, its turnkey service model, and a focus on renovations. Admixture and repair products for concrete also grew strongly during the quarter as the business gained share. Geographically, Asia-Pacific markets performed well, while sales and earnings declined significantly in Europe and Canada, where CPG is more concentrated compared to RPM overall. Europe experienced severe inflation and macroeconomic challenges, while Canada was negatively impacted by strikes and concrete shortages that impeded the completion of construction projects and led to inefficiencies. These market challenges in Europe and Canada were key drivers of adjusted EBIT decline, which was down 5.1% to $111.2 million compared to $117.2 million in the prior year period. Additionally, the Corsicana plant rolls up through CPG and resulted in a negative financial impact during the first quarter as the facility increased production toward full capacity. FX and mix also negatively impacted EBIT. Partially offsetting these headwinds was pricing in response to continued cost inflation, which was a positive contributor to adjusted EBIT. Performance Coatings Group's fiscal 2023 first quarter net sales were a record $340.4 million, an increase of 19.2% over the prior year period. Organic sales increased 23.6%. Acquisitions did not impact sales, and foreign currency translation was a 4.4% headwind. Flooring Systems, Protective Coatings, and FRP grading all generated double-digit growth. These businesses are well positioned to benefit from the trend of reshoring manufacturing to the U.S. Additionally, energy markets continue to generate strong growth as did emerging markets. Pricing management also contributed to the strong growth. Adjusted EBIT increased 27.6% to a record $47.9 million in the first quarter of fiscal 2023. The growth was driven by positive volumes, selling price increases, and sales management, which generated favorable mix. Partially offsetting these positive factors was foreign exchange, which was a headwind to adjusted EBIT. Specialty Products Group reported record net sales of $202.7 million for the first quarter of fiscal 2023, an increase of 11.3% compared to the period a year ago. Organic sales increased 12.8%, acquisitions added 0.6%, and foreign currency translation was a headwind of 2.1%. Record first quarter sales were driven by strength in the food coatings and additives business, whose new management team positioned this operating unit to benefit from increased institutional demand as pandemic restrictions were lifted. The Disaster Restoration Equipment business also grew its top line as we worked through backlogs caused by previous semiconductor chip shortages. Selling price increases in response to continued cost inflation also contributed to revenue growth. SPG's adjusted EBIT of $29.6 million was a first quarter record and an increase of 18.9% compared to adjusted EBIT of $24.9 million in the prior year period. The increase was driven by improved sales and pricing, as well as fixed cost leverage resulting from higher production volume in the Disaster Restoration Equipment business. The Consumer Group achieved record first quarter net sales of $659.5 million in fiscal 2023, an increase of 22.5% compared to the first quarter of fiscal 2022. Organic sales increased 24.1%, acquisitions added 0.4%, and foreign currency translation was a headwind of 2%. The Consumer Group's revenue growth was driven by improved supply of key alkyd resins produced by the Corsicana manufacturing facility, which we acquired last September, as well as from new suppliers whom our teams worked hard to qualify. This increase in supply allowed us to better meet customer demand. Price increases in response to continued inflation also contributed to the strong revenue growth. Consumer Group's adjusted EBIT in the fiscal 2023 first quarter was $117.1 million, an increase of nearly 15% compared to adjusted EBIT of $46.9 million reported for the prior year period when sales and profitability suffered from severe supply shortages resulting from a plant explosion at an alkyd resins supplier. The growth was driven by MAP operational efficiencies that were realized as a result of the improved material supply. Pricing increases in response to continued cost inflation also contributed to adjusted EBIT margins approaching long term averages. Now I'd like to provide an update on capital allocation and structure. During the first quarter of fiscal 2023, we repurchased $25 million of shares and paid dividends of $51.4 million. These actions demonstrate our long-held commitment to enhance shareholder value by returning capital. Turning to our capital structure, we took actions to enhance our balance sheet strength and flexibility. First, we increased the size of our revolving credit facility by $50 million to $1.35 billion and extended its term to August 1, 2027. This credit facility provides us the flexibility to implement strategic initiatives, including MAP 2025 and M&A. Additionally, we prepaid $50 million of our term loan and extended its maturity to August 2025 from February 2023. The outstanding principal on this term loan is now $250 million. As a result, we only have modest repayment requirements through 2026. With that, I'll turn the call over to Rusty to discuss our outlook.
Rusty Gordon, Vice President and Chief Financial Officer
Thank you, Mike. As we look forward to the second quarter of fiscal 2023, several of the challenges we faced in the first quarter are expected to continue and possibly intensify. Supply chains are improving both from our initiatives and market conditions, but remain tight, and any disruptions can delay the realization of benefits from the execution of our growth initiatives. A strong U.S. dollar is expected to continue to be a headwind to both sales and adjusted EBIT growth, particularly in our CPG and PCG businesses, which have a larger percentage of their sales outside the U.S. From a macroeconomic perspective, Europe is expected to be challenged by high inflation and impacts from the war in Ukraine. In the U.S., persistently high inflation and rising interest rates have increased economic uncertainty and the possibility of an economic downturn. Even with this uncertainty, we are confident that the strategic actions we have taken position us to succeed in the second quarter and beyond. These include: number one, actions to further improve material supply; number two, implementing MAP 2025 initiatives; number three, positioning our businesses to benefit from the reshoring of manufacturing to the U.S. and continued infrastructure and stimulus spending; and number four, diversifying our portfolio of businesses, which have limited exposure to China and autos, while focusing on sustainability, including maintenance, restoration, and energy efficiency. As a result, we anticipate that second quarter sales growth on a consolidated basis will increase 9% to 12%, led by consumer, which is expected to continue to benefit from better material supply and pricing increases in response to continued inflation. Fiscal 2023 second quarter consolidated adjusted EBIT is expected to increase by 30% to 40% as we benefit from MAP 2025 savings and favorable comparisons to the second quarter of fiscal 2022 when we were challenged by severe supply chain disruptions. This concludes our prepared comments. We will now be pleased to take your questions.
Matt Schlarb, Senior Director, Investor Relations
Waseem, can you please open the line for questions?
Operator, Operator
We will now take our first question from John McNulty with BMO Capital Markets.
Frank Sullivan, Chairman and CEO
Good morning, John.
John McNulty, Analyst
Good morning, Frank, and congratulations on the really solid results. So I wanted to understand the consumer business maybe a little bit better because it was definitely stronger than we thought. I guess there were kind of two parts: the top line and the margin side. On the top line, I guess, how reflective is that of kind of the current demand environment? And is there like a catch up because I know alkyds kind of held you back from stocking the shelves in the past? Like, was there a little bit of a catch up, or are you actually seeing that kind of point of sale demand right now? And then on the margin front, again, the margins definitely came back faster than we thought, and it seems like you've got an even better handle on the alkyds situation or it came back faster than we expected. I guess, is that a fair characterization of the quarter, or were there some one-time things that maybe benefited you, and maybe we shouldn't be thinking about this as a good kind of normal run rate going forward? I guess, how would you characterize that?
Frank Sullivan, Chairman and CEO
Sure. So, John, let me start with some big picture comments that will then get specific to your questions on consumer. So I commented on our organic growth and the split, which is roughly 5% unit volume on a consolidated basis and 15% price. Either we or any of our competitors provide specific price detail or at a segment level. But with that guidance, we had higher than average price increases in consumer; that's consistent with the historic patterns of getting prices typically at a six-month to nine-month lag to what we get in other parts of RPM. So you could see that in our results a year ago where we were really challenged in operating at historic low margin levels and low profitability; that was part of it. So a lag in pricing relative to raw material cost increases, which we're now catching up on. The second issue is clearly material. We moved aggressively to be able to source our own alkyd resins with the purchase of the Corsicana plant in Texas last September, and that has helped us significantly, we believe, to catch up on demand that the industry wasn't able to meet due to this alkyd resins shortfall. Lastly, MAP 2025 is something that we have been working on for a year. Rusty and I had hoped to introduce it and provide more detail before now. As you know, we have an Investor Day that will be webcast on Friday that will provide more details on MAP 2025. We were waiting for a more stable period of time, and it started to feel like waiting for a stable period, as there has not been a more stable period of time in the last two years, and I don't think it's very stable today. I say all that because we have been designing and beginning to implement MAP 2025 over the last, let's call it, six months plus. Better than half of that work initially has been at our Consumer Group. And so if you look at the adjustments of consulting fees and other fees, we had a lot to do with operating efficiencies and SIOP efficiencies, particularly in consumer, so there's been a lot of work on that in the last year. Those three things, I think, combined to generate the strong recovery in consumer. The last comment I will make, and then I'll stop and answer additional questions, is that despite the strong quarter, only at our Performance Coatings Group are we operating at record EBIT margins. We are not back to record EBIT margins at Construction Products, Specialty Products, or Consumer. So we still have some more work to do both in terms of executing on MAP 2025 and addressing cost price mix issues that have been driven by the inflationary environment that we're in.
John McNulty, Analyst
Got it. No, that's really helpful. As a follow-up on the Construction segment, the margin in that area was down about 300 basis points in the first quarter compared to the previous year and even the year before that. You pointed out a few factors that might have influenced this. I'd like to understand it better. You mentioned a strike, concrete shortages, and the Corsicana plant, which isn't fully operational yet. Could you explain how we should interpret the decrease in margins for that business and how we might view it going forward as some of these issues potentially improve?
Frank Sullivan, Chairman and CEO
Sure. So the Corsicana plant is owned and operated by our Construction Products Group. The primary beneficiary of owning that facility so far has been our Consumer Group and in particular Rust-Oleum relative to introducing acrylic resin production there. It carries a cost of about $3 million negative per quarter. And so we're working to fill up that capacity, and we have every belief that we will do so successfully, both with some external production as well as more internal production across different chemical products. But right now that cost is borne on the EBIT and P&L of our Construction Products Group. Europe is something we talked about when we talk to investors in July and our concerns have been borne out. Europe's in a recession. Our biggest exposure in Europe is in our Construction Products Group, whether in the UK and/or on the continent. Energy costs and inflation are happening a little later and have been a little bit bigger than what we're seeing now in North America. Our ability to get a price there in the Construction Products Group because of Europe, I talked about the average price on a consolidated basis of 50%, and the Construction Products Group was actually somewhat less than the average across RPM. The Canadian situation surprised us, but I think it's circumstantial. This is a quarter that happened over the summer months. And as you'll recall, there were some significant trucking strikes. There also has not been new cement capacity in North America, particularly in Canada, for probably 20 years. And so there has been a cement and related concrete shortage that's particularly been a problem in Canada, although it is somewhat of an issue in the U.S. And that negatively impacted both the revenue base and the profit margin profile of Nudura in particular because concrete has been shorted to residential and light commercial versus infrastructure or more heavy industry.
John McNulty, Analyst
Got it. Thanks very much for the color, Frank.
Frank Sullivan, Chairman and CEO
Thanks, John.
Operator, Operator
All right. Great. Now we will move on to the next question, John Roberts from Credit Suisse. You can go ahead with your question.
Frank Sullivan, Chairman and CEO
Good morning, John.
John Roberts, Analyst
Thanks. Congratulations. Good morning. Congratulations on the quarter, and I look forward to Friday. Where are alkyd resins prices versus last quarter and a year ago now? And would you say alkyds are now in line with the other resins and will basically just follow oil prices with a lag?
Frank Sullivan, Chairman and CEO
I’ll let Rusty answer the specifics there. I can tell you that in the quarter, inflation increased year-over-year by 28% and sequentially from Q4 by about 2.5%. Rusty will provide more details.
Rusty Gordon, Vice President and Chief Financial Officer
Yeah. Alkyd resins, John, were up more than double that, over 60% increase. What was the second part of your question, John?
John Roberts, Analyst
It's just where they are relative to other resins, and will they basically just lag oil prices from here forward?
Rusty Gordon, Vice President and Chief Financial Officer
Yeah. And in terms of alkyd resins, those have been affected by a variety of raw materials besides oil; they do incorporate certain components of plant-based oils that we had difficulty getting out of Russia and Ukraine. So there's a number of things besides oil that will impact that. As you probably remember, we had a major supplier outage over a year ago in North America, so supply has been tight. We have ramped up in sourcing at our Corsicana facility, but that does not take care of most of our requirements. It's a small percentage. So we still rely on the alkyd resins market, and it's way up in inflation.
John Roberts, Analyst
And could you talk about your exposure to rising interest rates that offset part of the upside at EBIT?
Frank Sullivan, Chairman and CEO
Sure. In general, I think Rusty and his team have done a pretty good job there. About 60% of our debt capital structure is fixed, with an average duration of almost 13 years and an average interest cost of 4.1%. And so the latest piece of that was a 10-year bond that was done in January of this year at 2.95%. So we've got some really solid interest rate protection there. The remaining 40% is floating rate and still at rates below our fixed rates. And part of our capital allocation strategy in the 2.5-year period of MAP 2025 is to reduce some of those debt levels.
John Roberts, Analyst
Great. Thank you.
Operator, Operator
All right. Our next question comes from Mike Harrison from Seaport Research Partners.
Frank Sullivan, Chairman and CEO
Good morning, Mike.
Mike Harrison, Analyst
Hi. Good morning. Congratulations on the nice quarter and impressive guidance. I was wondering, if Frank you're willing to talk at all about the second half of fiscal '23 because you're doing something like 35% year-on-year EBIT growth for the first half based on your guidance and what you've just delivered. The comps do get a little bit more challenging in the second half, but I think we'd all appreciate maybe some initial thoughts on what EBIT growth could look like in the second half, kind of based on what you know at this point, which I'm conscious that there's a lot of uncertainty out there?
Frank Sullivan, Chairman and CEO
We provided guidance for Q2, and we feel confident about it, although we acknowledge the ongoing volatility. When we spoke with investors in July regarding Q1, we did not foresee the challenges faced by our Construction Products Group in Canada. We believe those issues are behind us now. The guidance for Q2 remains intact. Considering the seasonal trends of Q3 and the advantages from our MAP 2025 program, we anticipate a strong performance in Q3. Beyond that, it's uncertain. We're aware that the prices of fundamental primary chemicals have significantly decreased, but this hasn't yet reflected in the paint coatings industry's chemical purchases. In Q1, we experienced 28% inflation year-over-year. The situation in Europe concerning the Russian war in Ukraine might affect energy costs and economic activity, especially in winter, but it's difficult to predict outcomes at this moment. Therefore, it's hard for us to provide further insights.
Mike Harrison, Analyst
All right. That's fair enough. And then I was wondering if you could comment on your fill rates within the Consumer business and maybe any shelf space wins and losses as you're kind of exiting this heavier season and starting to look at the next head season?
Frank Sullivan, Chairman and CEO
Sure. Depending on the product line within our Consumer Group, mainly in North America, our fill rates range from the mid-70s to mid-90s. While this doesn't meet the 98% or 99% expectations of our customers or our historical performance, it's significantly improved from the 50% to 60% rates we experienced in fiscal '22 and part of fiscal '21 due to supply chain shortages. We have seen a significant recovery, which is evident in our Consumer Group results, but there is still more work to be done. We are engaging outside consultants to help address inefficiencies in manufacturing and operations, especially in our Consumer businesses, caused by the COVID boom and supply chain challenges. It's important to note that we faced considerable disruptions in our Pleasant Prairie plant and our Kenosha distribution center due to Omicron in the third quarter of the last fiscal year and January of this year. These are our two largest facilities across RPM, particularly in Consumer. Fill rates have improved significantly, but there is still progress to be made, and we are actively addressing this issue.
Mike Harrison, Analyst
All right. Thanks very much.
Frank Sullivan, Chairman and CEO
Thanks, Mike.
Operator, Operator
We have Vincent Andrews from Morgan Stanley for our next question.
Frank Sullivan, Chairman and CEO
Good morning.
Vincent Andrews, Analyst
Thank you. Congratulations on the results. I have a quick follow-up on that last question. Just as you know, I know it's category-capped, and you have good access to what's going on in terms of retail takeaway. So understanding what you said about the fill rates. But are you making any progress in terms of those store shelves, or is the product still going out the door faster than you can get it on the shelf?
Frank Sullivan, Chairman and CEO
I believe we're seeing positive progress on store shelves. However, across the industry, there have been declines in consumer takeaway in the low to mid-single digits compared to previous years, indicating some weakness in certain DIY categories. In contrast, the professional segment is performing better, particularly in primers, DAP, coatings, and sealants, where we're witnessing low to mid-single digit unit volume growth. The professional area seems to be holding up well. Nonetheless, DIY takeaway has been lower than last year lately, and it's been quite volatile. Consumer takeaway can fluctuate significantly from one week to the next, showing increases one week and decreases the following week. So there is considerable volatility in the DIY market, but the pro contractor segment is experiencing solid unit volume growth.
Vincent Andrews, Analyst
And just as a follow-up, you talked about the new management team. What in particular are they doing in the food coatings or additive space to sort of shake things up for you guys?
Frank Sullivan, Chairman and CEO
Sure. Our Mantrose-Haeuser Group, which is part of the Specialty Products Group, is originally the business that created NatureSeal, which was a patented product that eliminated browning in sliced apples. It really revolutionized the apple market, and we wrote a great profitability on that for a long time until it went off patent. That was a challenge. We also acquired Holton Foods and a couple of other businesses that I don't recall off the top of my head, two or three other businesses that were relatively small, a business called PFI. They were high margin food coating and/or specialty sustainable food additive businesses. We had the leader retire of the Mantrose-Haeuser business three years ago. The head of PFI, who actually was an owner who we bought the business from, ran that business for a couple of years. We have worked together with him to hire a really talented industry expert, who is pulling those businesses together on a more integrated basis in terms of our approach to the market, and it's working. They're doing a really nice job there. There are some exciting product areas. There's a product called VerdeCoat. It's in testing. It is a coating for cardboard that would eliminate the need for plastic clamshells. So they have a lot of exciting things going on in that business. We've got a really talented industry expert that is now leading it and pulling together what were formerly good, but independently operating businesses that were relatively small.
Vincent Andrews, Analyst
Okay. Makes a lot of sense. Thanks for all the detail.
Frank Sullivan, Chairman and CEO
Thank you.
Operator, Operator
We have Steve Byrne from Bank of America.
Frank Sullivan, Chairman and CEO
Good morning, Steve.
Steve Byrne, Analyst
You mentioned some consulting fees and so forth. So what was the net earnings benefit of that? And perhaps more importantly, is that a sustainable earnings contribution in subsequent quarters, or is this more of a one-timer? I'm sure you'll get into more detail on Friday, but can you highlight anything in particular that you implemented to achieve that $30 million in cost savings?
Frank Sullivan, Chairman and CEO
We will provide more details on Friday, along with some informative slides. I want to hold off on discussing too much right now, but that information will be accessible to everyone present and those online. Attendees will also receive a tour of our Tremco Sealant business and see their test lab, which I encourage everyone to attend. You’ll gain valuable insights into some unique initiatives within our Construction Products Group. To address your question, we've engaged outside consultants to enhance big data management, particularly regarding cost price mix. We've collaborated with our consumer group to improve the efficiency of our manufacturing facilities, and we’re seeing good developments in that area. This is especially true at Rust-Oleum, where we are aligning facilities for large volume production alongside specialty runs. We are concentrating on many areas that we believe will provide ongoing benefits rather than one-time gains. A key component of the original MAP to Growth program was MS 168, focused on lean manufacturing practices. These initiatives didn't cease after the formal conclusion of the 2020 MAP to Growth program on May 31, 2021. They're still ongoing, resulting in incremental improvements in plant efficiency. Lastly, we've been in the process of developing and starting to implement MAP 2025 over the past year, waiting for more stability before announcing our three-year goals. We realized that waiting indefinitely wasn't practical, so we look forward to sharing more on the MAP 2025 program this Friday.
Steve Byrne, Analyst
And Frank, any comment on what the EBIT contribution was from that? It sounds like whatever the cost associated with it has already been spent. So perhaps the margin benefit could expand from here?
Frank Sullivan, Chairman and CEO
So it was $30 million in Q1. And again, some of that is a result of the MAP 2025 initiatives. Some of that is a continuation of the original MAP program initiatives. I think we'll provide more detail and more guidance on what we expect in the coming years, and in some cases for this year by quarter, on Friday.
Steve Byrne, Analyst
And Frank, if I can squeeze one more in here. You mentioned Corsicana is owned by Tremco. It sounds like fixed costs associated with that plant are not necessarily allocated to the other segments based on production. Is that right? And does that not reduce the incentives for cross-segment collaboration?
Frank Sullivan, Chairman and CEO
No, we have a formulaic cost-plus approach to intercompany manufacturing and coordination, and that's what's being applied here. But one of the great benefits of our MAP to Growth program was the reorganization into four segments and four groups, and being center-led in manufacturing in this lean manufacturing disciplined approach to centralized procurement. The data that was required to allow that to happen has improved substantially. The collaboration and cooperation across RPM are far better today than it ever was. So your question, I think, sharply reflects following RPM for a long time and the fact that 10 years ago that might have been a problem. It's not a problem today.
Steve Byrne, Analyst
Thank you.
Frank Sullivan, Chairman and CEO
Thank you.
Arun Viswanathan, Analyst
Okay. I'm sorry, I was supposed to be asking a question on…
Frank Sullivan, Chairman and CEO
Sorry, go ahead, Arun.
Arun Viswanathan, Analyst
Can you guys hear me now?
Operator, Operator
Yeah.
Frank Sullivan, Chairman and CEO
Yes, we can. We're having some technical difficulties.
Arun Viswanathan, Analyst
Okay. I'm sorry, I was just wondering if you could help us understand, again, consumer was well above our estimates. So looking at that segment, if you could maybe split the upside that you saw between the improvement in alkyd resins availability, price cost, and demand? How would you kind of characterize how the segment performed and your outlook, I guess, in those three buckets? Thanks.
Frank Sullivan, Chairman and CEO
Sure. Pretty much the comments we've made earlier. A disproportionate share of our early MAP 2025 initiatives have been focused on Consumer, particularly in manufacturing efficiencies. You'll recall a year ago that we talked about our gross margins were down in fiscal '22 in certain quarters by as much as 1000 basis points; pretty dramatic. We had talked about how hundreds of basis points of that was just poor throughput because of the material shortages, because of some of the labor issues we faced. So a combination of access to alkyd resins, and we think we have developed with Corsicana maybe some better access to alkyd resins than some competitors, and a more normal throughput in our plants helped overhead cost absorption as well. And then certainly, cost price mix. We got higher price increases over the summer in consumer than we got over the summer in our other businesses, because we were late. If you go back last year on a quarter-by-quarter basis, you saw really solid performance as we were gaining price in our industrial segments. It took us that typical six-month to nine-month lag to be able to start to catch up on the cost price mix in consumer. You saw that, obviously, in the first quarter. Those are the primary drivers of our Consumer business. We did have positive unit growth, which in this environment is not true in all consumer categories. Some of it is the nature of our businesses relative to small project redecorating, patch and repair, and maintenance. I think some of it is catching up on some of the supply shortages and fill rate issues that we've been improving upon since last year.
Arun Viswanathan, Analyst
Thank you. I have a quick follow-up question. You've guided towards an adjusted EBIT margin of about 16% in fiscal '25, while over the past five years you've been around 11% to 12% annually. That's a significant uplift of 400 to 500 basis points. Do you think this improvement will be evenly distributed across the segments, or which segments do you believe have the most potential? Additionally, will this increase happen gradually over the period, or will it be more concentrated in the latter half? What are your thoughts on this? Thank you.
Frank Sullivan, Chairman and CEO
Sure. I can answer that from a big picture perspective. We'll provide segment results when we release those and talk about them in January. From a big picture perspective, we made really good progress in our 2020 MAP to Growth program. We were a little bit behind the curve in terms of our goals, and then we got walloped by COVID and the supply chain challenges, and took a big step backwards that you saw in our results, particularly in consumer. As volumes coming through our businesses and as we're catching up on cost price mix across all of our businesses, you are seeing us regain some of the MAP 2020 margin improvement that we obtained and is real, but was impacted by supply chain challenges. The MAP 2025 program has been in the works for a year and been in execution, particularly with a focus on consumer starting in January, so we're getting the benefit of that, and that will continue throughout fiscal '23. We expect positive sales and EBIT results in each of our four segments in the second quarter, but the volatility is such that beyond that, I wouldn't say much further about our expectations other than what we'll realize and then report in more detail in January.
Arun Viswanathan, Analyst
Okay. Thanks.
Operator, Operator
Our next question comes from Josh Spector, UBS.
Frank Sullivan, Chairman and CEO
Good morning.
Josh Spector, Analyst
Yeah. Hey, good morning. Can you guys hear me?
Frank Sullivan, Chairman and CEO
Yes.
Rusty Gordon, Vice President and Chief Financial Officer
Yeah.
Josh Spector, Analyst
Okay, great. Just checking. So I just wanted to follow up on Europe specifically within construction and performance. The drivers there are pretty different in terms of the customer buying patterns. I tend to think about performance, at least, a little bit more linked to kind of industrial capex maintenance spending. So I don't know if you can comment if you've seen that part of your market pull back equally to what you've seen on the construction side or if they've been more similar. And then kind of related to that, I mean, most companies are talking about September being much worse compared to August in the prior couple of months. Are you seeing that as well? And can you dimensionalize that versus the 8.5% decline you reported this quarter? Thanks.
Frank Sullivan, Chairman and CEO
Sure. So first of all, Europe was a challenge for all of our segments in the quarter. We have a sizable presence there in Consumer, Performance Coatings, and Construction Products. The biggest piece is Construction Products. Your observation is spot on. There are different dynamics. So the Construction Products Group underperformed our expectations for the reasons we mentioned. Europe was a big piece of that. On a relative basis, our Performance Coatings Group while we struggled in Europe there, it was not nearly to the extent as our Construction Products Group because of their end markets. Oil and gas, more industrial capital spending. I will tell you, we expect in Q2, and it is within our guidance, continued negative performance in the top line and bottom line in the European marketplace. I don't know that it's going to be any different than what we experienced in Q1, but we are a little bit anxious about the winter months and what it's going to look like when we get into the winter and then into the spring relative to the trajectory of the economy and its impact in Europe.
Josh Spector, Analyst
Okay. Maybe I could just try one other way just on the volume side, I guess, within Europe. If you were down 8% to 9% for the quarter, was August down meaningfully more? So I guess, were volumes down in the mid-teens plus or was it more ratable for you?
Frank Sullivan, Chairman and CEO
I don't think we want to discuss a specific month, especially in our second quarter. However, in Q2, we can anticipate a similarly disappointing performance as we experienced in Q1. This is due to weak economic activity, with a significant influence from the strong dollar and foreign exchange rates. Therefore, we're likely looking at a decline of 8% to 10% in revenue, with operating earnings also expected to be down about 30%. While we don't typically run or disclose EBIT by geography, it's important to highlight Europe as a significant factor impacting all our businesses, especially the Construction Products Group, where we are facing ongoing challenges that will persist.
Josh Spector, Analyst
Okay. Appreciate it. Thanks, Frank.
Frank Sullivan, Chairman and CEO
Thank you.
Operator, Operator
Our next question comes from Jeff Zekauskas from JPMorgan.
Frank Sullivan, Chairman and CEO
Good morning, Jeff.
Jeff Zekauskas, Analyst
Good morning. I think you said in the course of the call that your raw materials are up 28%.
Frank Sullivan, Chairman and CEO
In Q1, our raw materials were up 28% year-over-year, and they were up about 2.6% from quarter-to-quarter from Q4 to Q1. They are increasing at a lower rate certainly than what we saw in Q4 and Q3, but they're still up year-over-year.
Jeff Zekauskas, Analyst
Yeah. So I was puzzled by that because your cost of goods sold is up 14.5%. And even if you take your MAP to Growth savings of $30 million and you add that back, then cost of goods sold is up 18%. So how can raw materials be up 28% if cost of goods sold is only up 14%?
Frank Sullivan, Chairman and CEO
I need to calculate and get back to you. Our cost of goods sold includes the chemical costs and freight, along with other factors. I can't provide a specific answer right now, but I can tell you that our primary raw material chemicals have increased by 28%.
Jeff Zekauskas, Analyst
Okay. In the year-over-year quarter, your SG&A increased by about $57 million. How would you allocate that among the different segments? Was there any SG&A growth in the consumer business, or was it relatively flat? Did volumes grow year-over-year in the consumer segment?
Frank Sullivan, Chairman and CEO
So volumes grew in every segment except for our Specialty Products Group year-over-year. The SG&A was relatively equal across all of our businesses. We don't disclose that level of detail, but they were consistent with a year ago. I think the thing that's benefited us during the MAP to Growth program, and quite honestly, through COVID, is there was a level of COVID-driven reductions in SG&A around travel and entertainment and other things. Through the benefits of MAP to Growth and also understanding certain COVID-impacted expenses, what was essential and continuing. For instance, we are again doing major sales meetings across most of our major businesses. Those were expenses we did not incur for the two years of '20 and '21 during COVID but we are recurring those. The level of T&E is at a lower level than it was pre-COVID. Those are the comments I would have, but there's really nothing extraordinary in SG&A. We are building some SG&A talent, if you will, in our Specialty Products Group. We are also building some SG&A in our Carboline business in both cases to address either opportunities for growth or specifically with Carboline to be more deliberate about expanding their base of business outside of their traditional oil and gas markets, which is really where they excel and part of what's driving our Performance Coatings Group today. We have growth initiatives that's driving SG&A, but nothing out of the ordinary.
Jeff Zekauskas, Analyst
And then lastly, interest rates are going up in the United States. Is that making a difference to your demand profile in construction products? Does it seem that your order level has changed at all or, as far as you're concerned, interest rates really aren't making much of a difference at all?
Frank Sullivan, Chairman and CEO
Yeah. It's a great question. We have some exposure to the housing market now with Nudura. Our housing market exposure is a couple of hundred million dollars, and we didn't have much of it before in total. That's certainly somewhat interest rate sensitive. But we had solid organic growth in our Construction Products Group in the United States. It's an interesting dynamic, Jeff, relative to the types of things that normally you would have looked at historically in recessionary periods that would be driving activity. The cities, counties, and states are sitting on hundreds of billions of dollars that have to be purposed from various stimulus. The institutional work we're doing with schools or hospitals and the infrastructure work is still pretty solid. If the dynamics around all the stimulus is true, that should remain true in the United States for another 1.5 years or two years. You can't even see the benefits yet of the $1 trillion plus infrastructure bill that was passed. So there's just some funny dynamics in this economy that don't fit with the normal type of indicators that you would have looked at in the past.
Jeff Zekauskas, Analyst
Okay. Great. Thank you so much.
Frank Sullivan, Chairman and CEO
Thank you.
Ghansham Panjabi, Analyst
Yeah. Good morning. Can you hear me?
Frank Sullivan, Chairman and CEO
Yes. Thank you.
Ghansham Panjabi, Analyst
Good morning, Frank. Following up on the last question, consumers in the U.S. and Europe are clearly facing significant inflation. Some categories, even among consumer staples, are beginning to show signs of disrupted demand as elasticity develops. How do you expect this dynamic to evolve for your consumer segment in the coming quarters? I understand that raw material availability has improved, but what about the impact of demand destruction?
Frank Sullivan, Chairman and CEO
Sure. In general, we are witnessing a decline in demand in Europe, which is reflected in our results, and we anticipate this trend to persist. There is concern that it may worsen during the winter due to energy challenges related to the Russian war in Ukraine. In the U.S., consumer takeaway has been unpredictable; it can increase by 3% or 5% one week, then drop by 5% or 10% the next. This unpredictability in consumer spending is notable. However, we believe we are performing better than other DIY categories due to our products' focus on small DIY projects like paint, patch repair, and maintenance. Additionally, we are seeing improvements following the port fill rate issues we encountered in the latter half of fiscal 2021 and much of fiscal 2022. We are experiencing overall inventory adjustments across major accounts, with various dynamics at play. While fill rates are improving, the volatility in consumer takeaway creates an interesting situation. This is why we remain confident in our forecast for Q2, but we still prefer to forecast on a quarter-by-quarter basis, as longer-term projections are highly uncertain.
Ghansham Panjabi, Analyst
Yeah. We're struggling with that as well. For the second question, on your comment, I think you said that raw materials were up roughly 3% or just under 3% sequentially. How do you sort of see that evolving Q2 onwards? And I'm asking because it seems like there could be some decorrelation between Europe since they're dealing with the energy prices of significance versus the U.S. If that is true, can you confirm that? And then second, are you fully caught up on price costs in each of your operating segments at this point?
Frank Sullivan, Chairman and CEO
So I'll answer the last part. The answer is no. We were fully caught up in a number of our industrial businesses. In a few instances, we're behind the curve because of continuing inflation in Q1. We're getting there in Consumer, and again, that's more related to the lag that people are aware of that has been true for us forever. That, I think, is an issue. We did have $30 million of benefit from the MAP 2025 program in Q1, and we will provide more detail on our expectations when we talk at our Investor Day on Friday, including over the MAP 2025 program, and some anticipation of improving in the commodity cycle which should benefit our margins.
Ghansham Panjabi, Analyst
Got it. Thanks so much.
Frank Sullivan, Chairman and CEO
Thank you.
Kevin McCarthy, Analyst
Good morning. Can you hear me okay?
Frank Sullivan, Chairman and CEO
Yes. Thank you.
Kevin McCarthy, Analyst
Excellent. I wanted to talk pricing a little bit, Frank. You referenced the raw material cost increase of 2.6% on a quarter-to-quarter basis. In that context, are you continuing to seek incremental pricing at this stage of the cycle? And if so, where are you most encouraged or least encouraged by prospects there? If I zoom out the lens, do you think that very impressive level of 15% that you realized in the first quarter can be sustained for a little while here, or do you think the comps just get too tough, and therefore the price contribution starts to come down?
Frank Sullivan, Chairman and CEO
Sure. I believe we will see strong contributions from pricing in the second quarter. The positive effects of pricing across RPM will continue, but they will begin to decline in the third and fourth quarters as we annualize the price increases implemented in fiscal '22. Unless we implement additional price increases in response to ongoing inflation, we will have largely annualized our price increases by the first quarter of next year. The impact will gradually lessen after the second quarter, but it will still be positive, assuming current conditions remain stable.
Kevin McCarthy, Analyst
Okay. That's very helpful. I wanted to ask about your Legend Brands business. I think you referenced Hurricane Ian and some of the heroic efforts that RPM folks have been engaged in in recent days. Can you put that event in context versus history? If I look back to Winter Storm Uri or Hurricane Harvey, how do these disasters tend to flow through the financials for that business?
Frank Sullivan, Chairman and CEO
Sure. First of all, fiscal '22 was particularly challenging in the second half of '21 for Legend Brands, primarily due to the chip shortage. There wasn't much hurricane activity or other significant challenges in calendar '21 or fiscal '22. An event like Hurricane Ian could potentially lead to more than $10 million in revenue spikes with decent margins over about a quarter to a quarter and a half. The response to such an event is definitely expected to be positive; it could be over $10 million and occur within a three or four-month timeframe, but it wouldn't be a long-term increase. Since acquiring the business, we have seen good growth. They are diversifying their channels and exploring new product introductions, which contribute to a steady increase for a business valued around $140 million. You can observe these $10 million to $15 million spikes during significant events over time.
Kevin McCarthy, Analyst
Got it. Thank you very much.
Frank Sullivan, Chairman and CEO
Thank you.
Operator, Operator
This concludes today's call. Thank you for your participation. You may disconnect.