RPM International Management Discusses Q4 2012 Results - Earnings Call Transcript

RPM International (RPM)

Q4 2012 Earnings Call

July 23, 2012 10:00 am ET


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

Barry M. Slifstein - Vice President of Investor Relations & Planning

Russell L. Gordon - Chief Financial Officer and Vice President


Kevin W. McCarthy - BofA Merrill Lynch, Research Division

John P. McNulty - Crédit Suisse AG, Research Division

Rosemarie J. Morbelli - Gabelli & Company, Inc.

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

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

Saul Ludwig - Northcoast Research

Carly Mattson - Goldman Sachs Group Inc., Research Division

Gregory W. Halter - LJR Great Lakes Review

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



Welcome to RPM International Conference Call for the Fiscal 2012 Fourth Quarter and Year End. Today's conference 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 results on the RPM website.

Following today's presentation, there will be a question-and-answer session. [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, Shakwana. Good morning, and welcome to the RPM International Inc. investor call for the fiscal fourth quarter and year ended May 31, 2012. We are conducting our call today from the New York Stock Exchange, where we will hold an analyst and investor luncheon later today. This is the 40th anniversary of RPM releasing its year-end results from New York.

At the end of the day today, Dave Reif, President of our Performance Coatings Group and his team will ring the closing bell of the New York Stock Exchange to celebrate their attainment of $1 billion in annual revenues. Many of you know Dave, who is RPM's Chief Financial Officer until he took over leadership of our Performance Coatings Group 10 years ago. At that time, our Performance Coatings Group was approximately $300 million. Through a combination of internal growth, new product development, market share gains, geographic expansion and acquisitions under Dave's leadership, this collection of RPM companies has grown threefold over the last decade.

On the call with me this morning are Rusty Gordon, RPM's Vice President and Chief Financial Officer; and Barry Slifstein, our Vice President, Investor Relations and Planning.

We are pleased with the strong performance of the RPM companies in our fourth quarter and for our 2012 fiscal year. I'd like to now turn the call over to Barry Slifstein to provide you with details of our fourth quarter results.

Barry M. Slifstein

Thanks, Frank, and good morning, everyone. Thank you for joining us on today's call. I'll review the results of operations for our fiscal 2012 fourth quarter and touch upon a few May 31, 2012, balance sheet and cash flow items. I'll then turn the call over to Rusty Gordon, RPM's Vice President and Chief Financial Officer, who will discuss RPM's fiscal 2013 outlook.

During RPM's fiscal 2012 fourth quarter, consolidated net sales increased 12.2% year-over-year to $1.1 billion, principally due to volume improvement of 7.9%, price increases of 2.7% and acquisition growth of 4.0%. These increases were partially offset by unfavorable foreign exchange of 2.4%.

Industrial segment net sales of $724.8 million, which accounted for 66% of total sales, increased 15.8% over last year with volume improvement of 10.8%, price increase of 2.7% and acquisition growth contributing 5.6%, all of which were partially offset by unfavorable foreign exchange of 3.3%.

At the Consumer segment, net sales of $377 million increased by 5.9% over the same quarter last year, with 2.9% attributable to unit volume increases, 2.7% from positive price and 1.1% attributable to acquisition growth. Unfavorable foreign exchange of 0.8% partially offset these increases.

Our consolidated gross profit increased 10.6% to $460.4 million from $416.4 million last year, principally due to higher sales volumes and price increases. As a percent of net sales, gross profit declined by 60 basis points to 41.8% due to the continuing high cost of raw materials.

Consolidated SG&A increased 8.4% to $322.2 million from $297.1 million last year generally due to increases in variable costs associated with higher sales volumes such as compensation, benefits and distribution. Partially offsetting these higher costs was a lower bad debt expense resulting from the Lancaster bankruptcy last year. As a percentage of net sales, SG&A decreased 100 basis points to 29.2% of sales from last year's 30.2% due to increased leverage on higher sales.

Earnings before interest and taxes, EBIT, of $139.5 million increased 16.5% from $119.8 million last year due principally to higher sales volumes and improved leverage on SG&A expenses. Partially offsetting these improvements was the continued unfavorable trend of higher raw material costs. As a percentage of net sales, EBIT improved 50 basis points from 12.2% to 12.7%.

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