RPM International Inc. (RPM)

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RPM International Inc. (RPM)

F1Q10 Earnings Call

October 5, 2009 10:00 am ET

Executives

Frank C. Sullivan - Chairman of the Board, Chief Executive Officer

P. Kelly Tompkins - Chief Financial Officer, Executive Vice President - Administration

Ronald A. Rice - President, Chief Operating Officer

Analysts

Analyst for Jeffrey J. Zekauskas - J.P. Morgan

Rosemarie Morbelli - Ingalls & Snyder

Kevin W. McCarthy - Bank of America Merrill Lynch

Saul Ludwig - KeyBanc

Jason Rogers - Great Lakes Review

Edward H. Yang - Oppenheimer

Amy Zang - Goldman Sachs

Presentation

Operator

Good day, ladies and gentlemen. Welcome to the RPM International conference call for the fiscal 2010 first quarter. (Operator Instructions)

Comments made on this call may include forward-looking statements based on current expectations that 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.

(Operator Instructions) 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 C. Sullivan

Thank you, Stephanie. Good morning and welcome to RPM's first quarter earnings conference call for our 2010 fiscal year. As the world now knows, last year at this time we were on the precipice of a near collapse in the capital markets that led to the broadest and deepest recession in nearly 80 years. I remember in October with poor results joking that if we had 12 Octobers, we’d have a very challenging year. In November, which was worse than October, we quit joking and were spurred to action. For the first time in my 20 years at RPM, we abandoned our operating plan and refocused our goals on capital structure, cash flow, and liquidity. These actions included the elimination of manufacturing shifts, sharp reductions in SG&A spending, and cut-backs in capital spending and our acquisition activity.

These actions allowed us to finish the 2009 fiscal year with record levels of cash flow and liquidity and entering our 2010 fiscal year on June 1 having lowered the break-even point of every RPM operating unit.

Many of you are also aware of RPM's longstanding deliberate strategic balance between consumer and industrial markets. Combined with our acquisition activities, this balance allowed us to continue to grow through all economic cycles over the last 30 years right up until 2009.

We are pleased to see today that the more typical differentiated performance of our two segments is seeming to return to more historic trends. As we had hoped, our generally low cost, high-value consumer DIY product line appeared to be leading a modest return to consumer spending as housing turnover picks up and as homeowners are returning to home maintenance repair and redecoration.

This led to a strong volume growth in our consumer businesses and product lines, which combined with the benefits of the aggressive actions taken last year, has resulted in a strong profit rebound.

The positive impact of these prior year adjustments are also evident in our industrial businesses where as expected, we are experiencing revenue declines versus the prior year’s record level of sales, but have reduced the negative impact that these declines would have otherwise had on profitability. We also remain focused on cash generation across all our PM business units.

The results of all of this is a return to record levels of earnings and cash flow at RPM for the first quarter ended August 31, 2009.

I would now like to turn the call over to Kelly Tompkins, RPM's Executive Vice President and Chief Financial Officer, to provide you with more of the details on our first quarter.

P. Kelly Tompkins

Thanks, Frank. Good morning, everyone. Thanks for joining us on the call. I will go over the first quarter in detail and the turn it back to Frank for some closing comments before we take your questions.

Looking at consolidated net sales, down 7.1% quarter over quarter, foreign exchange accounted for 3.9% of the decrease due to the continued strength of the U.S. dollar during the quarter compared to a year ago, most notably against the EURO and the Canadian dollar. Unit volume declined 4.8%, although we had strong core growth in our consumer segment, it was not enough to offset the as-expected top line pressure we experienced in our larger industrial segment. Acquisitions in our industrial segment and the contribution of prior period price increases in both segments contributed 1.6% of our quarter over quarter growth.

Looking at the industrial segment, net sales of $599.7 million, which accounts for approximately 65.5% of total sales, declined 14% from last year, largely driven by volume declines of 11.1% and unfavorable foreign exchange of 4.4%.

Partially offsetting these declines were acquisitions and prior period price increases, which contributed 0.8% and 0.7% respectively.

Consumer segment net sales of $316.3 million, 34.5% of our total sales, improved 9.9% over last year’s first quarter. Unit volume was very strong, up 10.5% and price increases accounted for 2% of the sales growth with foreign exchange unfavorable by 2.6%.

Consolidated gross profit of 43% in the quarter was up 200 basis points from 41% last year due to more stable raw material costs, prior period price increases, and the benefit of last year’s cost reduction actions, which significantly reduced our conversion costs.

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