We have had sophisticated consumer, customers over time continue to figure out how to reduce inventories, and we have seen those inventories fluctuate up or down. And historically, until this period, typically when we talked about destocking, it really only related to our consumer segment. And so I think that’s different. We have never experienced the type of overhead un-absorption just on our own inventory actions that we experienced in Q3 and that will impact Q4. In the grand scheme of things, I think going forward, that’s good news, because when that stops, there is tens of millions of dollars of gross profit that’s going to show up on our bottom line. And as I have said, I am very bullish actually about the positive impact of our MAP €˜25 activities.
Knowing that when we get our inventories right, we will stop shooting ourselves in the foot in terms of these overhead absorption hits. And with the return of volume, if €“ as we experience a down cycle in commodities, I still think going forward, there is good potential for strong gross margin recovery in the coming years.
Ghansham Panjabi: And I am sorry, Frank, if I missed this, but what was the impact you think purely from destocking at the customer level as it relates to your volumes for 3Q, which I think were down mid-single digits?
Frank Sullivan: Yes. So, I think it’s $20 million €“ $40 million in total. And I think the way to think about that is $20 million of lower unit volume sales across RPM and $20 million associated with our own internal inventory adjustments, which literally in a number of our operations, including eliminating shifts and/or outright holding production for days or a week at a time, which is something I can’t remember. We have eliminated shifts in certain areas in the past in light of recessions and things like that. But there is a couple of plants that we closed for a week, and that’s incredibly unique to RPM in my career.
Ghansham Panjabi: Thank you, Frank.
Frank Sullivan: Thank you. Yes, simple way to reduce your inventory is to stop making it. And so that’s some of what happened in the quarter.
Operator: Our next question comes from Frank Mitsch with Fermium Research. Please go ahead.
Frank Mitsch: Thank you so much.
Frank Sullivan: Good morning.
Frank Mitsch: Yes. Good morning Frank. Thank you so much. Following up on MAP 2025, which is a positive to your results. If I think about the 240 to 260 EBIT in the fourth quarter, how much do you think MAP will contribute to that? And any sort of color in terms of what you need to do to hit the low end or hit the high end of that fourth quarter EBIT range?
Frank Sullivan: So, as I commented earlier, Frank, the biggest driver of our MAP benefits through our P&L is sales because most of the MAP benefits are in either prior margin to the extent that we are managing mix better or in our conversion costs. And in both cases, we are making good progress. Obviously, the other factor here is beginning to see, which I think you see at the end of Q4 and into the summer, some positive delta on past price increases in the last 18 months in our raw material basket that’s starting to get better sequentially. So, those are the factors. It will certainly be bigger than the $20 million that we experienced in Q3 just because we will have a larger revenue base and how good it could be really depends on unit volume sales.
