RPM International's Q1 2026: Contradictions Emerge on M&A Strategy, Tariff Impact, and Plant Consolidation Costs

The above is the analysis of the conflicting points in this earnings call

Date of Call: October 1, 2025

Financials Results

• Revenue: Record sales, up 7.4% YOY
• EPS: Adjusted EPS $1.88 (record); prior-year comparison not specified

Guidance:

• Q2 expected to deliver record sales and record adjusted EBIT.
• Q2 consolidated sales and adjusted EBIT to increase mid-single digits.
• Consumer to grow sales moderately more than PCG and CPG due to acquisitions.
• SG&A streamlining underway after moving from 4 to 3 segments; pricing actions implemented to offset inflation, notably metal packaging and Asia-sourced niche products.
• Q2 material inflation expected ~2%–3% (mostly Consumer); price realization ~2%.
• FY26 sales expected at the high end of prior low- to mid-single-digit range.
• FY26 adjusted EBIT growth expected toward the low end of prior high single-digit to low double-digit range.
• Continued investment in growth; macro uncertainty persists.

Business Commentary:

• Revenue Growth and Strategic Acquisitions:
• RPM International reported consolidated sales increased by 7.4% to a record in Q1 2026, driven by both organic and M&A growth.

• This growth was fueled by systems and turnkey solutions for high-performance buildings and acquisitions, including The Pink Stuff and READY SEAL acquisitions.

• EBIT Improvement Amidst Challenges:

• Q1 adjusted EBIT increased by 2.9% to a record, despite challenges like higher raw material costs and temporary cost inefficiencies from plant consolidations.

• The improvement was attributed to volume growth that allowed RPM to leverage MAP 2025 initiatives.

• Investment in Growth and Market Strategy:

• RPM invested $5.3 million in new employees for sales and support staff, along with increased advertising and higher M&A-related costs in Q1.

• These investments focus on expanding sales associates and marketing efforts, aiming to drive growth amidst a challenging macro environment.

• Market Conditions and Price Actions:

• The company implemented pricing actions to recover from inflation, particularly in metal packaging and niche products, anticipating continued price increases.
• The pricing actions were in response to the impact of tariffs and rising material costs, with price increases expected to be around 2% in Q2.

Sentiment Analysis:

• Company posted record sales (+7.4% YOY) and record adjusted EBIT (+2.9%) and expects another record quarter, but guided FY26 adjusted EBIT to the lower end of its prior range due to inflation, tariffs, and elevated healthcare costs (+$8.8M YOY). Q2 growth is guided to mid-single digits with price and SG&A actions offsetting headwinds; material inflation expected to rise to 2%–3%.

Q&A:

• Question from Michael Sison (Wells Fargo): What drove guidance toward the low end—growth investments or weaker demand?
  Response: Lower-end outlook reflects deliberate SG&A growth investments and an unusual spike in healthcare costs; demand remains soft but investments are delivering outgrowth.

• Question from Michael Sison (Wells Fargo): Consumer Group trends—are you outperforming, and outlook for the year?
  Response: RPM is outperforming the industry, gaining share via new products and The Pink Stuff expanding channels/geographies, though DIY demand remains weak.

• Question from Michael Harrison (Seaport Research Partners): What is the composition of higher consumer marketing spend?
  Response: Higher advertising focused on cleaners, with more social/e-commerce; spending includes both inherited Pink Stuff marketing and incremental RPM investment.

• Question from Michael Harrison (Seaport Research Partners): Magnitude and trajectory of plant consolidation inefficiencies?
  Response: About $10M unfavorable conversion/absorption in Q1 from 6 consolidations; inefficiencies to continue in Q2 as transitions proceed.

• Question from John McNulty (BMO Capital Markets): What drove strong organic growth in CPG and PCG, and how is backlog?
  Response: Growth from turnkey roofing/flooring, HVAC refurbishment (Pure Air), supply-and-apply contracting, cross-selling, and shift to project-spec work; PCG aided by Stonhard hiring and ICG wins with larger accounts.

• Question from David Begleiter (Deutsche Bank): What changed since July to push to the low end of the full-year range?
  Response: Gross margin pressures and tariff uncertainty persisted, with a surprise healthcare cost increase; pricing is catching up but inflation is rising in Q2.

• Question from David Begleiter (Deutsche Bank): Could pricing have risen earlier to offset tariffs?
  Response: Tariff on/off volatility limited earlier actions; unmitigated impact is ~$90–95M, about half mitigated via production shifts, pricing, and supplier cost-sharing.

• Question from Patrick Cunningham (Citi): What inventory was built and why?
  Response: Built Tremco Sealants inventory during the Toronto-to-U.S. transition and stocked certain consumer raws/new products (e.g., epoxy) ahead of tariff-driven cost increases.

• Question from Patrick Cunningham (Citi): Shape of pricing realization in Consumer and other segments?
  Response: Q1 price was <1% consolidated; Q2 expected ~2%, with Consumer seeing packaging-driven price increases.

• Question from Lucas Beaumont (UBS): With prior scaling, why is SG&A rising and how to think about volume leverage?
  Response: MAP lowered SG&A structurally, but savings are being reallocated to sales/marketing and e-commerce to drive growth; G&A efficiencies continue via shared services.

• Question from Lucas Beaumont (UBS): Raw material inflation outlook and net cost view?
  Response: Q1 material inflation ~1%; Q2 expected 2%–3%, largely in Consumer.

• Question from John Roberts (Mizuho): Will there be a new 3-year plan akin to MAP 2.0?
  Response: Yes—expect a public plan in spring/summer 2026; internally developing MAP 3.0 following the reorg to 3 segments.

• Question from John Roberts (Mizuho): Progress entering dollar stores and supermarkets?
  Response: Gaining traction; DAP launched smaller formats; The Pink Stuff enables expansion into grocery/drug channels.

• Question from Frank Mitsch (Fermium Research): DIY softness—when could it stabilize or rebound?
  Response: Expect improvement by spring/summer next year on easier comps, potential rate cuts, and higher housing turnover.

• Question from Kevin McCarthy (Vertical Research Partners): Details on sales force expansion and payback timing?
  Response: Adding trainees and project support (e.g., Tremco Roofing) and integrating ICG’s sales approach to win larger accounts, freeing reps to sell more.

• Question from Kevin McCarthy (Vertical Research Partners): SG&A trajectory this year?
  Response: About $10M quarterly in growth investments likely to continue; focus is on leveraging spend into higher sales, with Consumer needing organic inflection.

• Question from Jeffrey Zekauskas (JPMorgan): How is The Pink Stuff performing and roofing demand trend?
  Response: Pink Stuff integration on track and accretive; roofing revenues growing, aided by HVAC refurbishment (Pure Air).

• Question from Jeffrey Zekauskas (JPMorgan): Why the sharp SG&A increase vs last year?
  Response: Driven by acquisition mix (higher SG&A businesses), elevated healthcare, and ~$10M growth investments; increases are intentional to drive outgrowth.

• Question from Aleksey Yefremov (KeyBanc Capital Markets): Is this a normal year for your growth algorithm?
  Response: No; with tariff/inflation headwinds, leverage is muted. In a normal environment, ~7% revenue growth should yield mid-teens earnings growth.

• Question from Aleksey Yefremov (KeyBanc Capital Markets): Further Consumer pricing needed?
  Response: Price increases enacted at the end of Q1 will benefit Q2; ongoing monitoring given costs.

• Question from Arun Viswanathan (RBC Capital Markets): Tariff impact math and mitigation actions?
  Response: Unmitigated impact ~$90–95M; mitigated about half via supplier cost-sharing, pricing, and production shifts (e.g., moving Pink Stuff paste to U.S.).

• Question from Arun Viswanathan (RBC Capital Markets): M&A appetite and focus areas?
  Response: Deployed ~$600M in 5 months (mostly Consumer: Pink Stuff, READY SEAL); leverage ~1.8x; active pipeline across Consumer and targeted CPG adjacencies as deal multiples ease.