RPM International, Inc. (RPM)
F2Q 2013 Earnings Call
January 8, 2013 10:00 am ET
Executives
Frank Sullivan – Chairman & Chief Executive Officer
Rusty Gordon – Vice President & Chief Financial Officer
Barry Slifstein – Vice President, Investor Relations and Planning
Analysts
Jeffrey Zekauskas – JP Morgan
John McNulty – Credit Suisse
[Alex Hefrema] – Bank of America Merrill Lynch
Rosemarie Morbelli – Gabelli & Company
Charles Dan – Morgan Stanley
Ivan Marcuse – KeyBanc Capital Markets
Edward Yang – Oppenheimer & Co.
Jason Rogers – Great Lakes Review
Richard O’Reilly – Revere Associates
Presentation
Operator
Good day, ladies and gentlemen. Welcome to the RPM International’s Conference Call for F2Q 2013. Today’s call is being recorded. This call is also being webcast and 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 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 proceed, sir.
Frank Sullivan
Thank you, Gwen. Good morning and welcome to the RPM International, Inc. Investor Call for F2Q ended November 30, 2012. We are pleased with our performance in F2Q which was ahead of our plan and consistent with our expectations for growth for our F2013.
Our consumer segment businesses generated strong top and bottom line growth as a result of what we believe to be a return to more normal spending in home maintenance and repair and small project redecorating driven by the dynamics of an improving housing market. Gross margins improved as a result of some raw material cost relief for the first time in basically six to eight years, and particularly at Rust-Oleum as a result of positive impact of a multi-year effort to improve distribution, supply chain, and manufacturing efficiencies.
Acquisitions also contributed to the strong consumer segment sales and earnings growth. Last spring we acquired Australian-based HiChem which is continuing to show strong results under the leadership of its original owner and founder Ivan Moldovan; Synta in the fall, a deck coating product line whose results will be more impactful in the spring and summer months given the seasonality of that business; and Kirker this fall, a leader of nail polish enamel.
Our industrial segment businesses generated what we believe to be excellent results given the underlying uncertainty for many factors in our core North American and European markets and economies, with one exception.
That exception is our Building Solutions Group’s Roofing Division. You’ll recall that in F1Q we communicated a change in leadership and a refocusing of the business on its core roofing material and insulation businesses. This has led us to exit certain contracting and service revenue areas and a winding up of the Roofing Division’s international growth efforts. Additionally, from a market perspective, much of the major reroofing spending over the last few years had been driven by local, state, and federal funding for schools, institutions and various government work. Public funding levels in Canada and the US for roofing markets has been reduced over the past year. As a result of these factors we expect the BSG Roofing Division to operate at levels below last year for the balance of F2013.
Excluding the drag of the BSG Roofing Division results, our remaining industrial segment businesses collectively delivered double-digit sales and earnings growth over the prior year’s F2Q. In the quarter we experienced generally flat performance from our European business units, a performance we believe is particularly strong given the economic challenges continuing in Europe. We also benefitted from an improvement in foreign exchange translation impact versus F1Q, an improving construction market in the US, strong results from many of our high-performance coatings product lines, and a positive contribution to sales and earnings growth from the Brazilian-based Viapol acquisition we completed in F1Q.
When you look through the impact of our India-based Kemrock investment which delivered $5 million of after-tax catch up earnings in last year’s F2Q as a result of our exceeding a 20% ownership interest at that time, and the more than $10 million hit to earnings this quarter from the write-off of our remaining equity investment in Kemrock, we feel particularly good about a quarter that delivered year-over-year sales growth of 11% and earnings growth of 17%; and feel that excluding extraordinary items, these results are indicative of what we will generate for the balance of our F2013.
That completes my opening comments. I’d like to turn the call over to Barry Slifstein, RPM’s Vice President of Investor Relations and Planning, to provide additional detail on our F2Q results.
Barry 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 F2Q 2013 and year-to-date on an as-adjusted basis excluding Kemrock adjustments in both the current and prior year, then cover some November 30, 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 the outlook for the remainder of F2013.
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