RPM International Management Discusses Q3 2012 Results - Earnings Call Transcript

RPM International (RPM)

Q3 2012 Earnings Call

April 05, 2012 10:00 am ET

Executives

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

Robert L. Matejka - Chief Financial officer and Senior Vice President

Russell L. Gordon - Vice President of Corporate Planning

Analysts

Silke Kueck-Valdes - JP Morgan Chase & Co, Research Division

John P. McNulty - Crédit Suisse AG, Research Division

Kevin W. McCarthy - BofA Merrill Lynch, Research Division

Ivan M. Marcuse - KeyBanc Capital Markets Inc., Research Division

Edward H. Yang - Oppenheimer & Co. Inc., Research Division

Gregory W. Halter - LJR Great Lakes Review

Presentation

Operator

Good day, ladies and gentlemen, and welcome to RPM International Conference Call for the Fiscal 2012 Third Quarter. Today's call is being recording. 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 Chief Executive Officer, Mr. Frank Sullivan, for opening remarks. Please go ahead, sir.

Frank C. Sullivan

Thank you, Derek. Good morning, and welcome to the RPM International Inc. conference call for our 2012 fiscal year third quarter for the period ended February 29, 2012. On the call with me today are: Bob Matejka, RPM's Senior Vice President and Chief Financial Officer; Barry Slifstein, RPM's Vice President and Controller; and Rusty Gordon, RPM's Vice President of Planning and Analysis and our soon-to-be next Chief Financial Officer, pending Bob Matejka's retirement. We are pleased with our performance across almost all RPM operations during the third quarter. Industrial segment businesses continue to show broad strength across numerous product lines, including erosion control coatings and fireproofing products, various industrial and commercial flooring product lines, specialty waterproofing bridge deck coatings and expansion joints. In fact, our strength is coming from nearly all geographies. While in Europe, we are seeing some weakness in Spain and Italy, where we have a number of good companies with a strong presence. In general, our Industrial segment results across European geography continue to show positive sales and earnings momentum. Our developing country results are also showing very strong year-over-year gains, though on a relatively small sales base.

Even in our more cyclical construction products, sealants and waterproofing areas, we are starting to see some stronger year-over-year sales and earnings growth in relationship to relatively weak comparisons a year ago and growing demand in the repair and maintenance areas, as well as the impact of continuing industrial capital spending and some uptick in commercial activity.

Our Consumer segment had an extraordinarily strong year-over-year turnaround, though I would attribute some of this to weather-related issues. While we generally don't like hearing weather-related cause and effect from operations in relationship to their performance, and I suspect our investors are the same way, clearly, last year's third quarter in relationship to our Consumer segment was relatively poor due to weak consumer takeaway in retail and near-historic winter weather, in terms of both cold, snow and longevity. In contrast, this third quarter, the seasonally low period for RPM's businesses has had a remarkably warm winter and lack of snow throughout most of North America, and more importantly, a significant uptick in consumer DIY small project paint and patch and repair spending. It's hard to tell how much of this is in relationship to an improvement in consumer spending and attitudes in these areas or the year-over-year weather comparisons, and we feel there's a little bit of both. In any event, we are happy to show an extraordinarily strong quarter with unit volume growth across our consumer lines, up by 15%.

I would now like to turn the call over to Bob Matejka, RPM's Senior Vice President and Chief Financial Officer, to provide you more details on our third quarter results. Bob?

Robert L. Matejka

Thank you, Frank, and good morning, everyone. Thanks for joining us on today's call, and I will review the results of operations for our fiscal 2012 third quarter. I'll touch on a few February 28 balance sheet measures and I'll talk to cash flow activities through the first 9 months of the year. Then I'll turn the call back to Frank for closing comments before we take your questions.

During RPM's fiscal 2012 third quarter, consolidated net sales increased 14% year-over-year to $773.6 million, principally due to volume improvements of 8.5%, price increases of 2.4% and acquisition growth of 4.7%. The increases were partially offset by unfavorable foreign exchange of 1.6%. The industrial segment net sales of $501.9 million, which accounted for 65% of our total sales, increased 11.8% over last year, with acquisition growth adding 6.8%, volume improvement of 5.2%, and price increases adding 1.8%, all of which were partially offset by unfavorable foreign exchange of 2%.

At the Consumer segment, net sales of $271.7 million increased by 18.2% over the same quarter last year, with 15.1% attributable to unit volume increases, 3.4% from positive price and 0.3% attributable to acquisition growth. Unfavorable foreign exchange of 0.6% partially offset the sales increased drivers.

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