RPM International Inc (NYSE:RPM) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.
Sales Growth Outlook
Matt Wooten – Robert W. Baird: It’s (Matt Wooten) sitting in for Ghansham today. On the consumer business, the 10% organic growth rate in the quarter was certainly impressive. Based on your guidance, you expect the growth to be tempered in fiscal year ’14. Can you talk about what drove the performance in the quarter, and then how we should think about the breakdown of sales growth – organic sales growth between the first half of fiscal year ’14 and the second half of fiscal year ’14?
Frank C. Sullivan – Chairman and CEO: Sure. In the consumer segment, I think the underlying economic factors that are supporting our growth is a return to a normal housing market. Certainly, new home construction helps us a little bit, but more directly it’s housing turnover where we benefit on the fix-up or repair or redecorating by homeowners when they prepare a home for sale and then by the new homeowners when they take possession of it. We also think that there is a return to normal levels of repair and maintenance and small project redecorating from very depressed levels a few years ago. And then lastly, particularly at Rust-Oleum, we are picking up both market share and also creating new categories with a string of exciting new product introductions, whether its 2X which is a unique aerosol process that allows us to distribute twice the coverage out of a can of spray paint or whether it’s the newly introduced NeverWet product. We are continuing to introduce new products at higher than typical price points and all of that both helps us pick up market share and also expand the broader market. And we see that continuing into fiscal 2014.
Matt Wooten – Robert W. Baird: Then in terms of SG&A, it certainly seems that there might have been a slightly less operating leverage than we would have expected in the consumer business at least in this quarter. Do you expect SG&A to temper as we progress throughout fiscal year ’14?
Frank C. Sullivan – Chairman and CEO: I think as we get into fiscal year ’14, if we experience the revenue growth that we’re hopeful for, the answer to that question will be yes. We are introducing a number of new products. Our businesses, whether it’s industrial, or in this case, consumer, still remain relatively seasonal. So we had a pretty healthy dose of marketing and advertising in the spring and early summer months to support new product launches. And I think our results would show that that’s the right thing to do. But if we experience the growth throughout the year that we expect, you should expect better leverage the bottom-line out of that division for the consolidated full of fiscal ’14.
Kevin McCarthy – Bank of America Merrill Lynch: Frank, I guess you started your remarks talking about some of the charges, and I’m sure there were more than you would’ve preferred in fiscal ’13. As you close the book so and look ahead, is the slate reasonably clean as it relates to charges for fiscal ’14, would be my first question. Then second one, on the restructuring charges related to Rust-Oleum anyway do quantify the prospective impact on earnings or margins associated with that?
Frank C. Sullivan – Chairman and CEO: To your first question, as far as we can tell, the slate is clean for 2014. We’re fully written off anything that we have with Kemrock. We anticipate a finalization of an agreement in principle on the BSG Roofing Division issue in the coming weeks. So I think we’re in pretty good shape to once again be more typical RPM which is to deliver clean results; and certainly FY’13 was not a year in which we did that very well, or quite generally that we’re proud of in that regard. On the Rust-Oleum front, these are very smart moves by a management team that’s doing a great job. Rust-Oleum had a terrific year as the DAP as did the performance of the consumer acquisitions that we completed throughout the year, and those things resulted in a consumer segment results that we posted, both for the year and the quarter. I recite that because to the extent that we have a presence in our consumer segment in Europe, and that is most exclusively Rust-Oleum, they experienced the same thing. All of our European businesses did which is a reduction in revenues, and a reduction in earnings. So, with some acquisition activity that Rust-Oleum has had over the last five years or seven years to create a presence in the European marketplace, they found themselves with some excess capacity, and have made the culturally and people-wise difficult decisions, but financially smart decisions to address that capacity now, and as Rusty commented on return to growth in Europe and recovery in those markets, we should certainly be in a better position to leverage that growth back to our bottom line. And in terms of that piece as well as the Testors’ piece, I think the payback period for both of those will be about three years. And that’s based on our current outlook in Europe. Obviously, if economic activity picks up, that payback will be much quicker.
Kevin McCarthy – Bank of America Merrill Lynch: Then shifting gears if I may, what is your current outlook for raw material cost across the Company?
Frank C. Sullivan – Chairman and CEO: It’s pretty stable. With 50 different business units and thousands of different product lines, you’ve got a mixed basket of raw materials for every different product. So, as we speak, we have some raw material relief in certain product categories. Having said that, for instance, at Rust-Oleum, they’re RPM’s largest purchase of acetone as a critical raw material, and we’re in a period where acetone prices are actually rising. And so, it really is a mixed bag across the different companies and product lines of RPM, but on a consolidated basis, we think we’re planning for and anticipate flat to slightly down raw material cost. Oil, which is moving in the wrong direction currently, could have an impact on that throughout the year, but that’s our best guess at this point in time. The last comment I’ll make there is, is that we continue to have a focus across all of RPM on improving our gross margins, and a lot of that activity is coming through, whether it’s manufacturing, streamlining, or different looks at our supply chain. It’s a challenge across all of our businesses that we are taking on. Product mix also is an area relative to new product introductions and also a mix between our different companies that will impact gross margins throughout the year.