Stephen Byrne: Your cost of goods in the quarter looked like they were down 6% or 7% on an absolute dollar value year-over-year. Can you rank the drivers of that decline between lower volumes in Consumer Specialty, lower raw material costs and the third bucket being MAP 2025. What would you — how would you allocate the drivers of the lower COGS?
Frank Sullivan: Sure. I’ll let Rusty provide some color on that as well. I think, broadly speaking, it’s a combination of cost price mix and our MAP initiatives. Some of it is a function of our very deliberate efforts of driving and incentivizing sales forces towards a higher margin mix, particularly in CPG and PCG. It’s the benefits of our MAP initiatives on higher unit volume. But beyond that, I don’t know if, Rusty, do you have any additional color you’d like to add.
Russell Gordon: Yes. I would peg it exactly that. It’s a combination of selling price increases which were modest but nevertheless, helpful across all segments. We did have deflation, plus right up there is the MAP savings. We’re going to save incrementally this year, about $100 million that varies by quarter. We’re in a obvious seasonal low quarter in the third quarter this year but that was very impactful, too.
Frank Sullivan: Yes. And as Rusty mentioned earlier, a meaningful amount, tens of millions of dollars of our MAP savings have been undercut or masked by the under-absorption, particularly Consumer in a number of our Specialty Products Group companies.
Stephen Byrne: And Frank, I have a structural question for you. You look at Consumer — pardon me, Construction Products and Performance Coatings, there’s so much overlap between those segments in the products, the end markets that they sell into these new plants you’re building in Malaysia and India will cover both. You have some businesses that switched from one to the other. A broad question for you and that is could you drive more cost synergies and maybe cross-selling by combining those segments?
Frank Sullivan: Sure. I appreciate the question. First of all, throughout our history on a very thoughtful, long-term strategic perspective. RPM has been willing to adjust our structure. If you go back 24 years ago, we moved from really a true holding company with 40 or 50 independent business units into a 6-group structure that served RPM and our customers and shareholders as well for about 15 years. As we initiated the MAP 2020 program in 2018, we reorganized into 4 groups. That reorganization has really driven meaningful synergy and cooperation amongst our businesses even across the 4 groups in their various business units to a greater extent than what existed in our 6-group structure. So I think we’re very committed to our current 4-group structure, certainly through the MAP 2025 period.
And as I answered an earlier question, I think we will look this time next year, long term to think, all right, what’s the next initiative for RPM. And whether it’s a year from now or 10 years from now, the idea that we would look at our structure and do something different, it made sense. It’s certainly something that we’ve proven in the past we’re willing to do and we certainly would do in the future when it’s appropriate. Specific to the Construction Products Group and the Performance Coatings Group, I think there are some significant differences between the end-use markets of the Performance Coatings Group which tend to be heavy industry and more infrastructure related and the Construction Products Group tends to be more construction markets and new home construction, commercial construction.
The overlap today is pretty much the infrastructure area. And certainly, we have good levels of cooperation. That’s also been enhanced by $1 trillion plus or federal stimulus that’s just beginning to play out and so we’ll see that continue. But at this stage, we don’t have any plans to change that structure if it made sense. As we’ve done in the past, we would do it again in the future. I would add one more thing to that which is as long as these 2 segments with really good leaders and leadership are continuing to pile out positive unit volume despite some choppy economics and generate margin expansion and the solid EBIT growth year-over-year and quarter-over-quarter, we would be very hesitant to adjust something that’s working exceedingly well.
And there’s good momentum in both.
Operator: Our next question comes from Kevin McCarthy from Vertical Research Partners.
Kevin McCarthy: Frank, a question for you on cash flow and specifically working capital. I think a couple of quarters ago, you had signaled potential to reduce your ratio of trade working capital to sales by maybe 300 basis points or so. And as of this morning, it looks like you’re running a 580 basis points down. So really nice progress there. I guess my question would be, if you look out over the next 6 to 12 months, is there additional opportunity to extract cash from working capital? Or have you just about rightsized inventory and the other line items at this point?
Frank Sullivan: Yes. I’ll let Rusty add some commentary to that as well. But our MAP initiatives on the MS-168 side in particular are continuing. That’s a never-ending effort of continuous improvement. And I think one of the — I hope people appreciate one of the more significant benefits of our MAP initiatives beyond the metrics that we’ve improved in the cash flow numbers and the margins is the cultural change at RPM. And it’s really in 2 areas. There’s a level of I think cooperation and communication across our groups and businesses that didn’t exist before. And there is a mindset of a lean manufacturing, continuous improvement approach that, as I mentioned earlier, isn’t maybe new to the world but it’s new to RPM, it’s really taking hold and that’s a cultural change that’s paid huge dividends for us. Specific to the cash flow and working capital metrics, I’ll let Rusty add his thoughts.
