Frank Sullivan - Chairman and Chief Executive Officer Russell Gordon - VP and Chief Financial Officer Barry Slifstein - VP, Investor Relations

Rory Blake - Wells Fargo Securities Mehul Dalia - Robert W. Baird & Co. Matt Gingrich - Morgan Stanley Arun Viswanathan - RBC Capital Markets Mike Harrison - Seaport Global Securities Rosemarie Morbelli - Gabelli & Co Mike Ritzenthaler - Piper Jaffray Ivan Marcuse - KeyBanc Capital Markets David Stratton - Great Lakes Review

Good morning and welcome to RPM International's Conference Call for the Fiscal 2016 Second Quarter. Today's 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 maybe 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. Following today's presentation, there will be a question-and-answer session. [Operator Instructions] Please note that only financial analysts will be permitted to ask questions. 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.

Thank you, Brandon. Good morning. Welcome to the RPM investor call for our fiscal 2016 second quarter ended November 30, 2015. On the call with me are Rusty Gordon, RPM's Vice President and Chief Financial Officer, and Barry Slifstein, our Vice President, Investor Relations. Today's call will be split into two sections. During the first portion, we’ll discuss our second quarter results, including some detail by Barry Slifstein and comments and the outlook for the balance of our 2016 fiscal year after which we will take some questions. During the second portion of the call, I will walk everyone through a brief presentation including some longer-term goals through 2020 after which we will open the call for more questions. The presentation will include slides that can be followed on RPM’s website at www.rpminc.com. During our second quarter we continued to be challenged by the strength of the US dollar relative to other major currencies, principally the euro, Canadian dollar, British pound, Brazilian reais and South African rand. Several of these currencies saw further deterioration against the US dollar during the quarter. Translational foreign currency reduced sales on a consolidated basis by approximately $68 million or roughly 6.3% in the quarter and foreign exchange in total including transactional FX reduced EPS in the quarter by $0.06 per share. Sales on our Consumer segment rebounded nicely on a sequential basis from the first quarter with sales in US Consumer up 4.4%. Several of our product rollouts resulting from favorable line reviews during the spring and early summer were delayed until after the New Year when our major customers began stacking for the spring selling season. We are pleased that the economic fundamentals that drive our Consumer segment continue to progress in a positive direction and have been for several years now. During the quarter, we reversed the final Kirker earn-out accrual of $14.5 million representing approximately $0.07 per share, compared to last year’s Kirker earn-out accrual reversal of $17 million representing approximately $0.09 per share in the prior year’s second quarter. The earn-out accruals were reversed when it became apparent that the Kirker would not meet its aggressive earn-out objectives. The Industrial segment results continue to be a mix bag during the quarter. Our US-based Industrial companies serving the commercial construction markets performed well with mid single-digit growth. Sales into the energy sector for RPM are down approximately 10% year-over-year. Virtually, all of our Industrial segment sales outside of the US translate to negative year-over-year performance in actual US dollars. Our Industrial segment businesses in Europe were up in constant dollars or local currency by 2.2% year-over-year, but down when translated into US dollars by 9.6%. Our Brazilian – our businesses in Brazil are beginning to feel the impact of the rapidly deteriorating economic environment even so sales in local currencies were up about 2% year-over-year, but when translated in US dollars at actual exchange rates, down 35%. We anticipate that the back half of this fiscal year will also experience continuing FX headwinds, but to a slightly less degree than the first half of last year, still a little bit more than we anticipated at the beginning of 2016. In the Specialty segment, most of the growth over the last year comes from the acquisition like impacts with reconsolidating SPHC comprise mostly of US-based businesses. Excluding acquisitions, the dominant share of business in this segment is fairly balanced between the US and Europe with sales in the US up in the low to mid-single-digit range and in Europe, up in the low single-digit range on a constant local currency basis. All in all, we are encouraged by the performance to our fiscal 2016 plan and that many of our international businesses across Europe, and Latin America, even though the results don't translate well into the US dollars are continuing to grow and we expect sales acceleration in the back-half of this fiscal year in our Consumer segment at some of the line review wins earlier this year began shipping. I would now like to turn the call over to Barry Slifstein to provide you more detail on our second quarter results.

Thanks, Frank, and good morning everyone. I will review the results of operations of our fiscal 2016 second quarter, then cover some November 30, 2015 balance sheet and cash flow items and then turn the call over to Rusty who will discuss the outlook for fiscal 2016. Second quarter consolidated net sales of $1.16 billion increased 7.9% from last year. Organic sales increased 2.6%, acquisition growth added an additional 11.6%, and foreign currency translation reduced sales by 6.3%. Industrial segment sales decreased 5.8% year-over-year to $610.2 million. Organic sales increased 1.9%, acquisition growth added an additional 0.7%, and foreign currency translation reduced sales by 8.4%. Consumer segment sales increased 1.8% to $359.1 million. Organic sales increased 3.6%, acquisition growth added 0.7%, and foreign currency translation reduced sales by 2.5%. Specialty segment sales increased 164.8% to $186.7 million, from $70.5 million, principally due to the reconsolidation of SPHC effective January 1, 2015 and the Morrells acquisition by SPHC in March 2015. Organic sales increased 3.8%, acquisition growth, SPHC, and Morrells added 167.1%, and foreign currency translation reduced sales by 6.1%. Our consolidated gross profit increased 8.8% to $493.9 million, from $453.9 million last year. As a percent of net sales, gross profit increased from 42.4% last year to 42.7% this year, representing a 30 basis point improvement, contributing to the improvement was lower manufacturing costs, partially offset by unfavorable transactional foreign currency. Consolidated SG&A increased 5.3% to $352.6 million, from $334.9 million last year. All of the increase was due to the reconsolidation of SPHC partially offset by lower warranty and freight costs. Consolidated earnings before interest and taxes, increased 17.9% to $141.6 million, from $120.1 million last year, largely driven by the reconsolidation of SPHC in January 2015, better operating leverage on positive sales growth and good cost controls. At the Industrial segment, EBIT was relatively flat year-over-year on lower sales as a result of deliberate cost reduction measures in addition to lower compensation and benefits, warranty and freight expenses. Consumer segment EBIT increased 6.2% to $65.4 million, compared to $61.6 million last year, due primarily to better operating leverage on positive sales. During the quarter, the final Kirker earn-out accrual of $14.5 million was reversed into income. During the second quarter last year, RPM reversed a $17 million earn-out relating to Kirker. Specialty segment EBIT increased 104.8% to $29.1 million, principally due to the reconsolidation of SPHC. The reduction in EBIT margin reflects the overall lower margin contribution from SPHC, compared to the core RPM2 industrial companies. Corporate other expenses of $17.4 million were below last year's amount of $20.5 million. Principally due to lower compensation benefits and outside professional services expenses. Interest expense increased from $19.4 million last year to $22.5 million this year, primarily due to higher interest relating to the $450 million payment to the 524(g) Trust in December 2014, which was funded from the revolving credit and accounts receivable securitization facilities, part of which was ultimately replaced with a 30-year bond issued in May 2015. Investment income of $1.1 million for the quarter compares to last year’s income of $5.1 million. Income taxes for the second quarter were fairly flat to last year. Net income increased 19.6% to $83.4 million from $69.8 million last year. Diluted EPS of $0.62 per share was 19.2% above last year's EPS of $0.52 per share. And now a quick look at the cash flows and capital structure. Cash provided by operating activities was $167.1 million for the first six months of fiscal 2016 compared to $55.3 million for the same period last year. The improvement is attributable to the change in working capital caused by faster collections. As of November 30, 2015, total debt was $1.68 billion, compared to last year at $1.43 billion. The increase was principally due to the $450 million Trust payment made in December 2014. During the first half of fiscal 2016, the company repurchased 400,000 shares of its stock in the open market at an average price of $43.13 per share for a total cost of $17.2 million. With that, I'll turn the call over to Rusty.

Thank you, Barry. I’d like to cover our updated outlook for the fiscal 2016 year and I will start with the Consumer segment where we were encouraged in the second quarter with sequential improvement in sales growth versus our first quarter. We had solid performance across our US DIY lines and these positives were offset to some degree by continued struggles in the nail polish market at Kirker, as well as at some of our Canadian businesses where the Canadian economy is getting worse and our results are worsened even further by translating weak Canadian dollars back to US dollars. So in summary for the second half of this fiscal year, we expect mid single-digits growth in the second half from the Consumer segment due to strong US economic fundamentals, as well as some of the recent line review wins and product placements that we expect. Moving on to the Industrial segment, I’ll break this out by region. In the United States, we expect to continue to have good mid single-digit growth across our commercial construction businesses and this will be offset to some degree by a slowdown in the oil and gas sector which is affecting our industrial coating products. In the Latin America, we’ve had good growth there and we believe we’re picking up share, some of the economies in Brazil and Argentina are troublesome and in spite of that, we expect mid single-digit growth in local currency in that region. In Europe, in the second quarter, we had our second quarter in a row of positive organic sales growth and that’s encouraging especially compared to last year when we had negative comps. So, in Europe for the second half of the year, we are expecting low to mid-single-digit growth again in local currency. Now I should note that the Industrial segment has the largest international exposure of all three of our segments. So, unfortunately, as a result a large portion of their organic growth is going to be offset by the unfavorable impact of the strengthening US dollar. So in conclusion in the Industrial segment, in actual exchange rates, we expect to have flat to slightly positive sales growth in the second half. Moving to the last segment, our Specialty segment, in the second half we will be picking up an additional month this year from the reconsolidation of SPHC, which occurred on January 1, 2015. This portfolio and the SPHC businesses continue to meet our expectation. So, we expect in the second half to see sales growth in the mid to upper-single-digit range in the Specialty segment. Before I move to my summary comments on the consolidated second half and full year, let me give everybody a reminder. As we called out when we provided our initial guidance last July for FY 2016, we are expecting to lose $0.10 a share this year due to a higher tax rate versus the extraordinarily low tax rate that we reported last year. Now this $0.10 impact can be traced to last year’s third quarter when instead of reflecting income tax expense as we normally do right above the net income line, we showed an income tax benefit in last year’s third quarter. So since we are not expecting this to repeat again this year, you should reduce last year’s third quarter EPS by $0.10 if you want to make an apples-to-apples comparison to this year’s third quarter when we expect in April to report a more normalized tax rate. So, looking at the back half of the year, as a result of the continued strengthening recently of the US dollar, we expect FX to cost us about $0.05 a share in the second half versus our original expectations. However, in spite of this for the full year, we are maintaining our guidance at $2.50 per share EPS for the full year. With that, we are now pleased to answer your questions.

Thank you, Brandon. Starting when I became CEO in 2002, we have periodically provided our shareholders with our thinking on a long-term strategic plan. Our first five year strategic plan in 2002 was the goal of increasing revenues from $1.9 billion to $3.3 billion and we achieved that. Our second publicly communicated long-term strategic plan covered a three year period from 2007 to 2009. Suffice it to say, we did not get the macroeconomic assumptions correct on that one and we missed it. Out latest long-term strategic plan was publicly communicated in 2010 with a goal of achieving $5 billion in revenues for the fiscal year ended May 31, 2015. We spent the last year with our business leaders and our Board developing a new long-term strategic plan with a goal of achieving $7 billion in annual revenues by 2020, what we are calling our 2020 Vision. To set the stage for that, I’d like to walk you through some slides demonstrating how RPM has achieved our current results while delivering superior total shareholder returns and why we believe that that will continue. Over the last five to ten years, aside from executing on our plan, we have focused on three primary goals to grow globally, to reach $5 billion in revenues by 2015 and to solve a then growing asbestos problem. Slide two, represents RPM’s $4.6 billion in annual revenues for the fiscal year ended May 31, 2015, in our two reporting segment structure at that time. The key strategic drivers that have been a critical part of our success over the last five to ten years are our entrepreneurial operating philosophy, the competitive advantage of leading brands, our balance between consumer and industrial markets, and the growth strategy balance between internal investment and acquisitions. These will continue to serve us well in our new five-year strategic plan. Slide three, highlights our growing global presence from $2.5 billion in 2005 to $4.6 billion in 2015. In fact, we would have achieved our $5 billion 2015 goal except with the dramatic rise in the US dollar literally in the last six months of our five-year strategic plan period and the fact that the SPHC asbestos liability resolution transaction took 4.5 years to finalize instead of the original three years we anticipated. Nonetheless, if you look at Slide four, you will see that in each of the last six years since the end of the recession RPM has delivered record revenue and record income growth. Net income has increased double-digits for each of those years, most importantly allowing us to achieve our original five-year income goals. Slide five highlights the $3.5 billion of capital we allocated over the last decade. We have increased our cash dividend for 42 consecutive years, a critical part of driving value for long-term shareholders. We have developed a good balance between acquisitions and internal investment, but unfortunately, we spent nearly $600 million of our after-tax capital on a totally non-productive asbestos issue. Despite that diversion of capital, Slide Six highlights that RPM was able to outperform a very impressive peer group and nearly doubled the performance over the last decade of the S&P 500 as measured by total shareholder return. I would like to provide more detail about the last decade to address some investor questions we’ve received about our strategy and our acquisition program. Slide Seven highlights RPM’s organizational chart for the fiscal year that ended May 31, 2005. You will note that there are six groups including three consumer segment groups. Fast-forward to our 2010 fiscal year and in Slide Eight, you will note that we successfully streamlined into only two consumer groups. In fact, in the 2007, 2008 timeframe, we completely integrated Zinsser into Rust-Oleum, which included closing their New Jersey headquarters in the elimination of more than a 100 precisions. In our Industrial segment, you will note that the Building Solutions Group replaced the Trempco Group as we had acquired a number of businesses including the Illbruck business in Europe. Fast-forward to today, Slide Nine is our current organizational chart as of August 31, 2015. Post the Specialty Products Holding Corp. reconsolidation triggered by the achievement of that long-term goal of solving the Bondex asbestos problem, we now report in three segments, Consumer, Specialty, and Industrial. You will note in the Industrial segment that the Building Solutions Group no longer exists. In the summer of 2013, we dissolved the Building Solutions Group eliminating 48 positions including a number of senior leader personnel and now of a more streamlined direct reporting Trempco Group, Illbruck Group in Europe and we took the Euclid chemical Company and teamed it up with the Flowcrete business as part of our Performance Coatings Group. We have teamed these businesses together to be able to leverage the strengths that each has in different parts of the globe from a manufacturing and distribution standpoint and we are off to a good start. Aside from these changes that have impacted our organizational chart, we are constantly looking for opportunities to drive greater efficiency. Over the last five years at Illbruck, we have closed two existing plants, one in the UK and one in Germany and have been moving production to lower cost plants in Turkey and Poland. At our Performance Coatings Group, we closed the Belgian facility in 2014 and closed three Stonhard distribution centers in the US and relocated all distribution into one New Jersey central distribution location. In the last two years alone, Rust-Oleum has closed three manufacturing facilities, one in California, one in Illinois and one in the Netherlands integrating that production into existing Rust-Oleum plants. Slide ten is a slide we regularly use in our investor presentations to include examples of recent acquisitions. Over the last decade, RPM has completed 72 acquisitions. 18 of these have been freestanding businesses with a management team that has stayed on to run the business as part of RPM continuing their growth with RPM’s support. 54 of these or 75% have been product lines or businesses that we have completely integrated into an existing RPM business. Let me give you one example of what an integrated product line looks like. A little more than a year ago, we acquired 10 million pound Firetherm, a producer of specialty fire stopping products in the UK as part of Illbruck. Within seven months, we closed two of three existing Firetherm manufacturing facilities, acrylic mastics are now being produced in Turkey. That coatings products were moved to a UK plant. Silicon production was moved to an existing Illbruck plant in the Netherlands and powder production was shifted to the Grupo P&V plant in Spain which is actually part of RPM’s Performance Coatings Group. Furthermore, we are able to move our Nullifire intumescent coating product lines from a third-party toll producer into the remaining Firetherm plant in the UK. All Firetherm back office activities are rationalized into Illbruck’s Koln Germany headquarters keeping only people in sales, technical service and R&D. While the majority of our acquisitions relate to product lines that are integrated, our ability to complete freestanding entrepreneurial acquisitions is truly the secret sauce that my father Tom Sullivan left us with. The ability to attract family-owned businesses to RPM with management teams that will stay and run them for many years. What does this look like? Let me read to you a letter I received from Scott Drayton and Tony O'Connor, the owner operators of Morrells Wood Finishes business that we acquired this past year in the UK. Dear Frank, following the Global Leadership Meeting last week, we would like to pass on a huge vote of thanks to you and all of your teams for our invitation and involvement. As new members of the RPM family, we are little apprehensive of what to expect in a significantly more corporate environment than what we have been used to at Morrells. Having now experienced last week’s event, we can truly say what a refreshing, informative and enjoyable few days it was and that we were inspired by all the great news and positivity delivered by all the presenters and all the people we met from across RPM. We came away from the meeting with a much clear appreciation of the RPM philosophy and how that radiates down to its business groups, its operating companies and indeed the individuals work within them. It has given us great insight into how that can be encouraged and supported within our own business and the comfort that there is a great network of people across RPM who we can interact with in all manner of issues. The whole event was a great advertisement for the RPM Group and its business model and reinforces our strong belief that RPM is the best possible home for our business. Very kind regards, Scott Drayton and Tony O'Connor. This is the secret sauce that allows us to do M&A transactions in a manner that none of our competitors know how to do. So it brings me back to Slide 11, to reemphasize the fact that these results, particularly when almost $600 million of your after-tax capital is diverted into a totally non-productive purpose don’t happen by accident. At RPM, we manage our portfolio much more aggressively than perhaps people realize. Slide 12 highlights our goal of achieving $7 billion in annual revenues by 2020 and provides the key assumptions for this five-year strategic plan period. This goal will be accomplished by executing RPM’s strategy as much the same way we have in the past with a few additions to what we call our key strategic drivers highlighted on Slide 13. Acquisitions will continue to be a key part of our growth strategy and while we can acquire product lines and businesses and integrate them into an existing RPM company as well or better than anybody in our industry, we will continue to focus on being a great home for entrepreneurial companies who want to bring their business to RPM and continue to grow with our support. We are continuing to invest in new products as evidenced by the AlphaGuard RoofTec, TRU-CORE and TUF-STRAND product line examples that we have talked about over the last year. We are increasing our growth investments, particularly in the developing world as evidenced by an almost 50% increase in capital spending over the next twelve months. Connections creating value has been something we’ve been talking about internally at RPM since 2010. We went public with this concept as the theme of our 2013 annual report and it has now become very much a part of the key strategic drivers of our growth and success and you will see more of it in the coming years, whether it is leveraging a platform business in Brazil like Viapol or leveraging technologies shared between different RPM companies like Legend Brands and Trempco Roofing. Slide 14 highlights our goal of building more billion dollar brands. Without getting into the specific numbers of our major operating units Rust-Oleum is most of you would guess is in excess of $1 billion. We have a great opportunity over the next five years through internal investment and acquisitions to drive Trempco, Euclid, DAP and Carboline towards this billion dollar brand goal. We will continue to focus our cash generation with the goal of increasing RPM’s cash dividend to shareholders in each and every year. As Slide 15 shows, we have done so for 42 consecutive years and this has been a critical part of our ability to consistently outperform the broader market and meet or beat the performance of our peer group. To quote Albert Einstein, compounded interest is the eighth wonder of the world. While if you like compounded interest you love a dividend that increases modestly every year in terms of the long-term value that creates over time. So how will we attract? How will we attain $7 billion in revenues by 2020? Grow our cash dividends for five more consecutive years and continue to delivery market beating shareholder returns? By focusing on sustainable global growth driven by entrepreneurial leadership through the value of 168. By executing on our key strategic drivers, four of which we’ve been talking about for more than a decade and two newer ones which are driving closer cooperation between the RPM businesses and lastly through the eight characteristics of what we call the value of 168. We’d now be happy to answer any of your questions about these long-term strategic plan comments or about our second quarter results or outlook for the balance of fiscal 2016.

Thank you. And we will now begin the first question-and-answer session. [Operator Instructions] From Wells Fargo we have Frank Mitsch on the line. Please go ahead.

Good morning Frank.

Hi, this is actually Rory Blake sitting in for Frank Mitsch. Just to kick it off, I mean, obviously we’ve seen more talk of M&A following the reconsolidation. Can you give us an update on how you guys are approaching the market and what you are seeing in terms of deal flow?

Sure, it’s pretty much the same as it has been. It kind of ebbs and flows, but there is a pretty good pipeline of small and medium-sized transactions that we are working as is typical and I would expect a number of those transactions to be completed before the end of this fiscal year and some, probably in terms of closing, in the next fiscal year and they would be of the normal course of the types of things RPM has typically done.

Okay, and then just following up on the guidance you guys have provided, obviously there is additional headwinds from FX and taxes, but I mean there was a reversal in the quarter you are maintaining guidance, can you just help me understand what the real delta is in terms of additional weakness, but maintaining the guide, is that really Consumer performance or maybe it’s on the Specialty side? What is really the offsetting factor?

Well, if you look at last year’s second half results, and you adjust the third quarter, which was $0.20 last year, but $0.10 of it was tax income. So on a stand-up basis I think the right number is $0.10 per share. We expect to get hit in the second half by another $0.05 of negative FX versus last year. I think you will see, by maintaining guidance, we are expecting pretty solid results in both our third and fourth quarter and in particular in the third quarter, I would pay attention to the EBIT results which I know most of our analysts do versus the EPS, because again, $0.10 of the third quarter EPS last year was totally tax-driven. I think a lot of it beyond that has to do with real solid performance in our Industrial segment; I think our Industrial businesses have adjusted to a very difficult market quite well and pretty quickly. It’s not often you see a 6% decline in revenues and flat EBIT which is what our Industrial business has generated in the quarter and unfortunately as Rusty highlighted, I think the challenges we expect to show in constant currencies continued forward progress in most regions of the world, but it’s going to be offsetting our Industrial segment by the rise of the dollar.

Thank you very much.

From Robert W. Baird, we have Ghansham Punjabi online. Please go ahead.

Good morning

Hi, good morning. This is actually Mehul Dalia sitting in for Ghansham. How are you doing?

Good.

Just along with the 2016 guidance, what is the earn-out reversal incorporated in your 2016 guidance previously? I am just wondering how comparable previous 2.50 guidance is to the current 2.50 guidance?

No, I mean, it was an opportunity for earnings gains one way or another. Kirker has been a great business for us and they had some pretty aggressive earn-out performance expectations in relationship to the original transaction and so that earn-out reversal is done. I would point out that if you reverse the Kirker earn-out from last year’s second quarter and this year’s second quarter to negate it, we’d be looking at 28% EPS increase year-over-year as opposed to the 19% EPS increase we reported.

Okay, great. Thanks. And based on commentary from your last call it seem like Consumer core sales were up about 7% half way through the second fiscal quarter. But overall growth in the quarter came in much lower. So just wondering what happened in Consumer. Was there a steep drop-off in sales half way through the quarter?

No, we talked about mid single-digit growth and sequential quarter-by-quarter improvement and we experienced that in the US and we had a very disappointing first quarter for reasons that we explained in October and a lot of that had to do with some delays in line review wins that are not going to be realized until after the first of the year, so as we speak. But we had a – almost a 4.5% unit volume growth in the US in Consumer. That was offset by our business in Canada, both from a margin perspective as well as from a reported sales perspective, as well as the Consumer business that we do in the UK and Australia, again, versus the rise of the dollar. So we are seeing that sequential improvement and people should expect to see that sequential improvement quarter-by-quarter continue.

Great. Thank you.

From Morgan Stanley we have Vincent Andrews on line. Please go ahead.

Good morning.

Good morning guys. This is Matt Gingrich on for Vincent. I am just wondering what the size of the Canadian business is within Consumer and then orders of magnitude, how significant was the headwind in the quarter?

Yes, I don’t know that we’ve disclosed that generally. It’s probably 10% or so of our Consumer segment and you know the impact in Canada for all of our businesses, Consumer or Industrial or Specialty, is really two-fold. Number one is the impact of translation with the rise of the US dollar. The other impact is probably two-thirds and depends, it’s probably more in Consumer, and more closer to 90% of what we sell in Canada is produced in the United States and with US dollar purchased raw materials. So the negative impact on margin is not inconsequential across RPM. So those are the challenges we face particularly in Canada. It’s less true in Europe because most of what we sell in Europe or in the UK are produced in pounds or euros.

Sure, and then, would you say the performance of gross margins in this quarter is representative of the runrate going forward or would you expect sequential benefits from the raw material environment?

You know, we are seeing some raw material benefits in certain areas, most certainly and Tremco Roofing without getting into the specific numbers is a good example. That’s as close as we get to a – with a lot of asphalt and couple steps away from oil derived products and they have seen significant benefits in lower raw material costs in their closer to oil raw materials and the majority of that has been offset by product mix and also by their sales into Canada. And so, it’s an interesting mix, and we have the same issue in Brazil where a lot of our raw materials are purchased in US dollars, even though the reais has dropped precipitously just dramatically to the US dollar so that the transactional impact on margins on a consolidated basis has been a challenge. Having said that, I think we would expect to see incremental improvements in gross margin as the year progresses.

Great, thanks.

From RBC Capital Markets, we have Arun Viswanathan on line. Please go ahead.

Great, thanks for taking my question. I hope you are doing well. Happy New Year.

Happy New Year.

Just – thanks, couple questions here. So, I am just trying to understand the kind of organic top-line view just by segment, it looks like you are guiding to 5 to 7 in Consumer and now it’s mid-singles. Is there anything to read in that and then if you look at the actual performance in the quarter, it’s slightly below that range. So are you implicitly saying that Q3 and Q4 should accelerate from Q2 and is that due to the new product wins or…?

Yes. We – as I indicated earlier, we are happy with the sequential improvement from a disappointing first quarter to the second quarter and you will see continued sequential improvement in these third and fourth quarter in our Consumer business in terms of revenues.

Okay great. And just following up on that, maybe you can just describe, you said in the Industrial segment that there is strength in non-res, commercial construction. Can you just talk to us a little bit more about what you are seeing there as well as maybe what you are seeing on the residential side? Is it somewhat weaker or is it stronger or how would you characterize it?

Yes. We don’t do a lot in residential on new construction. I will tell you that the – in non-res and commercial construction, our sealant business, our fiber business, and the concrete add mixture business all in North America are showing really nice growth and we expect that to continue. And the big challenge and to give you a sense with the organic growth that we disclosed in the Industrial segment, the real challenge is, we are off in the oil and gas area about 10%. I think we are picking up market share there, because those are really challenged markets and that’s a global market for us particularly with our Carboline coatings. And so you are seeing some strong results out of construction-related businesses particularly in the US. The one thing I comment on and again I think it’s our belief in Industrial, it’s harder to track than it is in Consumer that we are picking up market share in a lot of areas, because if you are a big driver of our Industrial business around the globe is industrial capital spending and heavy industry from mining to oil and gas and steel and everything that touches it, is in a global recession. And so, I think we are dodging and weaving in our industrial businesses really well in terms of both figuring out how to keep the top-line moving and at the same time being sharp on costs.

Okay, thanks. And then one more if I may. Maybe you could just characterize, I know you had some strong performance in Brazil ex FX last quarter, maybe just describe both in Latin America and Europe, how you’d kind of describe the environment as far as actual growth ex FX? Thank you.

Sure. I think in Brazil and we commented on this before just to give folks a sense of this, we are slowing down. Organic growth for us in Brazil was plus 2%, which is down from the last quarter, I think plus 5% or so. And just to give you the impact of the continuing rising dollar versus developing countries like Brazil, we are plus 2% organic growth in constant dollars in Brazil and minus 35% when translated back to the US dollar. And so, I we are going to continue to fight in Brazil to keep positive momentum in local currencies. But on a translated basis, we are getting in wallets pretty good. And we’ll talk in a few minutes about our longer-term plans. One of the base assumptions there is that the US dollar is not going to have any further dramatic increases versus other currencies and we’ll see how that goes. Europe, we are continuing to see positive momentum on an organic basis and we would expect to see that continue throughout the year. And because of the dollar/euro relationship, that’s part of the $0.05 that Rusty talked about in terms of, I guess, further negative impacts beyond what we anticipated when we first provided guidance in July. Yes, that is baked into the – to our comfort with our current guidance.

Got it. Thanks.

Thank you. At this time, I would like to turn the call back over to Frank Sullivan who will give a brief presentation, which includes the company’s long-term goals. Accompanying slides for the presentation will be webcast and can be accessed at www.rpminc.com. After the presentation, he will take additional questions. Please go ahead sir.

Thank you. [Operator Instructions] And from Wells Fargo we have Frank Mitsch on the line. Please go ahead.

Hi, it’s Rory once again. Just going back to the long-term target, it’s obviously exciting $7 billion, 2020 target with a 5% organic target. What do you guys kind of – how do you approach everything in new products and obviously you have a lot of innovation coming through. How should we ultimately think about how that breakdown plays out between just core growth and then new product introductions?

That’s a great question and there is a slide that we have shown in investor presentations for the last couple of years that breaks out our growth between organic growth and acquisitions. And with the exception of recession years, the organic growth we have shown has been anywhere from 5% to 6% and in some cases, 8% or 9%. And I think there is three drivers of that organic growth. A third is market growth and hopefully market share gains, a third is new product introductions which has been a big key for us and will continue to be a big driver of our growth. And then the other third is acquisitions. At least a third of our organic growth has been the follow-on years of these small to medium-size acquisitions like Firetherm and in every instance; we look at acquisitions from a growth perspective. So while the IRR in a 10 million pound Firetherm with the adjustments we made on its acquisition is terrific, it’s relatively small. The real bang is to be able to take that 10 million pound Firetherm through the distribution and sales force of Illbruck and turn it into a 15 million pound or 20 million pound business and that’s true of our goal of any of these small to medium-sized acquisitions. So it’s those three elements that we believe will allow us to meet or beat that 5% organic growth target over the next five years.

Okay, and just following on that, with the acquisition goal in mind and obviously new segment, Specialty, is there any preference of where M&A should be spent? Or is it really you guys show – just some good businesses across the three segments?

I think it’s good businesses across the three segments. M&A for us or anybody is really opportunistic and as we’ve said in the past, we probably look at 40 to 60 deals a year and through that process, you find the right strategic fits at the right prices that really help us and we have a good track record of getting those done.

All right, thank you very much.

Sure.

From Seaport Global we have Mike Harrison on line. Please go ahead.

Good morning.

Hi, good morning. Frank, you mentioned some of the streamlining that’s taken place over time and some of the actions that you’ve taken with acquired companies as you’ve integrated them, can you give us some more detail on what exactly you are doing to control the cost structure for the company overall and specifically in the Industrial segment, I think you mentioned that was a source of margin improvement this quarter?

Sure. First of all, I think we wanted to highlight some of that activity which is stuff that we haven’t highlighted in the past. It’s our job to find efficiencies every year. We’ve never been a company that likes to tout closing plants or firing people, in part that’s a necessary part of the job. And I had an experience has a newly minted President and Chief Operating Officer in 1999 and 2000 where we closed 18 plants and reduced our headcount by more than 10% inside of 18 months. And we learned a lot in that. We improved a lot. But we also learned that when you do big public things like that, it’s a distraction for those businesses that aren’t impacted by it and so our goal is to do our job in terms of plant closures or consolidations effectively and quietly. So that the impact is only on those businesses where it’s happening and it’s not a distraction for those businesses that are part of RPM or there are no issues other than getting out and selling something. Specifically to this year, I think, all of our businesses in like a very difficult industrial environments have taken a hard look at costs. There have been some headcount reductions. There have been some deferred expenses. I will also tell you some of it is involving our Trempco roofing business which for many that have followed us for a long time, we had a couple of years of challenges there. It is better managed after a couple of years of declining revenues a lot of which were as a result of self-inflicted wounds. Those businesses – in Trempco Roofing in particular are growing nicely. Some of the warranty issues that were a result of past problems are behind us. And so those are the main factors I think being sharp on expenses in the phase of difficult industrial markets globally and seeing some revenue improvements in businesses is the reason that you are seeing good expense control in the SG&A side in our Industrial segment.

All right, and then if I could, just one more. You’ve talked a little bit about the efforts you’ve made in Brazil and kind of leveraging a foothold in order to drive organic growth over time. I know you are trying to replicate that in Malaysia. Can you talk just strategically where you see the Malaysia and Asia more broadly? How you see that playing out over the next five years and how that fits into your strategic growth plans?

Sure. A lot of our growth globally has been by acquiring businesses and using them as a footprint and if we are in a overseas market, acquiring businesses that can be add-ons, again like Firetherm, with Illbruck and we have not been successful over the last 15 plus years in trying to do that in Asia. And so, I think we have come to the conclusion that we are going to have to be more deliberate about internal investment strategy to grow in Asia which is the region of the world where we have our smallest presence. And it’s really on the back of something I referenced earlier, our Euclid chemical company, this is old news, but we acquired Euclid in 1984 it was 10 million bucks. On a global basis, it’s approaching $400 million most of that is the Americas. So they have a very strong presence from Canada through the US, in Mexico, in Colombia, in Chile and in Brazil. And our Flowcrete business, which goes to market through distribution but with different products more in flooring and polymer products is based in the UK and they’ve got a great presence in Europe. They have successfully, organically grown their business in the Middle East and India and in Malaysia. So, when we re-organized the Building Solutions Group, we married Euclid Chemical and their manufacturing and distribution strength in the Americas with Flowcrete and their manufacturing and distribution strength in the UK, Europe and parts of the developing world. And we are combining manufacturing; we are combining distribution and using that as a start. When we get that right in Malaysia, we are at the beginning stages of investing in Carboline Protected Coating manufacturing in that same plant site as well which will be the second manufacturing site for Carboline in Asia. The first one is a joint venture we have in Dalian, China. So, without going on further, that’s kind of the roadmap of what we are doing by combining the resources of these businesses from a manufacturing and distribution perspective similar to what we are doing in Brazil.

All right, thanks very much.

Thank you.

From Gabelli & Company we have Rosemarie Morbelli. Please go ahead.

Good morning, Rosemarie.

Good morning. Congratulations.

Thank you.

And a Happy New Year, of course. I was wondering, Frank, if the new highway bill is going to help some of your industrial operations and whether you have a guesstimate as to what the potential benefit could be?

The answer to the first part of your question is yes. Certainly, freeing up spending most of this will flow to the states on infrastructure will positively impact our protective coatings that go on steel and on concrete. But I do not have a – I am not sure I could even make a swag at this point in terms of what that impact might be. But it will certainly be positive.

Is it mostly for Carboline product lines? Or this is going - other areas going to be helped?

It’s Carboline product lines, it would be certain of Trempco membrane, Trempco sealant membrane products and certain of our Euclid chemical products.

Okay, thanks. And looking at Brazil and Argentina, could you give us a feel for the size? And as you are introducing more and more product lines into Brazil, even though the economy is slowing down, those introductions should really more than offset that particular decline and yet you went from a 5% organic to a 2% organic while you are continuously adding product lines into the region?

Sure, a couple of things on that. Number one, I’ll give you what we disclosed in the past. Latin America as a whole is about 5% of RPM’s consolidated revenues. It’s been growing up until this year and the FX hit at solid mid-teens and it’s most all organic growth. Viapol, we disclosed was $100 million when we acquired it. It has continued to grow from that base. I think we acquired it about 3.5 years ago. So it’s larger than that, but, well, it’s larger than it was substantially in Reais. Again, I don’t know off the top of my head what the dollar impact is. And the challenges that we are seeing in Brazil, long-term we are excited about the market and we are positioning our businesses to serve the construction markets there, Petrobras, it’s a great opportunity. But in the near-term, it’s a very depressed economy and I think the fact that we are able to keep positive momentum on an organic basis is a real testament to good management down there.

And Argentina?

Our business in Argentina is relatively small. The management team in Argentina has done a brilliant job. And the sales and earnings aren’t necessarily consequential to all of RPM. But we have got some owner operators down there I guess Don Gerard and his team and they have managed to continue to grow their sales and earnings or in tough years at least keep them stable and what’s been an extraordinarily crazy political and economic environment and I think they are the - of owner operators that are passionate about their business.

With the new government in place, do you see any new improvement in terms of the volatility of the region?

Certainly it will help, but again, that is not a significantly large business in Argentina for us to move the whole needle on RPM. But certainly every dollar of sales and earnings growth from all our businesses helps.

And if I may, are there any plans of adding production in Canada in order to eliminate the FX impact on the transaction side as opposed to the translation?

Not at this time. I think we have all the capacity that we need and quite candidly our experience is, if we really get on that, we’d probably have production up and running just about the time the dollar starts shrinking and the Canadian dollar starts growing.

So, and if I may ask one last one. Just clarifying your comments about the third quarter this year versus the third quarter next year. You do expect EBIT to grow year-over-year, right, because it will be…

Absolutely.

Okay, thank you.

I would expect us to have a solid third quarter in terms of apples-to-apples sales and earnings growth and you will see that in the sales line and the EBIT line.

Okay, great. Thank you.

From Piper Jaffray, we have Mike Ritzenthaler on line. Please go ahead.

Yes, good morning.

Good morning.

Just one quick question on the construction cycle. I guess it’s mostly focused on the US construction cycle. In your prepared remarks you highlighted the flat to slightly higher industrial sales and mid to high single-digit in Specialty, but I guess, I am curious about your sense as you are meeting with customers about whether this cycle has legs to get well into fiscal 2017 or whether in that time period may we see things start to plateau? And if you wouldn’t mind, maybe a similar question on the organic sales growth in Europe that seems to have a little momentum as well.

Organic sales growth in Europe?

Yes, that was part two. Part one is on US.

Yes, sure, on the US, again, we are seeing good single-digit, in some cases high single digit growth in a number of our commercial construction businesses in sealants and add mixtures, in the fiber business, it’s growing nicely that’s proprietary, somewhat which is proprietary to Euclid. So some of it is a new product introduction and market share gains that are beyond just what the market is doing. Our Trempco roofing business is on the mend. Again, we would expect that to continue. Their AlphaGuard product lines in terms of coatings, it’s a new polyurethane coating systems, they have a number of different resin systems that are proprietary. There is a 1 billion plus square feet of commercial single ply roofs. There are 20 years, 30 years old that are coming off warranty and we are having a lot of success with the proprietary coating system that can extend the life of those roofs for another 10 or 20 years at a third of the cost of ripping them off and replacing them and so we are really excited about that. And again that’s as much to do with correcting some self-inflicted wounds of a few years and a Trempco roofing business that’s really got its swagger back, some new proprietary products that are working well. So, for the foreseeable future, I think we’ll see that continue. Here is the big exception and I commented on it earlier. Heavy industry is in a deep recession globally and that doesn’t impact us immediately directly. But either that’s going to start to correct itself or it could in fact other parts of industrial markets which would be a macro problem for everybody. I guess, last comment is Europe. We continue to see Europe improving. Our two biggest markets there are Germany and the UK and we are seeing solid low to mid single-digit growth in both of those markets and unless something crazy geopolitical jumps in the way, we see that continuing.

Thank you.

From KeyBanc we have Ivan Marcuse on line. Please go ahead

Good morning, Ivan.

Good morning. Couple of quick questions. First on your 2020, $7 billion in sales. Was there any margin or return profile goal associated with those sales or how to think about from that perspective?

Yes, there is and we haven’t disclosed the margin or income goals, but it has been discussed with our Board and there is compensation tied to it and suffice it say that it assumes amongst other things at the EBIT line that we would see steady improvement at the EBIT margin over that five year period.

Okay, great. And then – and next question, more of a - I guess modeling type of question. You had a benefit similar to this quarter - in the fourth quarter last year, you had a benefit from I think Synta of accrual reversal. Is that - was that a one and done? Or could that be a year two effect as well?

Yes, that was a one and done, that was a one and done.

Okay.

Yes, the Synta reversal in the fourth quarter last year impacted the fourth quarter. I think it was pre-tax

9.9

$9 million and that will not be repeated this year and again, I think that’s worth pointing out in terms of our expectations for maintaining our guidance, since it’s pretty solid results for the rest of the year. That was a non-operating income. We highlighted it as such and I think we will still have a decent fourth quarter despite not having that repeat.

Great. Last question, I guess, is there any reason that - you know sort of the corporate expense line of almost, $17 million, $18 million, does that change at all in the back half of the year on a per-quarter basis?

Yes, Ivan, we’ve had good experience with healthcare cost, but it’s been something I don’t think we should expect to repeat and also looking at some of the timing of our professional service expenses, I would expect that number to be closer to $20 million or a little higher on a more normalized basis for the third and fourth quarter.

Great. Thank you very much.

And from Great Lakes Review we have David Stratton on line. Please go ahead.

Good morning.

Good morning. Thanks for taking the call and thanks for the long-term guidance. I'd like to circle back for a moment, just to - new products in the pipeline that we've talked before about Tuf-Strand and Tremco's RoofTec, how are those doing and then also Rust-Oleum's new agreement with Wipe New and where you see that directionally going?

Sure. New products are critical for us. We are and have been for ten years, believe it or not, really focused more aggressively on new product introduction and took a few years to get rolling and it’s really paying off now. The fiber business for Euclid has gone from virtually not much fiver or six years ago to 5 million bucks to what should be in excess of 30 million plus this year and it’s continuing to grow double-digits. We are continuing to expand capacity. The AlphaGuard and other roof coatings business, the Trempco Roofing is growing over a two year period from what was a – little more than a year ago, $35 million to what should be $70 million this year. You are continuing to see TRU-CORE which is a patented wood protective product that goes on at the lumber mill and in particular relates to termite. Very exciting product for us. That’s – it’s part of the SPHC businesses, the Capco Industrial business there, that’s growing well. SpraySmart is a new product that Rust-Oleum is just introducing. It’s a patented application device in wand and pouched paint that is going to go into the line striping business. So these are heavy, heavy users of spray cans and this is a easier to use for big users, more economically efficient, more environmentally friendly, that’s coming out. The Rust-Oleum white product is a relatively new product that Rust-Oleum came out, not just similar to NeverWet in the sense that it was a – it’s a licensed technology and so Rust-Oleum is not only really good at developing their own products like 2X or SpraySmart or some of the other product lines, LeakSeal. But they are also been more aggressive at looking at interesting technologies that they can license and sell under the Rust-Oleum brand. That’s relatively new and I quite candidly don’t have a sense of what the market is for that, but my future calls will have a better sense of that, it was just introduced.

All right, well, thank you very much.

Thank you.

Thank you and we will now turn it back to Mr. Frank Sullivan for closing remarks.

Thank you very much for your participation on our call today, and for bearing with the two formal pieces of our presentation. As you can tell, we are very excited about our future both the second half of 2016 fiscal year, despite the big challenges globally and certainly the challenges in the industrial markets and we are particularly excited about our long-term future, especially with the 100% of the capital that our businesses generate available to invest in our growth and to return even more value to shareholders. We look forward to communicating to you throughout the year and thank you for your interest and investment in RPM. Have a great day and Happy New Year.

Ladies and gentlemen, this concludes today's conference. Thank you for joining. You may now disconnect.