RPM International Inc. (RPM) Q1 2019 Earnings Conference Call Transcript

RPM International Inc. (RPM 0.06%)
Q1 2019 Earnings Conference Call
October 3, 2018, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Welcome to the RPM International conference call for the Fiscal 2019 first quarter. Today's call is being recorded. This call is also being webcast and can be accessed live or replayed on the RPM website at www.rpminc.com.

Comments made on this call may include forward-looking statements based on current expectations, then involve risks and uncertainties, which could cause actual results to be materially different. For more information on these risks and uncertainties, please review RPM's report filed with the SEC. During this conference call, references may be made to non-GAAP financial measures.

To assist you in understanding these non-GAAP terms, RPM has posted reconciliations to the most directly comparable GAAP financial measures on the RPM website. Following today's presentation, there will be a question and answer session, at which time if you wish to ask a question, you'll need to press * then 1 on your touchstone phone. Please note that only financial analysts will be permitted to ask questions.

At this time, I would like to turn the call over to RPM's Chairman and CEO, Mr. Frank Sullivan, for opening remarks. Please go ahead, sir.

Frank Sullivan -- Chairman and Chief Executive Officer

Thank you, Paulette. Good morning and welcome to the RPM International Inc. investor call for our Fiscal 2019 first quarter, ended August 31, 2018. On the call with me today are Rusty Gordon, RPM's Vice President and Chief Financial Officer, and Kristine Schulze, our Senior Director of Financial Reporting, who has become involved in our investor relations effort. Kristine joined RPM in 2000 as a financial analyst and has taken on ever-growing responsibilities in the financial reporting area since.

Today, Kristine will discuss our first quarter results in some detail as well as the progress we are making in our cost-savings initiative. Then Rusty will share our expectations for the remainder of Fiscal 2019 and afterwards, we'll take your questions.

Our first quarter sales came in about where we expected, with strong organic growth in consumer and industrial. As anticipated, our specialty segment was facing a very difficult year-over-year comparison in relationship to the strong storm-related results of our Legend Brands restoration equipment business last summer and the impact of the Mantrose-Haeuser edible coatings patent expiration, both of which we had been talking about over the past year.

If there's a disappointment in the quarter, it is the continuing difficult raw material cost environment for a fifth consecutive quarterly period. Having said that, as we indicated in our July communications to investors, we believe that this first quarter is the peak of the mismatch between our raw material cost and the ability of our companies to begin getting offsetting price increases. This is true across all of RPM's businesses, but particularly in our consumer business. We anticipate a slowly building improvement between our raw material cost and our pricing and product mix, beginning in the second quarter and continuing for the balance of the fiscal year.

Related to our operating improvement initiatives, our 2020 map to growth program, we are making good progress. One indicator of how we feel about our long-term prospects is the action we took last week to redeem our 2.25% $205 million convertible bond due in December of 2020.

Our stock price performance has met the criteria to allow us to redeem these bonds early. We have chosen to do so in a manner that will provide bond holders face value for their bonds in cash, with a premium related to the conversion ratio to be paid in shares of RPM stock. The net effect of the terms of this redemption is roughly a 3 million-share repurchase on a fully diluted basis without negatively impacting our balance sheet ratios or debt metrics.

Additionally, fiscal year-to-date, we have repurchased approximately 1 million shares of RPM stock. This repurchasing combination with a convertible bond redemption will mean that we will have effectively repurchased about 4 million shares of RPM stock.

We also announced this week a Wednesday, November 28th, 2018 RPM investor day to be held in Baltimore, Maryland. At this investor day event, we intend to provide details around our forward-looking capital allocation and expectations for significant expense savings, long-term margin improvement, and the specific timelines for their achievement.

So, while the quarter was challenging from an earnings perspective, particularly on a GAAP basis related to our ongoing restructuring activities, we are pleased with the strong revenue growth of our businesses, the outlook for an improving raw material cost-price ratio in the coming quarters and the progress we are making in our 2020 map to growth program.

I would now like to turn the call over to Kristine Schulze, RPM's Senior Director of Financial Reporting.

Kristine Schulze -- Director of Financial Reporting

Thanks, Frank, and good morning, everyone. Today, I will review results of operations for our Fiscal 2019 first quarter on an adjusted basis, which will exclude restructuring and other charges totally $39.8 million during the quarter.

During the quarter, we achieved record sales of $1.46 billion, mostly as a result of strong organic growth of 7.8%. Our bottom line, however, was adversely impacted by a combination of items, which included continued raw material headwinds, unfavorable foreign exchange, one-time legal costs, and additional charges related to our 2020 margin acceleration plan.

We continued to make progress in implementing our operating improvement plan during the quarter, which included a reduction of more than 150 positions, mainly in our industrial and specialty segment, and the announced closure of four manufacturing facilities.

As we face continued raw material headwinds, we are more aggressively pursuing price increases to protect gross profit margins. In particular, we are experiencing significant increases in the cost of silicones, asphalt, epoxy, and acrylic resins, while cans and other packaging continue to rise modestly. While we anticipate that these trends will persist for at least the remainder of calendar 2018, we expect the raw material cost-price ratio to improve.

Sales in our industrial segment increased 7.2%, primarily driven by organic growth of 6.7%. Acquisitions added 1.6%, while foreign exchange reduced sales by 1.1%. This segment benefited from a particularly strong performance by our North American waterproofing business, as well as our industrial coatings business serving the oil and gas sector, which is enjoying a healthy recovery.

Bottom line leverage was masked by the combination of restructuring charges and unfavorable transactional foreign exchange expense, resulting from the strengthening of the dollar versus certain international currencies. Industrial segment restructuring activities included the realignment of our global brands, changes to our leadership structure, the initiation of two plant closures, and the withdrawal from select international product lines.

On an adjusted basis, industrial segment EBIT increased 2.5%. Absent the unfavorable transaction foreign exchange, our adjusted EBIT margin would have increased at a pace more in line with our growth and sales. In the consumer segment, sales increased a solid 13.6%, primarily from organic growth of 12.4%, which was driven by new accounts and market share gains, particularly in wood stains and automotive finishes.

Our expanded relationship with the Home Depot has commenced, which includes a full chain award in the interior and wood stain category. Products began shipping during the current quarter. Acquisitions added 1.7%, while unfavorable foreign exchange offset our sales by a half a percent.

As mentioned during our Fiscal 2018 fourth quarter conference call, we anticipated that the Fiscal 2019 first quarter would be the high watermark for margin erosion in our consumer segment. In response to continued raw material escalation, we implemented price increases late in the quarter in order to protect our gross profit margins. Adjusted EBIT and the consumer segment declined 27.1% and nearly half of that was attributable to legal costs, which much of the remainder resulting from stepped up advertising to support our recent market share gains.

Specialty segment sales increased 2.3%, with organic growth contributing 2% and acquisitions 0.4%. Foreign exchange reduced sales by 0.1%. This segment faced tough year over year comparisons related to the extraordinary sales level that our water damage restoration business experienced from last year's Hurricane Harvey. On an adjusted basis, which excludes restructuring the related expenses, specialty segment EBIT declined 7.6%.

I'll now turn the call over to Rusty for some details on our outlooks for the remainder of Fiscal 2019.

Rusty Gordon -- Vice President and Chief Financial Officer

Thanks, Kristine. During the remaining three quarters of Fiscal 2019, our businesses will continue to aggressively pursue price increases to protect our gross profit margins in response to continued raw material cost escalation. With our final asbestos trust payment behind us, we have freed up capital to allocate to more productive purposes and we'll talk more about that during our investor day on November 28th.

As communicated in our year-end earnings release of July 19th, 2018, we expect full-year Fiscal 2019 industrial segment sales to grow in the mid-single-digit range. The segment should benefit from steady construction activity and the ongoing oil and gas market recovery with improving leverage to the bottom line.

In our consumer segment, we expect to benefit from recent market share gains and a stepped up advertising campaign to support new product placement. This should drive sales growth in the mid to upper-single-digit range, which will begin to generate positive earnings growth over the prior year in the second quarter.

In our specialty segment, we lapped the expiration date of our NatureSeal patent as of the end of our Fiscal 2019 first quarter and therefore expect better comparisons for this product line as we go forward.

We expect sales growth in the specialty segment to be in the low single-digit range. I'll now turn the call back over to Frank.

Frank Sullivan -- Chairman and Chief Executive Officer

Thanks, Rusty. We're focused on the implementation of our operational improvement plan, which is proceeding as scheduled with cost reduction efforts including plant closures, the realignment of some of our global brands and changes of our leadership structure.

During the remainder of Fiscal 2019, we will continue to adjust out charges for our operational improvement initiatives, which will provide some clarity on the performance of our core businesses. We look forward to providing a comprehensive update on our plans at our investor day on November 28th, which will also be webcast via the RPM website at www.rpminc.com.

We'd now be happy to take your questions.

Questions and Answers:

Operator

Thank you. We will now begin the question and answer session. If you have a question, please press * then 1 on your touchstone phone. If you wish to be removed from the queue, please press the # sign or the hash key. If you are using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press * then 1 on your touchstone phone. And our first question comes from John McNulty from BMO Capital Markets. Please go ahead.

John McNulty -- BMO Capital Markets -- Managing Director

Yeah, good morning. Thanks for taking my questions. So, I guess a couple of questions. One, I know you've got a lot that you're gonna be talking about on the 28th of November, but I guess it looks like you've already made a reasonable number of movements already with headcount reductions and plant closures. Can you give us a feel for what the run rate in the cost savings might be at this point, just so we can kind of think about that going forward?

Frank Sullivan -- Chairman and Chief Executive Officer

Yeah. We have made some good progress in our fourth quarter and over the summer months. But I think at this stage, we would be in a better position at this investor day to provide details on the then year-to-date plan activity and cost savings and then also pretty good detail on what's to come. And so, rather than speculate or dribble stuff out on that, I think we'll wait until November 28th, at which point we'll have a pretty comprehensive overview of not only what we've done but where we're headed.

John McNulty -- BMO Capital Markets -- Managing Director

Okay. Fair enough. Then I guess with regard to the legal expense, it looks like it was one time. Can you help us to understand what that was all about? Is it definitively one time?

Frank Sullivan -- Chairman and Chief Executive Officer

Yes. That was a significant part of the underperformance in consumer, certainly along with raw material cost price issues. We had a $10 million year-over-year legal expense issues associated with the resolution of a trademark and some IP issues. It is once and done and it's behind us.

John McNulty -- BMO Capital Markets -- Managing Director

Got it. I guess a question on the consumer business -- the volumes were obviously really strong. It seems like there were a lot of things that could have potentially been doing that, whether it's the Home Depot ramp or weather, I guess, nicked you the prior quarter, so, maybe it unlocked a little bit. Can you help us to think about what a good organic rate is right now, like taking out maybe the noise of an inventory channel for Depot and that kind of thing?

Frank Sullivan -- Chairman and Chief Executive Officer

Yeah. I think the organic growth rates in the low single-digits right now in consumer, excluding the market share gains that we picked up. So, it's positive versus the last couple of years. And we also had significant mid to high-single-digit extraordinary ramp up expense associated with the new program at Home Depot in terms of increased advertising and some other expense to ramp up into that program.

John McNulty -- BMO Capital Markets -- Managing Director

Got it. Then maybe just the last question since it's been a hot topic. On the raw material front, you indicated you thought this was going to be the worst of the quarters in terms of the spread between raws versus price. Can you give us some clarity as to how much raws were up year-over-year and how much price was up so we can think about the net effect of that?

Frank Sullivan -- Chairman and Chief Executive Officer

So, I think price was up on average about 1.5%. As we go forward, that should get better. Raws has been up probably in the 8% to 10% range. So, we are not catching up yet, but we've seen two or in some instances three rounds of raw material price increases and in some of our businesses, we are on the second price increase range. It's now happening across all of our businesses.

John McNulty -- BMO Capital Markets -- Managing Director

Great. Thanks very much for the color.

Frank Sullivan -- Chairman and Chief Executive Officer

Thank you.

Operator

Our next question comes from Ghansham Panjabi from Baird. Please go ahead.

Ghansham Panjabi -- Robert W. Baird & Co. -- Analyst

Hi, Frank. Good morning. Hi, everyone.

Frank Sullivan -- Chairman and Chief Executive Officer

Good. Thank you.

Ghansham Panjabi -- Robert W. Baird & Co. -- Analyst

Yeah. Maybe just starting out, Frank, with kind of the macro mosaic. Obviously, you have exposure to various geographies, including the emerging markets, Brazil, Asia, China, etc. Can you maybe give us a sense as to the underlying demand across those regions, any impact from tariffs, etc.? I'm trying to get a sense of the run rate for industrial going forward.

Frank Sullivan -- Chairman and Chief Executive Officer

So, I think our strongest region -- and this is fitting with the headlines is North America and particularly the US. We've had OK growth in Latin America, excluding Brazil. Europe has been relatively flat and the balance of the geographies for us are up but relatively small.

Ghansham Panjabi -- Robert W. Baird & Co. -- Analyst

Got it. Then just going back to your cost initiative comments, to kind of think about the operating profit bridge fiscal year 19 versus 18, what is reasonable from our vantage point in terms of cost savings on a year over year basis? The reason I'm asking is because you have other operating costs such as freight, etc., that have started to increase significantly. I'm just curious as to whether your pricing initiatives specific to this year will be enough to offset these other variable costs.

Frank Sullivan -- Chairman and Chief Executive Officer

So, from a macro perspective, both from my time at RPM and the leaders of our businesses, we've been through two of these commodity cycles. During the last cycle, from start to finish, we recovered slightly more than we lost. In the prior cycle, we recovered slightly less than we lost.

So, there's no reason to believe that as we get through this cycle that's plenty deep and plenty long that we won't recover most of the margin lost to gross margin level. Those dynamics have not changed. The nature of our products, even in the consumer space is while we have -- or particularly in consumer a difficult time getting price increases as raw materials ramp up. We typically are able to hang on to price as raw materials ramp back down.

That is a macro cycle and some comments on our past experience that is aside from the improvements that we expect in the manufacturing and procurement area, the details of which we'll talk more about in November.

Ghansham Panjabi -- Robert W. Baird & Co. -- Analyst

Okay. Look forward to it. Thank you.

Frank Sullivan -- Chairman and Chief Executive Officer

Thank you.

Operator

Our next question comes from Rosemarie Morbelli from Gabelli & Company. Please go ahead.

Rosemarie Morbelli -- Gabelli & Company -- Analyst

Thank you. Good morning, everyone. Frank, I was wondering if you could give us a little more detail on those [inaudible]. You have an $8 million hit this quarter. Can you talk about your customers and whether you expect additional issues in that particular area?

Frank Sullivan -- Chairman and Chief Executive Officer

Yes. I think that's a sharp observation. We had commented about withdrawing from certain product lines, particularly in the developed country. So, over the last decade, we have planted a lot of seeds in different parts of the world. As part of our operating improvement initiatives, we have challenged our businesses to take a hard look at business operations or particular product lines that don't meet our margin profile expectations and/or have not proven to be the profitable product lines on a regional basis that we had hoped when we made the initial investments.

So, in a number of instances, places like the Middle East and one area in India, we are discontinuing the sale of certain product lines and in that process, writing off inventory and receivables that would be associated with those product lines. The nature of that is both in terms of size and accounting. They are not excluded in our restructuring charges. There is noise in our adjusted numbers as we look across our entire organization and make some decisions about where we're going to continue to invest and where we're not.

Rosemarie Morbelli -- Gabelli & Company -- Analyst

Can you quantify, more or less, how much in terms of revenues you walked away from?

Frank Sullivan -- Chairman and Chief Executive Officer

I don't have that number. It would be single tens of millions of dollars, but again, I think we'll have more comprehensive detail when we talk to investors in November about how we're readjusting our portfolio by segment.

Rosemarie Morbelli -- Gabelli & Company -- Analyst

Okay. So, you mentioned the Middle East and India, but you didn't talk about Brazil, where you have been investing quite a lot in introducing new product lines over the last few years. Can you bring us up to date on what is happening in Brazil?

Frank Sullivan -- Chairman and Chief Executive Officer

That's correct. Brazil has continued to be a challenging place to do business. The economy continues to struggle. Currency continues to be an issue. We have a great leadership team down there. They are beating most of their peers on a local currency basis and we have not discontinued any product lines in the Brazilian market.

The other comment I would make while we're having this discussion is we had about a $5 million or $6 million transactional exit in the quarter, which was principally associated with a pretty dramatic change in developing country currencies like Brazil, like Turkey, like South Africa, like Argentina in relationship to our industrial segment.

Rosemarie Morbelli -- Gabelli & Company -- Analyst

Okay. Then if I may, last year, you benefited from Hurricane Harvey. Are you anticipating to benefit from this last hurricane or do you have less business in North Carolina as you did in Texas, for example?

Frank Sullivan -- Chairman and Chief Executive Officer

We'll have some benefit in the month of September and in the second quarter because of the timing of that, versus Harvey, which was pretty much a big and sustained benefit across most of the first quarter and into September of last year.

Rosemarie Morbelli -- Gabelli & Company -- Analyst

And then lastly, if I may, kind of a trivial question, but why pick Baltimore for your investor day?

Frank Sullivan -- Chairman and Chief Executive Officer

Our GAAP business is there. Our single-largest shareholder is there. It's a lot cheaper to bring a lot of people to Baltimore than it is to New York or somewhere else.

Rosemarie Morbelli -- Gabelli & Company -- Analyst

Okay. Thank you.

Operator

Our next question comes from Vincent Andrews from Morgan Stanley. Please go ahead.

Vincent Andrews -- Morgan Stanley -- Analyst

Thank you and good morning, everyone. I'm just wondering if you'd talk about the media spend in consumer and if you're pleased with the uplift you're seeing and how we should think about the evolution of that spend not just through the balance this fiscal year but into next year. Is it likely to maintain itself at current levels or do you think you'll be able to dial it back?

Frank Sullivan -- Chairman and Chief Executive Officer

I think we're up mid to high-single-digits in the quarter year over year and that's going to be a sustained level of higher spending. Some of that is associated with the rollout of the wood stain program. Our first two months of that program are exceeding our and our customers' expectations in terms of consumer takeaway. So, we're pretty pleased with the program and think the support levels we provided to kick it off are making a difference.

Vincent Andrews -- Morgan Stanley -- Analyst

And then last quarter, we also talked a little bit about the continuation of de-stocking in the consumer big box channel mostly. Has that run its course or are you still lapping that process?

Frank Sullivan -- Chairman and Chief Executive Officer

I think it will have run its course as we get further into the second quarter and then certainly for the balance of the year.

Vincent Andrews -- Morgan Stanley -- Analyst

Okay. Thank you. And then just lastly -- I'm just curious, as you're doing all this restructuring and planning, is there any thought to changing from your fiscal year to a calendar year to improve the comparability of your results versus your peers?

Frank Sullivan -- Chairman and Chief Executive Officer

That is not anything that we've discussed at this point.

Vincent Andrews -- Morgan Stanley -- Analyst

Okay. Thank you very much.

Frank Sullivan -- Chairman and Chief Executive Officer

Thank you.

Operator

Our next question comes from Steve Byrne from Bank of America Merrill Lynch. Please go ahead.

Stephen Byrne -- Bank of America Merrill Lynch -- Analyst

Good morning. Thank you. What categories do you now provide the product and shelf space guidance to Home Depot and has that now increased to include wood stains?

Frank Sullivan -- Chairman and Chief Executive Officer

So, we provide small project paint, both in spray cans and in brush goods and multiple different sizes. We provide products that go on plastic, concrete, certainly metal, and we had provided a much smaller level of interior wood stains and finishes and now are the principal supplier of those products across the entire chain. We also have patch and repair products, caulks, sealants, and construction adhesives, and a few but growing industrial coatings in their building materials section around concrete sealers and early stages of roofing products.

Stephen Byrne -- Bank of America Merrill Lynch -- Analyst

And in your experience with being a category manager, over time, how does that benefit you?

Frank Sullivan -- Chairman and Chief Executive Officer

It's benefited us significantly in terms of growth, in terms of acceptance of new products, and in terms of our ability to really see what's moving the markets across all our customer base. So, it's been a huge benefit for our consumer businesses.

Stephen Byrne -- Bank of America Merrill Lynch -- Analyst

Okay. I assume this wood stain category would be a much larger category than some of these other ones you mentioned.

Frank Sullivan -- Chairman and Chief Executive Officer

I think it's about the same size. We had commented in the fourth quarter that the opportunity initially in the wood stains and finishes on an annualized basis would be in the $60 million to $70 million range. I think over time, it will be bigger.

Stephen Byrne -- Bank of America Merrill Lynch -- Analyst

Okay. And just one last one, this headcount reduction of 150 looks like it's roughly a 1% cut. Was that fully driven by the four manufacturing facility closures or is that more reflective of any change in the overall structure? Would you see the portfolio restructuring you're heading into as being potentially a much bigger change in total headcount?

Frank Sullivan -- Chairman and Chief Executive Officer

So, the activities in the first quarter included some G&A position reductions principally. A lot of the plant position reductions are coming, to the extent that we've announced the closures. We will have, I think, good detail on both the opportunities for consolidating under-utilized manufacturing capacity, the impact of some functional reorganizations, both in terms of cost as well as savings when we present our comprehensive plan in November.

Stephen Byrne -- Bank of America Merrill Lynch -- Analyst

Okay. Very good. Thank you.

Operator

Our next question comes from Kevin McCarthy from Vertical Research. Please go ahead.

Kevin McCarthy -- Vertical Research Partners -- Analyst

Good morning. Frank, how would you characterize your M&A pipeline on the heels of the Nudura deal that you announced three weeks ago?

Frank Sullivan -- Chairman and Chief Executive Officer

We continue to look at small to medium-sized acquisitions. We've done a comprehensive review with our board on the returns on our acquisition activity. With the exception of the Kirker transaction that we talked about the past couple of years, we've got a return on those activities that's in the high-teens to low-20s and we would continue to expect to execute on that program. The most recent one is Nudura, which is a patented insulated foam product for building materials and great fit with our Dryvit business and we're really excited about having the Nudura leadership team and products join RPM.

Kevin McCarthy -- Vertical Research Partners -- Analyst

Frank, on a separate topic, you mentioned some transactional currency headwinds and the industrial segment in the first quarter. Do you anticipate any similar currency pressures in that segment or elsewhere based on what you've seen so far in the second quarter?

Frank Sullivan -- Chairman and Chief Executive Officer

That's hard to say from one quarter to the next. We don't anticipate a drop between the dollar and these developing country currencies to the extent we saw over the summer. It was pretty dramatic. I wouldn't expect that to happen again. It's hard to predict. It could be a couple-million dollar gain or a $3 million or $4 million loss from one quarter to the next. It's really the swings quarter over quarter around a static number as opposed to a particular hit in one quarter.

Kevin McCarthy -- Vertical Research Partners -- Analyst

And then finally, for Rusty -- your tax rate came in a little bit lower than we had penciled in for the first fiscal quarter. How do you expect your tax rate to trend for the year?

Rusty Gordon -- Vice President and Chief Financial Officer

Yes, for the year, we should probably be in the mid-20% range.

Kevin McCarthy -- Vertical Research Partners -- Analyst

Okay. Thank you very much.

Rusty Gordon -- Vice President and Chief Financial Officer

You're welcome.

Operator

Our next question comes from Frank Mitsch from Fermium Research.

Frank Mitsch -- Fermium Research -- Analyst

Good morning, Frank and Rusty and pleasure to meet you, Kristine.

Frank Sullivan -- Chairman and Chief Executive Officer

Frank, welcome back.

Frank Mitsch -- Fermium Research -- Analyst

Good to be back, Frank. I'm optimistic that Fermium Research's outlook in the future will be as bright as Baker Mayfield's appears to be.

Frank Sullivan -- Chairman and Chief Executive Officer

Let's hope so to both.

Frank Mitsch -- Fermium Research -- Analyst

On the consumer side, you guys posted low-teens growth in fiscal Q1 and Home Depot was only partly in fiscal Q1 and it's going to be fully in fiscal Q2 and beyond. So, my question is you maintain the guidance there of mid to upper single-digit growth for the consumer segment. Is that something that we might realistically expect to move higher as we progress through the year and get more quarters under our belt, given what you did in Q1?

Frank Sullivan -- Chairman and Chief Executive Officer

No, I don't think so at this point. As we commented earlier, across the entire consumer segment, we're looking at low-single-digit organic growth. That will be accentuated by the pickup of some market share in the wood stains and finishes area. It's a more solid base of business than we experienced in the past year.

That wasn't unique to us. It was pretty true across the board. The challenges that we're facing in terms of raw material issues are not unique to us. The mismatch between revenue growth and leverage to the bottom line has been reported by many of our peers to serve the same architectural paint markets. We do see that mismatch in terms of price cost and mix beginning to improve in the second quarter and it should get better sequentially.

Frank Mitsch -- Fermium Research -- Analyst

I see. Alright. With respect to the shares outstanding, you mentioned that relative to the end of the last fiscal year, you're now down about 4 million shares. How should we think about the pace of buybacks through the rest of the year.

Frank Sullivan -- Chairman and Chief Executive Officer

So, the net effect of the bond redemption that we talked about, the actual redemption date is November 27th. So, the effect of what will be roughly a 3 million share repurchase on a fully diluted basis will be effective as of that date. The million shares that we talked about year to date have already been completed. Beyond that, we intend to provide a comprehensive look to investors about our capital allocation going forward, about the areas and detail and timing of cost reduction and margin improvement initiatives all on November 28th.

Frank Mitsch -- Fermium Research -- Analyst

Great. See you in Baltimore. Thanks so much.

Frank Sullivan -- Chairman and Chief Executive Officer

Thanks, Frank.

Operator

Our next question comes from Jeff Zekauskas from JP Morgan. Please go ahead.

Silke Kueck -- JP Morgan -- Analyst

Good morning. It's Silke Kueck for Jeff. My first question has to do with the restructuring program. I think we said in the July that the $25 million restructuring that you took in fourth quarter last year was related to reducing headcount by 150 positions and closing four plans, maybe two Rust-Oleum plants and then some stuff on the industrial side. Then the restructuring charge that you took this quarter, is that related to additional headcount reductions and additional plant closures?

Frank Sullivan -- Chairman and Chief Executive Officer

Yes. The fourth quarter activity was principally related to our consumer segment. The activity in the first quarter was a mix between industrial and specialty. There's certainly more to come. Again, we'll provide details here in November.

Silke Kueck -- JP Morgan -- Analyst

Okay. So, there's like 150 positions that will come out of the industrial specialty side and 150 positions that will come out of the consumer business?

Frank Sullivan -- Chairman and Chief Executive Officer

There were 150 positions eliminated in the first quarter, principally in our specialty segmented businesses and industrial segment businesses. We will report on further activity at our investor day.

Silke Kueck -- JP Morgan -- Analyst

Okay. Thank you. In terms of the business that you won at Home Depot, the $60 million or $70 million wood stains business, it looks like if the base business were low single digits, it looks like that maybe you already booked a big part of that business, you already have got like $30 million or $40 million of those sales in your first fiscal quarter?

Frank Sullivan -- Chairman and Chief Executive Officer

I don't have the details on what was sold into the first quarter. Again, we had commented that on an annualized basis, this would be $60 million to $70 million. We have worked hard and incurred a lot of upfront expense to make that load in. The program consumer takeaway is exceeding our and our customer expectations. So, I think from that perspective, everybody's happy with it. We need to get it settled in in terms of a fully loaded program with a cost basis that's consistent with a consistent program as opposed to the ramp up.

Silke Kueck -- JP Morgan -- Analyst

Are the ramp up costs, like the advertising costs of those one-time expenses this quarter or do you think you may see that throughout the year?

Frank Sullivan -- Chairman and Chief Executive Officer

There's a portion of them in the singles of millions of dollars that were one-time expenses and as we indicated earlier, there's a bid to higher single-digit increase in advertising and promotional expense that we would intend to continue throughout the year.

Silke Kueck -- JP Morgan -- Analyst

Okay. And lastly, on the industrial side, what we've said is that waterproofing and the demand in the oil and gas business was good. How did the Tremco Roofing business and the Stonhard flooring business fare in the quarter and what's your outlook for those businesses?

Frank Sullivan -- Chairman and Chief Executive Officer

In both cases, those businesses are doing quite well. We are continuing to see high-teen to low 20% growth rates in the roofing, the Tremco Roofing restoration coatings. They've introduced a new product, a new AlphaGuard product recently with a polyurethane modified acrylic proprietary technology that's taking off and that continues to be a real area of strength for us.

On the Stonhard flooring business, continuing to see solid growth there. I think one of the advantages that Stonhard has versus some of our competitors is their in-house or captive application crews, particularly in an environment where it's difficult to get labor for contracting activities. The last thing I'd say about Stonhard is much like our Carboline business or other businesses, most of their activity is driven by industrial spending that is continuing to be strong, particularly in North America.

Silke Kueck -- JP Morgan -- Analyst

Thanks very much.

Operator

Our next question comes from Mike Harrison from Seaport Global Securities. Please go ahead.

Mike Harrison -- Seaport Global Securities -- Managing Director

Hi, good morning. You've noted several margin headwinds. Obviously, you quantified the legal costs. You talked a little bit about higher advertising spend. Obviously, we're dealing with raws and the transactional FX impact. I'm not sure if we kind of add that up if there's a way to really think about how much better the margin could be if we just moved past these temporary factors. Any sense as to maybe what the underlying mix and operating leverage would have looked like if we could x-out all of those factors?

Frank Sullivan -- Chairman and Chief Executive Officer

I think the comments that we made in our prepared remarks would indicate that if you x-out the FX factors, for instance, in industrial, we would have had EBIT growth equal to or slightly better than our sales growth, the lack of better leverage being the raw materials situation. I think in consumer, you would come close to flat year over year earnings, which is still not very good revenue leverage given the strong revenue growth we had there, excluding the ramp up costs, higher promotional spend, and the one-time legal expense.

Mike Harrison -- Seaport Global Securities -- Managing Director

Thank you. That's helpful. Then I was wondering if you can talk a little bit about the consumer business. You mentioned automotive finishes within there as a bright spot. How big is that business and what was driving the strength in automotive finishes?

Frank Sullivan -- Chairman and Chief Executive Officer

So, we continue to pick up market share. It's in the mid tens of millions of dollars in terms of that business size. We picked up market share and some of the automotive big box accounts from our largest competitor and spray paint small project pain areas there.

Mike Harrison -- Seaport Global Securities -- Managing Director

Alright. And then just in terms of the recent acquisitions you've done in consumer, I'm thinking of some of the bigger ones like Touch And Foam, SPS, Miracle Sealants. Can you give us an update on how those are performing and whether we're seeing an additional contribution to some of the sales growth from those?

Frank Sullivan -- Chairman and Chief Executive Officer

Sure. The Touch And Foam product lines, the cleaning products lines that have been acquired to build a cleaning category at Rust-Oleum, so, Miracle Sealants, Whink, a number of products like that, those are all going exceedingly well. The SPS acquisition in Europe has gone exceedingly poorly. It's in decorative paints and it's in an environment where despite rising raw material costs, a lot of the largest architectural paint procedures in Europe have been in somewhat of a price war. So, that has not been a particularly good-performing acquisition for us for our consumer segment.

Mike Harrison -- Seaport Global Securities -- Managing Director

Alright. Thanks very much.

Frank Sullivan -- Chairman and Chief Executive Officer

Thank you.

Operator

Our next question comes from Mike Sison from KeyBanc. Please go ahead.

Michael Sison -- KeyBanc Capital Markets -- Managing Director

Hey, guys. If you add back the $10 million to consumer, adjusted EBIT is down about 13%, so it's not as bad on the year over year basis -- should that decline significant lessen as you get into 2Q, 3Q? And if your pricing actions are gaining traction, is there a point where you might be even year over year on adjusted EBIT or maybe even up?

Q:

Yeah. Our expectation is that while we will continue to be fighting raw material cost issues as the year progresses, you will see positive year over year earnings results in the second quarter and potentially year after in each of our segments.

Michael Sison -- KeyBanc Capital Markets -- Managing Director

Got it. And then industrial organic growth, as you've talked about, has been pretty good. Maybe a quick update on Euclid, that's usually one of the bigger businesses in that segment and I wanted to see how that was doing.

Frank Sullivan -- Chairman and Chief Executive Officer

Sure. Our Euclid North American activity is very strong and doing quite well. The drag on Euclid is the vehicle business in Brazil and the negative impact both in terms of the economic activity there and further, the FX hit both transactional and translational.

Michael Sison -- KeyBanc Capital Markets -- Managing Director

Great. One follow-up in terms of industrial -- EBIT growth was solid in the first quarter. I would imagine given that pricing is coming through that should continue to strengthen as the year unfolds in terms of EBIT growth.

Frank Sullivan -- Chairman and Chief Executive Officer

I would think that you'll see improvement there sequentially and as we commented earlier, you would have had EBIT growth slightly better than sales growth except for the transactional FX hit, all of which was related to our exposure to developing countries, all of which is in our industrial segment.

Michael Sison -- KeyBanc Capital Markets -- Managing Director

Great. Thank you.

Frank Sullivan -- Chairman and Chief Executive Officer

Thank you, Michael.

Operator

Our next question comes from David Stratton from Great Lakes Review. Please go ahead.

David Stratton -- Great Lakes Review -- Analyst

Good morning and thank you for taking the question. Back to raw materials. Can you just talk a little bit about what makes you feel like what is the high watermark, I think you said, for raw material prices and what makes you think that going forward, things are going to improve.

Frank Sullivan -- Chairman and Chief Executive Officer

So, in general in our industry -- again, not unique to us -- we have been behind the curve on raw material prices in terms of the size of their increases and expectations for how long they would persist. So, related to that, we have been in different parts of our business, more in consumer, which has been typical of our history, behind the curve in gaining price increases to offset raw material price increases.

In this cycle, we have worked hard to gain and sustain price increases only three or four months later to find out that we're facing a new round of raw material price increases. So, in certain solvent areas, in silicones, in acrylics, it's been a challenging raw material environment for our entire industry. So, that is really what explains where we are. The pricing activities began to kick in in the spring and over the summer in ways that are more consistent with an understanding across the whole supply chain of the environment that we're in.

I think lastly, while we're seeing some additional price increases, they're not at the magnitude of what they were 12 or 9 months ago and with the exception of silicones, a lot of the shortages that we were facing have dissipated. Then the last comment that I think is still an interesting factor out there, particularly for us in packaging is the impact of tariffs.

David Stratton -- Great Lakes Review -- Analyst

Gotcha. That was helpful. And then I guess to follow-up on the price increases that you've put into place and your recent market share gains, can you talk a little bit about the competitive environment going forward? You said that there's some stickiness there, where as the raw material prices fall, your price increases can stick. How does that dynamic impact where you see your recent market share gains going forward as hopefully those prices can stay high, but maybe increase competitive pressures.

Frank Sullivan -- Chairman and Chief Executive Officer

Sure. I think that's the dynamic that we've been through twice before and there's no reason to believe that dynamic doesn't exist today, particularly given the strength of our brands. That margin improvement on the cycle turn is complementary to some of the manufacturing and procurement initiatives that we believe will start to take hold after the first of the calendar year.

David Stratton -- Great Lakes Review -- Analyst

Alright. Thank you.

Operator

We have a follow-up question from Rosemarie Morbelli from Gabelli & Company. Please go ahead.

Rosemarie Morbelli -- Gabelli & Company -- Analyst

Thank you. Frank, when you talk about share gain, are you mostly referring to the new business at Home Depot or are you seeing share gain across all of your product lines or most of them?

Frank Sullivan -- Chairman and Chief Executive Officer

We're seeing good market share gains in a number of areas, in consumer, in wood stains, and finishes. It's also in automotive and retail. We're seeing continuing share gains in our industrial segment in flooring and particularly in waterproofing and roofing restoration coatings. So, those are, I think, the best examples of where our growth is outstripping the general market growth.

Rosemarie Morbelli -- Gabelli & Company -- Analyst

Okay. Thanks. That is helpful. Then I was just wondering if you could talk about the market in general at the big box. In the past few quarters, it is mostly big projects that have resulted in growth while the small projects, which is where you play, has been behind the curve, so to speak. Are you seeing any change in that trend? Then related to that, have you lost any business at Lowes that is being replaced by the gain at Home Depot?

Frank Sullivan -- Chairman and Chief Executive Officer

We have experienced, as you pointed out, across our whole industry relatively week consumer takeaway in the past fiscal year. We think that there's an improved low-single-digit organic growth in the market. So, it's improved from the prior year, not dramatically, but it's positive as opposed to flat or down. Our volume loss at Lowes was less than $20 million.

Rosemarie Morbelli -- Gabelli & Company -- Analyst

Okay. Thank you very much.

Operator

Once again, if you do have a question, please press *1 on your touchstone phone. We have a follow-up question from John McNulty from BMO Capital Markets. Please go ahead.

John McNulty -- BMO Capital Markets -- Managing Director

Yeah. Just one quick follow-up -- on the corporate line, when you take out the adjustments that you guys have called out, it looks like it's $23.4 million or so, which is the highest level we've seen, I guess, in the last five or six quarters in that line. I guess I'm wondering given all the cost why that would be and if you can explain that one away for us, that would be helpful.

Rusty Gordon -- Vice President and Chief Financial Officer

Sure, John. Yeah, it was a bit elevated during the quarter. We did have some higher acquisition-related costs and associated legal fees. So, I think that number should come down, especially with some of the cost reductions at corporate that were executed in the first quarter.

John McNulty -- BMO Capital Markets -- Managing Director

Got it. Is there a run rate that you can point us to in terms of thinking about that for the remaining quarters? I know it's a little bit lumpy, but just in aggregate.

Rusty Gordon -- Vice President and Chief Financial Officer

Yeah. It should be down certainly from the first quarter. I would think in the $22 million range would have been something I would have expected to be more of a run rate.

John McNulty -- BMO Capital Markets -- Managing Director

Great. Thanks for the color.

Operator

Our next question comes from Richard O'Reilly from Revere Associates. Please go ahead.

Richard O'Reilly -- Revere Associates -- Analyst

Thank you. Good morning. Two quick questions -- the press release talks about the announced closures of four manufacturing facilities. Are those in addition to what you had previously talked about in July?

Frank Sullivan -- Chairman and Chief Executive Officer

Yes.

Richard O'Reilly -- Revere Associates -- Analyst

Can you tell us where they are, what those are?

Frank Sullivan -- Chairman and Chief Executive Officer

Not in any detail.

Richard O'Reilly -- Revere Associates -- Analyst

Okay. Fine. Thank you. Second question -- the increased advertising expense in consumer -- can you describe where that is going? Is it TV? Is it in-store? Is it in the circulars? Is it rebates? Where's it going?

Frank Sullivan -- Chairman and Chief Executive Officer

It's a combination of TV and online. It's across -- the increases are principally in the wood stains and finishes category in a big way and to a lesser extent but still higher year over year in small project paint.

Richard O'Reilly -- Revere Associates -- Analyst

Okay. Thanks a lot.

Frank Sullivan -- Chairman and Chief Executive Officer

Thank you.

Operator

We are showing no further questions. I will now turn the call back to Mr. Frank Sullivan for closing remarks.

Frank Sullivan -- Chairman and Chief Executive Officer

Thank you. Thank you for your participation on our call today. We look forward to seeing as many of you as possible in person at our November 28th investor day in Baltimore. The details of that can be found on our website, www.rpminc.com. We also look forward to welcoming some of you along with nearly 1,000 of our stockholders at our annual meeting of stockholders, which is tomorrow afternoon. Thank you for your questions and for your investment in RPM. Have a great day.

Operator

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.

Duration: 56 minutes

Call participants:

Frank Sullivan -- Chairman and Chief Executive Officer

Kristine Schulze -- Director of Financial Reporting

Rusty Gordon -- Vice President and Chief Financial Officer

John McNulty -- BMO Capital Markets -- Managing Director

Ghansham Panjabi -- Robert W. Baird & Co. -- Analyst

Rosemarie Morbelli -- Gabelli & Company -- Analyst

Vincent Andrews -- Morgan Stanley -- Analyst

Stephen Byrne -- Bank of America Merrill Lynch -- Analyst

Kevin McCarthy -- Vertical Research Partners -- Analyst

Frank Mitsch -- Fermium Research -- Analyst

Silke Kueck -- JP Morgan -- Analyst

Mike Harrison -- Seaport Global Securities -- Managing Director

Michael Sison -- KeyBanc Capital Markets -- Managing Director

David Stratton -- Great Lakes Review -- Analyst

Richard O'Reilly -- Revere Associates -- Analyst

More RPM analysis

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.