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On Thursday, RPM International Inc (NYSE:RPM) reported its third quarter earnings and discussed the following topics in its earnings conference call. Take a look.
Consumer Product Lines
Silke Kueck – JPMorgan: I was wondering whether you can talk about some of the product lines on the consumer side where you’ve seen market share gain whether that’s in low-end Rust-Oleum products or in Zinsser or DAP or give a little bit of color?
Frank C. Sullivan – Chairman and CEO: I think we picked up some gains in the primary area with our Zinsser products. We’ve had real strong performance in a number of new product categories, including some larger ticket item areas were kitchen counter and kitchen cabinet refurbishment and those have been very well received and the takeaway is pretty exciting there. I had commented on earlier call that Rust-Oleum also with an acrylic-based ten-year guarantee blacktop coating has seen real good success with that and that is the first time that Rust-Oleum has had an opportunity in the building material section of some of its big -box customers. So, that’s an exciting kind of new category for us that we hope to expand in. Then lastly, there is a new product called LeakSeal which is a product introduced by Rust-Oleum and is one of the fastest growing new product introductions we’ve ever had. It is basically a waterproofing material that sticks to just about anything. It’s an aerosol product today and they’re pursuing a brush good as well. So, that would give you some of the highlights of some of the strong growth we had. The other thing I would tell you is that it’s my belief that we’ve had some of what traditionally would be March sales as we get into the strength of our spring selling season following the February, with the mild weather that we’ve had pretty much around the country.
Silke Kueck – JPMorgan: If I can ask one follow-up on pricing, I think during last conference call, you said that you plan to increase prices maybe another 3% year-over-year in the second half of fiscal ’12, and is that proceeding as planned or are there price increases that have been announced recently?
Frank C. Sullivan – Chairman and CEO: On a consolidated basis for the year, prices were up about 2.5%, and in the quarter, we were up in consumer about 3.4%. We have faced and continue to face a very challenging raw material environment. We’ve had brief periods of stable raw material prices only to be followed by increases in certain categories. Unfortunately that trend continues. So, we are continuing to address cost issues and pricing issues where appropriate.
Pricing vs. Raw Material
John McNulty – Credit Suisse First Boston: Just a couple quick questions, just on the pricing versus raw material issue, do you feel like you’re caught up at this point or is there still more that you need to do in order to catch the current raw material environment that we’re in.
Frank C. Sullivan – Chairman and CEO: We are getting caught up in some of our industrial product lines, but we are still a good ways behind the curve and almost everyone of our consumer businesses and so there is more to do and certainly more to do on the raw material cost side as well and so we like everybody in our industry are looking at different options and different alternatives in relationship to what’s been a very challenging raw material environment for our industry.
John McNulty – Credit Suisse First Boston: Is that the case in the Industrial segment as well or are you pretty well caught up on the industrial side?
Frank C. Sullivan – Chairman and CEO: We’re caught up in a number of our industrial product areas, not all, but in a number of them we are caught up, so you have seen over the last year or two and we’ll continue to see I think some better gross margin and raw material cost versus price performance out of our Industrial segment than what we’ve been able to achieve in our Consumer segment.
John McNulty – Credit Suisse First Boston: On the industrial volumes is there any help from weather in that business or these projects typically more scheduled out so it’s not something where an unseasonably warmer dry seasons are going to matter all that much? How should we think about the potential weather pattern in industrial?
Frank C. Sullivan – Chairman and CEO: Normally I would tell you that that weather in North America would help some of our Building Solutions Group, construction products areas and certainly we’re seeing some strong improvements year-over-year and a concrete add mixtures in our number of waterproofing products, but quite candidly, John, versus the last three years in which a lot of these construction products or particularly, selling into the commercial market had been very challenged. I think the message that we’re seeing there is that we’re just seeing a steady – on a lower base, a steady and it feels pretty solid improvement in forward momentum in sales and earnings and a lot of our building material and construction products and construction chemical and waterproofing categories that were challenged for the last three years. Beyond that, weather really is not a factor. For all the mild winter weather we’ve had in North America, Europe has been crushed. We still have pretty good gains in most of our high performance coatings, flooring, corrosion control coatings. Most of that is driven by continued expansion or capital spending in kind of our Fortune 1000 customer base. Then also, just an understanding of the nature of some of our businesses, so for instance, a little less than a year ago, we acquired API, a Genoa, Italy base business. So you’d scratch your head a little bit about where they’re located. They actually are the largest provider in the world of polymer flooring for the military and cruise-ship industry. So while they are Italian based, their market is global, we’ve brought some real good synergies to them in terms of raw material cost. So, those are the types of acquisitions and they are on product lines that we’re pursuing that might be located, in a challenged geography, but have some pretty good opportunities, both for synergy as well as the more global markets they serve.
John McNulty – Credit Suisse First Boston: Then just one last question with regard to M&A. With some parts of the market looking like it’s starting to firm up and at the same time you’ve got questions about Europe and the growth there and even maybe things slowing in Asia. How should we think about the pipeline for M&A for you? I know you’ve made a couple acquisitions just recently, but is the pipeline fuller or is it a little bit smaller at this point and in terms of pricing, how should we think about how the multiples are changing based on kind of the current dynamics with regard to demand?
Frank C. Sullivan – Chairman and CEO: I would say that as you know acquisitions have been 40% to 50% of our growth on average over the last 30 years. Our pipeline is better today than it was kind of in the 2005 through 2008 timeframe. We tend not to play in the size space that private equity influences, but they certainly influence price expectations. So the multiple expectations today are more in the range of the historic norm in which we succeeded for 30 years than in the crazy bank leverage, no covenant multiples of the mid-to-late 2000s. So we’re in an better environment value wise, great pipeline. The only thing I would say is that historically particularly as it related to U.S. Steel let’s say 10 years ago, if we had a signed letter of intent for 80% or 90% of those transactions got done. As we’re looking to grow more aggressively, particularly in a developed world that signed letter of intent to completion feels more like 50-50 as we just bump into diligence issues around taxes or other areas that weren’t generally problems in Western Europe and the U.S. So, the hit rate is a little bit less, valuations are more back towards norms, and our pipeline is fuller than it’s been in probably six or eight years.
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