• Second-quarter net sales increased 9.3% to a record $1.79 billion
• Second-quarter net income increased 5.2% to a record $131.3 million, income before income taxes was a record $175.1 million, diluted EPS was a record $1.02, and adjusted diluted EPS was a record $1.10
• Second-quarter EBIT increased 4.9% to a record $196.2 million and adjusted EBIT increased 36.4% to a record $214.7 million
• Fiscal 2023 third-quarter outlook calls for sales to increase in the low to mid-single-digit percentage range and adjusted EBIT to be between $75 million and $85 million

RPM International Inc. (NYSE: RPM), a world leader in specialty coatings, sealants and building materials, today reported financial results for its fiscal 2023 second quarter ended November 30, 2022.

“The second quarter was a positive one for RPM with record sales and significant margin expansion resulting in record adjusted EBIT,” commented RPM Chairman and CEO Frank C. Sullivan. “We generated these impressive results despite several macroeconomic challenges. We also introduced our MAP 2025 operating improvement program at an investor day during the quarter and are off to a promising start with year-to-date MAP benefits exceeding our targets.”

He added, “All four of our segments achieved record second-quarter sales, which included the impact of significant foreign exchange headwinds, and three of our four segments generated record second-quarter adjusted EBIT, despite continued year-over-year cost inflation.”

Second-Quarter 2023 Consolidated Results

Record fiscal 2023 second-quarter sales were driven by increased pricing in response to continued inflation. In addition, volume grew in businesses that are benefiting from reshoring and infrastructure spending, and material supply improved through insourcing and qualifying new suppliers.

Geographically, demand was strong in the U.S. across a number of businesses and was solid in emerging markets. Demand in Europe, which accounted for 13.5% of sales, was weak as the region continued to be challenged by high inflation and difficult macroeconomic conditions.

Sales included 12.4% organic growth, 1.0% growth from acquisitions, and foreign currency translation headwinds of 4.1%.

Record fiscal 2023 second-quarter adjusted EBIT was driven by strong sales growth as well as MAP 2025 benefits, primarily from manufacturing and commercial improvement initiatives. Partially offsetting this growth were weakness in Europe, the negative impact of foreign currency translation and continued material cost inflation.

Second-Quarter 2023 Segment Sales and Earnings

CPG’s record fiscal second-quarter sales were driven by strength in restoration systems for commercial roofing, facades, and parking structures. Admixtures and repair products for concrete continued to gain market share, resulting in sales growth. Price increases in response to continued inflation also contributed to growth. Partially offsetting this growth were continued weak demand in Europe and reduced demand for businesses that serve the new residential home construction market. These pressures became more pronounced late in the fiscal 2023 second quarter. Foreign currency translation also negatively impacted growth.

Sales included 6.9% organic growth, 1.5% growth from acquisitions, and foreign currency translation headwinds of 5.2%.

EBIT declined 40.0% primarily as a result of a $41.9 million gain recognized in the fiscal 2022 second quarter related to the sale of real estate assets that did not reoccur in the fiscal 2023 second quarter. This gain was excluded from adjusted EBIT in the fiscal 2022 second quarter.

In addition to the CPG sales headwinds, adjusted EBIT was also negatively impacted by unfavorable mix and reduced fixed cost leverage at plants, including the Corsicana, Texas facility, which was acquired in the fiscal 2022 second quarter.

PCG generated record fiscal second-quarter sales supported by volume growth across most of its businesses and price increases in response to continued cost inflation. Flooring systems, protective coatings, and fiberglass reinforced plastic grating all generated double-digit sales growth, fueled by a strong demand from manufacturing customers, due in part to reshoring. Energy market demand also contributed to growth.

Sales included 15.4% organic growth, 0.6% from acquisitions, and foreign currency translation headwinds of 5.2%.

Record second-quarter adjusted EBIT was driven by volume growth and price increases in response to inflation, which were partially offset by foreign currency translation headwinds.

SPG’s record second-quarter sales were led by strength in food coatings and additives as a result of strategically refocusing sales management and selling efforts. Additionally, the disaster restoration business benefited from the response to Hurricane Ian, where its ability to quickly meet increasing demand was aided by prior operational improvement investments. Price increases in response to continued cost inflation also contributed to sales growth.

Sales included 11.5% organic growth, 0.9% growth from acquisitions, and foreign currency translation headwinds of 2.9%.

Record second-quarter adjusted EBIT was driven by strong sales growth and the successful execution of MAP 2025 improvement initiatives.

The Consumer Group’s record second-quarter sales were driven by selling price increases to catch up with continued cost inflation and strong sales growth in North America.

Sales included 17.5% organic growth, 0.4% growth from acquisitions and foreign currency translation headwinds of 2.6%.

Adjusted EBIT growth was driven by MAP 2025 operational initiatives that were realized as a result of improved material supply, as well as strong sales growth. Additionally, the Consumer Group experienced extraordinarily low profitability in the prior-year period due to severe supply chain disruptions resulting from a plant explosion at an alkyd resin supplier and high material cost inflation, which was not offset by commensurate price increases. The low profitability in fiscal 2022 second quarter contributed to the strong year-over-year adjusted EBIT growth in the fiscal 2023 second quarter.

Cash Flow and Financial Position

During the six months of fiscal 2023:

• Cash provided by operating activities was $190.9 million compared to $159.4 million during the prior-year period. The increase was driven by higher earnings partially offset by increased inventory purchases in the fiscal 2023 first quarter designed to improve supply chain resiliency. During the fiscal 2023 second quarter, raw material purchases began normalizing.
• Capital expenditures were $113.5 million compared to $101.4 million during the prior-year period driven by organic growth opportunities and MAP 2025 efficiency programs.
• The company returned $130.6 million to shareholders through cash dividends and share repurchases. During the second quarter of fiscal 2023, RPM increased its annual dividend to $1.68 per share, representing the 49^th consecutive year of dividend increases.

As of November 30, 2022:

• Total debt was $2.84 billion compared to $2.47 billion a year ago. The increase was driven by increased working capital needs designed to improve supply chain resiliency.
• Total liquidity, including cash and committed revolving credit facilities, was $880.0 million, compared to $1.32 billion a year ago. The decline was driven by a temporary increase in inventories to navigate recent supply chain challenges, which is expected to begin normalizing in the third quarter of fiscal year 2023.

Business Outlook

“While long-term visibility remains limited, economic conditions have recently become increasingly challenging as higher interest rates have negatively impacted construction activity, existing home sales, and overall economic activity. Additionally, some customers are temporarily moderating purchases as they normalize inventories in response to a more stable supply chain. As a result, certain RPM businesses have experienced reduced customer demand, a trend that is expected to continue throughout the third quarter. When combined with headwinds from foreign currency translation and inflation, we are forecasting year-over-year adjusted EBIT growth to slow or possibly modestly decline for the first time in five quarters,” Sullivan added.

“RPM is well positioned to successfully navigate this near-term volatility. By leveraging the strengths of our strategically balanced portfolio of businesses and focusing on the execution of our MAP 2025 initiatives, we are confident in our ability to continue creating long-term value,” he concluded.

The company expects in the fiscal year 2023 third quarter:

• Consolidated sales to increase in the low-single-digit to mid-single-digit percentage range compared to prior-year record results.
• CPG sales to decline in the low-single-digit to mid-single-digit percentage range compared to prior-year record results.
• PCG sales to increase in the high-single-digit to low-double-digit percentage range compared to prior-year record results.
• SPG sales to be flat compared to prior-year record results.
• Consumer Group sales to increase in the mid-single-digit percentage range compared to prior-year record results.
• Consolidated adjusted EBIT to be between $75 million and $85 million, which includes the impact of continued year-over-year inflation and foreign currency translation headwinds, compared to a record $80.6 million in the fiscal year 2022 third quarter.

Earnings Webcast and Conference Call Information

Management will host a conference call to discuss these results beginning at 10:00 a.m. EDT today. The call can be accessed via webcast at www.RPMinc.com/Investors/Presentations-Webcasts or by dialing 1-877-270-2148 or 1-412-902-6510 for international callers and asking to join the RPM International call. Participants are asked to call the assigned number approximately 10 minutes before the conference call begins. The call, which will last approximately one hour, will be open to the public, but only financial analysts will be permitted to ask questions. The media and all other participants will be in a listen-only mode.

For those unable to listen to the live call, a replay will be available from January 5, 2023, until January 12, 2023. The replay can be accessed by dialing 1-877-344-7529 or 1-412-317-0088 for international callers. The access code is 9556870. The call also will be available for replay and as a written transcript via the RPM website at www.RPMinc.com.

About RPM

RPM International Inc. owns subsidiaries that are world leaders in specialty coatings, sealants, building materials and related services. The company operates across four reportable segments: consumer, construction products, performance coatings and specialty products. RPM has a diverse portfolio of market-leading brands, including Rust-Oleum, DAP, Zinsser, Varathane, DayGlo, Legend Brands, Stonhard, Carboline, Tremco and Dryvit. From homes and workplaces, to infrastructure and precious landmarks, RPM’s brands are trusted by consumers and professionals alike to help build a better world. The company employs approximately 16,800 individuals worldwide. Visit www.RPMinc.com to learn more.

For more information, contact Matt Schlarb, Senior Director of Investor Relations, at 330-273-5090 or mschlarb@rpminc.com.

Use of Non-GAAP Financial Information

To supplement the financial information presented in accordance with Generally Accepted Accounting Principles in the United States (“GAAP”) in this earnings release, we use EBIT, adjusted EBIT and adjusted earnings per share, which are all non-GAAP financial measures. EBIT is defined as earnings (loss) before interest and taxes, with adjusted EBIT and adjusted earnings per share provided for the purpose of adjusting for one-off items impacting revenues and/or expenses that are not considered by management to be indicative of ongoing operations. We evaluate the profit performance of our segments based on income before income taxes, but also look to EBIT as a performance evaluation measure because interest expense is essentially related to corporate functions, as opposed to segment operations. For that reason, we believe EBIT is also useful to investors as a metric in their investment decisions. EBIT should not be considered an alternative to, or more meaningful than, income before income taxes as determined in accordance with GAAP, since EBIT omits the impact of interest and investment income or expense in determining operating performance, which represent items necessary to our continued operations, given our level of indebtedness. Nonetheless, EBIT is a key measure expected by and useful to our fixed income investors, rating agencies and the banking community all of whom believe, and we concur, that this measure is critical to the capital markets’ analysis of our segments’ core operating performance. We also evaluate EBIT because it is clear that movements in EBIT impact our ability to attract financing. Our underwriters and bankers consistently require inclusion of this measure in offering memoranda in conjunction with any debt underwriting or bank financing. EBIT may not be indicative of our historical operating results, nor is it meant to be predictive of potential future results. See the financial statement section of this earnings release for a reconciliation of EBIT and adjusted EBIT to income before income taxes, and adjusted earnings per share to earnings per share. We have not provided a reconciliation of our third-quarter fiscal 2023 adjusted EBIT guidance because material terms that impact such measure are not in our control and/or cannot be reasonably predicted, and therefore a reconciliation of such measure is not available without unreasonable effort.

Forward-Looking Statements

This press release contains “forward-looking statements” relating to our business. These forward-looking statements, or other statements made by us, are made based on our expectations and beliefs concerning future events impacting us and are subject to uncertainties and factors (including those specified below), which are difficult to predict and, in many instances, are beyond our control. As a result, our actual results could differ materially from those expressed in or implied by any such forward-looking statements. These uncertainties and factors include (a) global markets and general economic conditions, including uncertainties surrounding the volatility in financial markets, the availability of capital, and the viability of banks and other financial institutions; (b) the prices, supply and availability of raw materials, including assorted pigments, resins, solvents, and other natural gas-and oil-based materials; packaging, including plastic and metal containers; and transportation services, including fuel surcharges; (c) continued growth in demand for our products; (d) legal, environmental and litigation risks inherent in our construction and chemicals businesses and risks related to the adequacy of our insurance coverage for such matters; (e) the effect of changes in interest rates; (f) the effect of fluctuations in currency exchange rates upon our foreign operations; (g) the effect of non-currency risks of investing in and conducting operations in foreign countries, including those relating to domestic and international political, social, economic and regulatory factors; (h) risks and uncertainties associated with our ongoing acquisition and divestiture activities; (i) the timing of and the realization of anticipated cost savings from restructuring initiatives and the ability to identify additional cost savings opportunities; (j) risks related to the adequacy of our contingent liability reserves; (k) risks relating to the Covid pandemic; (l) risks related to adverse weather conditions or the impacts of climate change and natural disasters; (m) risks relating to the Russian invasion of Ukraine and other wars;(n) risks related to data breaches and data privacy violations; and (o) other risks detailed in our filings with the Securities and Exchange Commission, including the risk factors set forth in our Annual Report on Form 10-K for the year ended May 31, 2022, as the same may be updated from time to time. We do not undertake any obligation to publicly update or revise any forward-looking statements to reflect future events, information or circumstances that arise after the date of this release.

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