RPM International Inc. (RPM)

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RPM International (RPM)

Q4 2011 Earnings Call

July 25, 2011 10:00 am ET

Executives

Robert Matejka - Former Chief Financial officer, Vice President, Principal Accounting officer, Controller and Consultant

Frank Sullivan - Chairman, Chief Executive officer and Chairman of Executive Committee

Analysts

Rosemarie Morbelli - Gabelli & Company, Inc.

Abhiram Rajendran - Crédit Suisse AG

Aleksey Yefremov - BofA Merrill Lynch

Michael Sison - KeyBanc Capital Markets Inc.

Silke Kueck-Valdes - JP Morgan Chase & Co

Saul Ludwig - Northcoast Research

Edward Yang - Oppenheimer & Co. Inc.

Presentation

Operator

Welcome to RPM International Conference Call for the Fiscal 2011 Fourth Year and Year End Conference Call. 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 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 reports 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 Sullivan

Live from New York, it's the RPM Investor Conference Call for the Fiscal Year Ended May 31, 2011. On the call with me this morning are Bob Matejka, our Senior Vice President and Chief Financial Officer; and Barry Slifstein, RPM's Vice President and Controller.

We had a strong finish to a good year. During the year, we took action to bring to a close the Bondex asbestos liability situation, we continued our focus on geographic expansion and worked to restart our acquisition activities and rebuild our pipeline. From a performance perspective, we benefited from a strong rebound in industrial market maintenance and capital spending, which drove our specialty coatings and waterproofing product lines serving these markets up double digits. We experienced a flattening of results in our product lines serving construction markets after 2.5 years of significant declines and generated modest improvement in product lines serving mostly North American consumer DIY markets, as a result of new product introductions and market share gains mainly in our small project paint categories.

We are very pleased with these results in the face of continuing weakness in North American residential and commercial construction and housing turnover as well as poor U.S. retail takeaway. We also faced dramatic increases of raw materials throughout the year. Despite these challenges, our strong finish to the 2011 fiscal year showed the benefits of the RPM entrepreneurial model and our company's response to the recession, with Industrial segment sales up 14%, driving EBIT growth of 24% in the fourth quarter, and Consumer segment sales up 5%, and excluding the onetime $5.5 million write-down of receivables associated with a major distributor bankruptcy in our Consumer segment. This 5% growth drove a 12% increase year-over-year in Consumer segment EBIT.

I'd now like to turn the call over to Bob Matejka to provide you some details on the fourth quarter and full year, after which we'll take your questions on our 2011 fiscal year, our fourth quarter and our outlook for 2012. Bob?

Robert Matejka

Thank you, Frank. Morning, everyone, and thanks for joining us on today's call. I'll review the results of our fiscal 2011 fourth quarter, touching on a few balance sheet and cash flow measures, then I'll turn it back to Frank for closing comments before we take your questions. All of the income statement comments that I'll make compare fiscal 2011 actual results to fiscal 2010 pro forma results, which exclude the results of Specialty Products Holding Corporation. We refer to that as SPHC. As you all know, SPHC was deconsolidated from RPM International Inc. effective May 31, 2010.

Getting to the fourth quarter. Consolidated net sales increased 10.9% from the fourth quarter last year to $981.8 million, driven by volume increases of 5%, acquisition growth of 1.3%, price increase of 1.8% and favorable foreign exchange of approximately 2.8%.

The Industrial segment net sales of $625.9 million, which account for approximately 64% of sales, increased 14.4% over last year, with volume up 6.6%, price up 1.8%, acquisition growth up another 2.1% and favorable foreign exchange up 3.9%. In the Consumer segment, net sales of $355.9 million increased by 0.1% over the same quarter last year, with 2.5% attributable to volume and the balance split fairly evenly between price and foreign exchange.

Consolidated gross profit increased to $416.4 million from $384.2 million last year, principally due to volume increases.

As a percent of net sales, gross profit declined by 100 basis points to 42.4% due to continued availability issues and increases in raw material cost. Pricing and material availability impacted margins negatively by some 230 basis points, almost half of which was offset by pricing action.

Consolidated SG&A increased 7.7% to $296.6 million due to variable cost increases associated with the higher sales volumes. As a percent of sales, SG&A decreased to 30.2% of sales from 31.1% of sales, representing a reduction of 90 basis points mostly due to better overall leverage and higher sales.

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