Frank Sullivan: Yeah. That’s a great question, and yes, we do. The Specialty Products Group should be generating in a better economic environment, mid to slightly higher-teen EBIT margins, and they’ve been there before. The Guardian Products business was an outsized EBIT margin, but that was a $40 million business. And so, our expectations are, with an economic recovery, in a few years, especially Products Group will be back to the mid-single — I’m sorry, mid-double-digit mid-teens EBIT growth. And to an earlier question, I’m very confident that we can get there. We’re taking advantage of this opportunity now to synergize a few things. But if we don’t get back there, then we would take a look at that Specialty Products Group or pieces of it in relationship to RPM’s future.
Kevin McCarthy: Very good. I appreciate the color.
Operator: The next question is from Ghansham Panjabi with Baird. Please go ahead.
Ghansham Panjabi: Good morning, guys. Happy New Year.
Frank Sullivan: Happy New Year, Ghansham.
Ghansham Panjabi: Thank you, Frank. To you as well. Just going back to the lower consolidated sales guidance for fiscal year ’24, can you just sort of clarify what specific segment or segments it is due to and the offset in maintaining your EBIT guidance just purely incrementally more favorable price-cost?
Frank Sullivan: No, the EBIT guidance is a favorable price cost mix and significant improvements from our MAP ’25 initiatives. And as Frank Mitsch asked earlier, some better overhead absorption versus last year when we really tackled inventory, shut down production in a number of places. So, we’ve been very aggressive in rightsizing inventories and after, quite candidly, 30 years of my career, talking about improving working capital, finally getting around to getting it done on a sustainable basis. So, that’s been our focus and we’re executing and it’s happening. So, we’re excited about that. But the EBIT margin improvement is a combination of cost price mix which finally turned positive this fiscal year and the benefits to the MAP ’25 program in our operations.
One of the key things to that is that the vast majority of the MAP ’25 initiatives are related to commercial activities in terms of how we incentivize salespeople relative to margins. It’s focused on conversion costs in a number of areas there. So, the impact is mostly a gross margin impact, which means you don’t realize it until you sell something. So, it’s not like an SG&A cut that you can annualize over — divide by 12 and annualize over a year. It really flows into your P&L as you move units.
Ghansham Panjabi: Okay. And then on the Consumer business, I mean, if you kind of zoom out, there has been a lot of ups and downs over the years with COVID and supply-chain shortages, etc., and then, of course, interest rates, what is the base case at RPM at this point for calendar year ’24, in terms of volumes? Are you expecting a better year? I mean, obviously, interest rates impacted the markets last year, but that in theory should be in the base — that should be in the base from last year ?
Frank Sullivan: Sure. I think you’re asking about maybe fiscal ’25, which starts on June 1. Our fill rates are back in the high-90%s across the board. That was not true two years ago. We are at lower levels of inventory. And, last year for the first time in my career, shut down production in January and February to right-size inventories where typically we’d be adding inventory to sell into a big spring season. So, we’ve gotten much more agile in our manufacturing ability, so that we don’t have to have the same size of safety stock. So those are the improvements that we have made. But fill rates are where they need to be. I think inventories for the most part in the supply chain are where they need to be. And we just need to help with our retail customers drive consumers back into the stores.
Help them think of projects that they can do. And the real first opportunity for us to do that will be this spring because of the seasonality of the business in particular. You see, we expect good leverage in the third quarter, but the third quarter is not where we expect to see any revenue surprises because of the weather seasonality of some of our industrial businesses and certainly our Consumer Group.
Ghansham Panjabi: Okay. Thank you.
Operator: [Operator Instructions] The next question is from Arun Viswanathan with RBC Capital Markets. Please go ahead.
Frank Sullivan: Good morning, Arun.
Arun Viswanathan: Good morning, Frank. Thanks for taking my question, and Happy New Year. So, I guess, first, I just wanted to go back to kind of the sales outlook. It looks like it’s kind of a tale of two cities here with the Consumer and Specialty Products Group maybe a little bit more sluggish, while reshoring infrastructure drives more strength in Construction Products and PMC. Would you see that maybe switching as we move into the back half of calendar ’24? Maybe I’ll just start with that and just see if that’s kind of in line with your thinking.
Frank Sullivan: No. We think that the Construction Products Group and Performance Coatings Group will have a solid second half of fiscal ’24, and the dynamics that we had talked about earlier in terms of stimulus, infrastructure bills, and Increases in industrial capital spending and a resurgence in manufacturing, should bode well for those business units and product lines in fiscal ’25. I think the thing that we’re focused on is continuing to improve our businesses and operating leverage with the expectation, whether it’s in Q4 or as we get into fiscal ’25, seeing some positive unit volume growth at a Consumer and a return to growth in most of our Specialty Products Group companies. And again, that’s what we are most exposed to OEM, coatings to residential construction and we’re not alone in having a very difficult challenge.
There are certain segments of manufacturing that have had a tough year and anything that touches housing in the last year has not done very well.
