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

Frank Mitsch - Wells Fargo Securities Ian Bennett - Bank of America Merrill Lynch Rosemarie Morbelli - Gabelli & Company, Inc. Ghansham Panjabi - Robert W. Baird & Co. Matthew Gingrich - Morgan Stanley Kevin McCarthy - Vertical Research Partners, LLC. Michael Harrison - Seaport Global Securities, LLC Arun Viswanathan - RBC Capital Markets Christopher Perrella - Bloomberg Intelligence Kevin Hocevar - Northcoast Research

Welcome to RPM International’s Conference Call for the Fiscal 2017 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 analyst 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, Hilda. Good morning and welcome to the RPM International Inc. investor call for our fiscal 2017 second quarter ended November 30, 2016. On the call with me today are Rusty Gordon, RPM’s Vice President and Chief Financial Officer and Barry Slifstein, our Vice President of Investor Relations. Today, we’ll discuss our second quarter results, provide comments on the outlook for the balance of our 2017 fiscal year and answer your questions. During the 2017 fiscal year, we experienced a number of negative trends related to our Kirker finger nail enamel business. During the fiscal second quarter overall market declines and a loss of market share resulted in a downward revision of our long-term forecast for the business. After a thorough analysis, we determined that an impairment charge of approximately $188 million was appropriate, and took this charge for the quarter. In addition, we incurred a $12.3 million charge related to the decision to close the Flowcrete polymer flooring business in the Middle East. Aside from these items, in general our sales are holding up well in light of economic conditions and in comparison to our peers. In our Consumer segment businesses excluding the significantly underperforming Kirker finger nail polish business, our core growth was up 6.4% for the quarter that's organic growth. As indicated earlier this year capacity constraints and related [tool] [ph] manufacturing costs and our DAP business negatively impacted what otherwise should have been good leverage to the bottom line in our Consumer segment. Our specialty products businesses are continuing their strong performance with sales growth up 5.7% in the second quarter. While our Industrial segment increased modestly we continue to see mid-single-digit growth in our businesses serving the U.S. construction and chemical markets and in the quarter and 6% growth in local currencies in Europe. We are undertaking some cost cutting measures including the closure of a couple of underperforming business units. One of the key performance measures that we have used at RPM for more than a decade is CANE, Capital Adjusted Net Earnings. We are taking steps through cost cutting this year and where necessary, starting with the Flowcrete Middle East business unit, the closure of CANE-negative businesses. We anticipate an additional closure of European business unit in the third quarter of a similar size and impact as the Flowcrete Middle East business. The combination of these closures and expense cuts will significantly improve our cost structure and earnings for our 2018 fiscal year. In the third quarter, we announced four acquisitions in conjunction with four different RPM operating companies. On an annualized basis these acquisitions were at approximately $160 million in revenues while transaction cost will negatively impact our third quarter. These acquisitions will be accretive to earnings in our 2017 fourth quarter and in our 2018 fiscal year. While sales for the 2017 fiscal year will reach record levels, it is clear that as a result of restructuring costs, M&A transaction costs, and the Kirker impairment charge FY 2017 earnings will be below the prior year. Our continuing sales growth momentum complemented by the 2017 expense reduction actions and the so-far-completed 2017 M&A transactions position RPM for strong 2018 fiscal year performance to record levels of sales and earnings. I would now like to turn the call over to Barry Slifstein to provide you with more detail on our second quarter results.

Thanks, Frank, and good morning, everyone. I will review the results of operations for our fiscal 2017 second quarter then cover some November 30, 2016 balance sheet and cash flow items before turning the call over to Rusty who will discuss the outlook for the balance of fiscal 2017. Second quarter consolidated net sales of $1.19 billion increased 3% from last year. Organic sales increased 3.8%, acquisition growth added 1.7%, and foreign currency translation reduced sales by 2.5%. Industrial segment sales increased 1.6% quarter-over-quarter to $633.4 million, organic sales increased 2.2%, acquisition growth added 2.2%, and foreign currency translation reduced sales by 2.8%. Consumer segment sales increased 4.1% to $373.8 million, organic sales increased 5.8%, acquisition growth added 0.6%, and foreign currency translation reduced sales by 2.3%. Specialty segment sales increased 5.7% to $183.6 million from $173.6 million. Organic sales increased 5.2%; acquisition growth added 2.5% and foreign currency translation reduced sales by 2%. Consolidated gross profit increased 5.6% to $521.7 million from $493.9 million last year. As a percentage of net sales gross profit increased from 42.7% last year to 43.8% this year representing a 110 basis point improvement, contributing to the improvement was lower manufacturing costs and supply chain improvements. Consolidated SG&A increased 19% to $419.5 million from $352.6 million last year. The increase was largely driven by the Flowcrete exit charge of roughly $12 million in this year and the Kirker earnout reversal of $14.5 million last year that lowered SG&A. Also contributing to the increase were higher employee costs specifically pension, healthcare and compensation, acquisition costs relating to the recently announced acquisitions, outside professional fees and increased investments in advertising and promotional activities in the Consumer segment. The following comments on earnings are adjusted amounts and exclude the current quarter Kirker impairment charge, the Flowcrete exit charge and last year's Kirker earnout reversal. Consolidated earnings before interest and taxes, EBIT, adjusted EBIT decreased 10.2% to $114.2 million from $127.1 million last year due to higher overall SG&A expenses. Industrial segment EBIT was down 1.7% to $64.5 million from $65.6 million last year due to unfavorable mix. Consumer segment EBIT decreased 6.2% to $47.7 million from $50.9 million last year. The decline was primarily attributable to higher investments in advertising and promotional activities and poor conversion of sales to EBIT in our caulks and sealants division. Excluding Kirker’s results from both years consumer segment EBIT improved slightly year-over-year. Specialty segment EBIT increased 10.6% to $31 million from $28.1 million last year. Corporate other expenses of $29 million compared to $17.4 million last year. The increase is predominately attributable to $6.9 million in higher employee benefits, pension and healthcare, $2.6 million in higher professional fees and $1.5 million in higher acquisition expenses. Net income, adjusted net income of $70.5 million decreased 4.9% from last year's $74.2 million. Current quarter adjusted EPS of $0.52 per share compared to adjusted EPS last year of $0.55 per share. Now quick look at the cash flows and capital structure. Cash provided by operating activities was $158.7 million this year compared to $167.1 million last year. The reduction was principally attributable to higher payouts of compensation and benefits. As of November 30, 2016 total debt was $1.64 billion which was slightly below last year's debt level of $1.66 billion. With that, I’ll turn the call over to Rusty.

Thank you, Barry. I would like to cover our FY2017 outlook. Clearly the second quarter was a tough quarter, but as Barry and Frank mentioned we have made some recent accomplishments that will make the future better for RPM. First of all, we are investing in our brands with advertising supports, plant capacity expansion. This should allow RPM’s good organic revenue growth to continue in the future. Number two, as you could tell recently we've had a flurry of deal activity. I'm pleased to say that all six of RPM’s Group President’s have done an acquisition so far this year and the most recent deals are nice fold-in product line acquisitions that should help us on the bottom line. Number three, we are addressing our expense base. We are closing unprofitable businesses or facilities such as Flowcrete Middle East as well as the European facility in the third quarter that Frank mentioned earlier. However, in spite of all these positives this won't help us much in Q3 of this year. In the third quarter, the big problem is that the bar is high when we compared to the prior year. Last year in the third quarter of FY 2016, our EBIT was up 23% versus the prior year. We had a mild winter last year that seems unlikely to repeat this year. Also as Frank mentioned, the recent deals while they are very good for our future will actually hurt our Q3 earnings per share. For example, we’ll incur higher professional fees associated with these acquisitions will also incur inventory step up charges on the first turn of inventory for these acquisitions. Also, as you can see in our press release, we are expecting a $0.05 per share approximate charge in Europe for restructuring. On the other hand when we get to the fourth quarter this year, we are anticipating a strong quarter. Spring is our seasonal peak for RPM sales and we are going to enter this fourth quarter with the capacity issues resolved, especially at DAP and we are expecting accretion from our recently announced acquisitions. So what does this mean for the second half of FY 2017 in our year end total? Well, I'll address that question individually for each segment. First in the Consumer segment, we are continuing to build market share and our consumer takeaway is very good, we have very favorable POS data coming in. Also in consumer, we've done two nice acquisitions. First, SPS in Europe which will allow Rust-Oleum to leverage SPS’s manufacturing and distribution days in Continental Europe where Rust-Oleum is really picking up a lot of home center accounts with their consumer product line. Touch 'N Foam as well we expect a meaningful contribution starting in the fourth quarter. It's a nice fit for DAP, it strengthens DAP, and a lot of channels outside their core hardware base such as insulation, distribution channels, industrial channels, construction supply channels, so that will be a positive for DAP. On the negative side Kirker we are expecting to fall well short of our original expectations this year. So to sum it up, for consumer we are maintaining our sales guidance with growth in the mid single-digit range in the second half of FY 2017. Moving to the Industrial segment, we expect continued growth in our businesses serving the U.S. construction markets. There has been an uptick recently in business optimism and we expect that to result in more investment spending. Moving to the UK and local currency, we were encouraged in the second quarter by the sequential improvement we saw on their sales growth versus the first quarter, but on the negative side the foreign exchange headwinds have increased especially with the recent strengthening of the U.S. dollar versus the pound and also the euro recently. And as many of you know, foreign exchange rates are big issue for our Industrial segments and half of their business is outside the United States. The Energy sector, we have not seen any uptick there despite the recent normalization of oil prices, maintenance spending continues to be down. So to sum it up for industrial, we are maintaining our sales guidance in the low single-digit range for the second half of FY 2017 and that guidance includes recent acquisitions. Moving to the Specialty segment, we continue to have a nice balance of organic and acquisition growth and that will be enhanced by the acquisition we announced yesterday of Prochem by our Legend Brands Company. Legend Brands is building a leadership position in the restoration and professional cleaning markets and Prochem will certainly take us a long way towards that goal. So in summary for specialty, we’re maintaining our expectations for sales growth in the mid single-digit range in the second half. So to wrap it up, we are updating our guidance today. Our original guidance that we gave in July was for EPS of $2.68 to $2.78 a share. Now that included unfavorable FX translation year-over-year of $0.06 a share as well as additional pension expense of $0.05 a share. Now we are updating it due to – first of all the further strengthening of the U.S. dollars especially against the pound and euro and what we thought would be $0.06 of unfavorable FX translation will now be $0.10. Second thing that's changed as we've updated our pension estimates from actuaries. Our pension expense was originally expected to be $0.05 a share and now with the updated estimates we expected to be $0.07. So as you can see in the press release, these two items have reduced our original guidance down from $2.68 to $2.78 a share down to $2.62 to $2.72 on an as-adjusted basis. So while we are excited by the recent flurry of acquisitions that will only be nominally accretive to our second half, we’ll accretion in the fourth quarter as Frank mentioned which will be largely offset by an earnings reduction in the third quarter. So now we’ll be happy to answer your questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Frank Mitsch from Wells Fargo is on line with the question. Please go ahead.

Hey. Good morning gentlemen. Interestingly you’re lowering your full-year guidance by $0.06 which obviously you just explained was due to the FX and pension. Kirker is coming in much lower than you originally expected, so I guess I have a few questions regarding Kirker A) If you could breakout that $188 million adjustment, it seems like a large number, what all goes into that? B) What are your expectations now for that business? Is it a candidate for disposal? Where does it fit on the CANE access and see how given that it's coming in less than expected. How are you making it up given that you're keeping your guidance essentially flat?

Sure. So as we’ve communicated when we acquired Kirker, we expected in their first full year that revenues would be about $100 million. We also communicated that Kirker had a margin profile that was higher than RPM’s average and their cost structure is relatively fixed and so when you have a business that has a fixed cost structure and a very solid revenue base of $100 million, it makes a lot of money. And when that revenue base is cut by more than half and you get a fixed cost structure it makes a lot less money. We have written off substantial portion of the goodwill and intangibles on that business. The deterioration of that business really accelerated recently and it was as a result of about a 15% to 20% decline in the overall market, and some actions that were taken at Kirker in relationship to that and in relationship to their customer base and supply chain which did not work out, so they lost further market share and some key customers. We've made some changes at the sales and marketing leadership there and I think their results have relatively bottomed out in terms of where sales and earnings are as we get through this fiscal year. I think that the strong thing and I'll answer this kind of big picture is when you look at the underlying strength of RPM first in consumer. As I mentioned in my comments, our core consumer businesses of caulks and sealants, patch-and-repair products, small project paints, primers, the DAP and Zinsser and Rust-Oleum brands, we were up more than 6% in an organic basis and in comparison to the recent results of our peers we're really happy with that. We will continue to see the benefits of market share gains there and the challenge that we communicated earlier on DAP was around what was a pretty extraordinary growth last year that has continued this year that caused some capacity constraints. And so we had [tool][ph] manufacturing issues, some SG&A issues, all of which have been resolved and so you'll see better leverage to the bottom line out of our core consumer businesses that will make up for the shortfall of Kirker in the second half of the year.

That's very helpful. And just coming back to Kirker, you've got two things going on there, it seems A) you’ve lost market share in the Polish business, and B) obviously the industry is shifting against you. What gives you the confidence that that business has actually bottomed and the second part where the market is shifting away from Polish will not continue. What gives you the confidence that we have in fact bottomed here?

I think we've seen some orders from some customers that have been lost, they're returning in modest ways and we have been working on some substantial new relationships that are still developing and will be positive for the future, but are developing little more slowly than we had anticipated when the year started.

All right, that's helpful. And then lastly you guys also referenced the higher consumer spend in advertising weighing on results. Any chance you can give us an order of magnitude and when do you think that that flips in and you see the fruits of those spending?

Well, I think we're seeing the fruits of those spending now when you look at our organic growth particularly versus the recent revenue growth in some cases flat and other cases down of our peer companies. We are working hard and quite candidly I think that we've got the right balance as we sit here between supporting revenue growth across many RPM companies, not just consumers, while at the same time appropriately tackling costs. You'll see better leverage in the fourth quarter out of consumer principally because we've addressed some capacity issues there that have been a drag on what otherwise has been very solid results. And we're continuing to have a forward investment mentality in our specialty businesses and many not all, but many of our industrial businesses. So throughout a challenging year, we've been working to get the balance between supporting and driving sales growth which is working and tackling costs which we think will bode very well for the coming fiscal year.

That's helpful. Thank you.

Thank you. The next question comes from Steve Byrne from Bank of America Merrill Lynch.

Good morning.

Good morning. Hey, this is Ian Bennett on here for Steve. Just to follow-up on some of the items that are called out. What’s the increase SG&A spending particularly in consumer? Can you talk about what that marketing is going towards and what type of sales growth we could expect from some of that spend?

Again in the quarter when you look at our peers who reported flatter down results in their comparable divisions versus our Consumer segment, our organic growth excluding Kirker was up 6.5%. That's pretty good volume relative to what people are seeing in our market. We are picking up share in some wood stains and finishes category and small project paint in a major discount retailer and just introduction of new products, so it's been a pretty solid story. Our DAP business experienced double-digit organic growth last year. We have been somewhat inhibited by capacity issues in the first half and we've addressed those in a manner that will eliminate that capacity constraint in the second half. That both hampered revenue growth to a certain extent, but more importantly caused us to utilize some [tow] [ph] manufacturing and incur some other expenses that as of the middle part of the third quarter will be behind us.

Okay. So it sounds like that level of SG&A spend is a relatively good proxy for moving forward?

I think that's correct, but you'll see better leverage in the bottom line starting in the fourth quarter. The challenges for our third quarter are a function of the items that Rusty mentioned and the fact that it’s a seasonal low quarter for us, so a penny per share one way or another has big percentage gains to it, but it's not very material in relationship to the full-year.

Excellent. And then just one more if I may on corporate expense. Can you talk about what the major drivers are of corporate expense being up first half of the year compared to last year and expectations for the balance of the year?

Sure. The three biggest drivers there are higher pension expense, healthcare costs and professional fees and we are – I guess I would step back from that and talk more broadly about the underlying strength of all of RPM in relationship to that. In the last three to five years, we have overcome almost $100 million in earnings hits from three primary areas. Number one is foreign exchange not unique to us, but in the last two and a half years we've lost about $400 million in revenues and somewhere between $40 million and $50 million in earnings strictly as a result of FX translation or transaction impact. Pension costs which goes specifically to your question over the last five years in our P&L has gone from $26 million in 2012 to what will be $52 million this year with an increase in the discount rate. In our new fiscal year, we will see pension expense start to drop for the first time that's not been through this year. And then lastly professional fees and services have risen in relationship to a number of items that we talked about in the past and we are hopeful that those will be dropping in a material amount as we go into the new fiscal year. The last element of that earnings hit was the earnings drop that we talked about already on Kirker. If you think about RPM as a whole and the impact of those three items I think it really highlights the strength of our businesses and why we feel pretty good about where we're headed and feel pretty good about the investments we're making and the revenue growth that’s driving and the expense cuts that I think will start to benefit our fourth quarter as well as our new fiscal year that starts June 1.

Thank you very much.

Thank you. Our next question comes from Rosemarie Morbelli from Gabelli & Company.

Thank you. Good morning, everyone. I was wondering if you could talk about this trends in Europe. In euros you showed quite a strong growth at 6.8% I think, so could you talk about what is particularly strong there and then can you give us a little more detail in terms of the restructuring? Is there a particular business line that you are consolidating for example or is it across the board?

No, the restructuring reference in our comments and will be referenced similarly in our 10-Q is in relationship to an Industrial segment factory and business unit that will be closed. Beyond that we can't comment. We’ll provide more details in the third quarter. We expect that to negatively impact the quarter by about $0.05. Relative to our underlying performance, we've seen okay performance in our industrial sector, again it's been mixed, but very strong performance in the UK across all of our businesses and particularly strong performance by Rust-Oleum as they expand their European presence in the UK and on the continent and now with a pretty nice acquisition approximately $60 million in revenues to manufacturing that we can leverage and a better more efficient manufacturing based on the continent where most of Rust-Oleum current manufacturing is in the UK. So they've got really strong momentum and they're doing really well. Unfortunately when translated back to dollars with what the pound is done and what the euro is done those results aren't reflected in our U.S. dollar functional currency as well as they are in local currencies.

And staying with that for a second in terms of the restructuring and the closing of Flowcrete in the Middle East. What kind of savings are you anticipating from those actions?

We have not disclosed that at this point in time and I think as we move into providing guidance for our 2018 fiscal year and we complete some of the additional cost cutting programs that we plan will be in a better position to talk about our expectations for the new fiscal year and in general what that means for our earnings.

And then lastly if I may, well you don't give quarterly estimates looking at the third quarter, given it’s small size, given the cost of the acquisitions. Could you actually report a loss on an adjusted basis in the third quarter?

We don’t provide quarterly guidance as you commented and I could tell you last year we had $0.14 per share, we anticipate a $0.05 hit on restructuring in Europe and we anticipate some transaction costs related to the acquisitions that we've announced and completed in the third quarter. And then operationally I think we anticipate some less operational performance just in relationship to what seems like a pretty tough winter relative to a very mild winter beyond that I don't know that we would comment.

Okay. Thank you. That is helpful.

Thank you. Our next question comes from Ghansham Panjabi from Robert W. Baird.

Good morning.

Hey, guys. Good morning. Happy New Year.

Happy New Year.

I guess going back to the guidance for fiscal year 2017; it looks like you need to generate roughly $1.38 or so in the back half to hit the midpoint of your range. Last year it was roughly around $1.27 not to mention some of these headwinds you talked about Frank FX and pension et cetera. I guess can you just give us a bridge on the plus side and how much accretion do you expect from acquisitions for the back half in total understanding that there's some variability between 3Q and 4Q?

Sure, beyond the comments that Rusty made I don’t know that we would provide any final points other than – on an annualized basis the deals that we announced this quarter will provide about $160 million in revenues and year-to-date we gone about $200 million of acquisitions. In every instance there's a kind of small and medium sized product lines that we can add value to immediately and so beyond commenting that they will hurt earnings in the third quarter as we pile up transaction cost and inventory step up. They will be accretive to earnings in the fourth quarter in a manner that we think and the back half of the year should be [new]. And so – I guess beyond the comments that we've made and the guidance that we provided I think your math is correct, but I guess that's all the detail we provide.

Okay. And just in terms of the raw material aspect, is there any change for you to revise 2017 guidance related to maybe higher raw material costs relative to your previous forecast?

Not at this point.

Okay. And then just sort of one final one, in terms of the consumer strength that you're seeing which is exceptional relative to the peer group, were you first off surprised with the strength during the quarter and if so which categories really outperformed and also that your supply constraints on the DAP side did that caused you from a sales perspective for the quarter?

So first of all it didn't surprise us, as you may recall we anticipated 5% to 6% growth in consumer when we talked about the fiscal year in July. What actually surprised us was the relatively lower growth than we expected in the first quarter, so we're back to kind of the forecasts in the budgeting that our consumer businesses had for the year. The DAP supply constraints were an issue in the first quarter and so I think they caused us some sales. That is not true in the second quarter in terms of revenues, but it's certainly true in terms of bottom line because of [tool] [ph] manufacturing costs and other costs. All of those capacity issues are behind us. We will bleed out some higher tool manufactured inventory in the third quarter and beyond that you should expect to see the type of leverage that we've generated in the past and I think that financial analysts and our investors would expect based upon what sales growth we can generate in the second half of the year in consumer. We will have certainly better leverage than we did in the first half.

Okay. Thanks so much Frank.

Thank you.

Thank you. Our next question comes from Vincent Andrews from Morgan Stanley.

Good morning.

Good morning. This is Matt Gingrich on for Vincent. I'm curious if you could clarify which end markets industrial drove the unfavorable mix?

Mostly in our roofing and in our Latin America Viapol business, roofing was a function of service revenues versus materials and Viapol was a function of retail mix versus kind of commercial industrial sales. In both cases it was a negative mix issue with the gross margin and not a raw material issue.

And then the challenging environment in oil and gas and heavy machinery weaken sequentially from the first quarter to second quarter and if it's flattened out should we expect the beginnings of easier comps to provide release in the coming quarters?

No in those categories we have been consistently down about 10% quarter-by-quarter and month-by-month and our guidance expects that the balance of this fiscal year will be the same. While we will be seeing easier comps next year, the nature of a lot of our products in oil and gas and how oil and gas projects are put on the map. I suspect it'll be a good 12 months before we start to see pickups in relationship to greater activity in offshore oil platforms in oil and gas. The element that is maintenance related would certainly pick up sooner.

Okay. Thanks guys.

Thank you. Our next question comes from Kevin McCarthy from Vertical Research Partners.

Good morning, Kevin.

Good morning, gentleman. With regard to your portfolio review as per your CANE metric, what percent of your sales are running negative at this point and how would you characterize the opportunity for earnings improvement as you sort through the portfolio and address those businesses?

Fortunately it’s a very small percent. CANE is essentially an EBA metric that we use for performance measurements and compensation. And there are only a couple of those businesses and I think we came to the conclusion that there was a little likelihood in the near-term that they would end up being a cost of capital or CANE positives, so they are being closed. There are some smaller operations which we typically don't talk about because they would be too modest and our goal is to call out items that are $10 million or greater in terms of unique expense or unique income beyond that we just do our job. And so earlier this year for example we had a $1.5 million hit and a small closure of a plant in the southeast. And so we're going to look in smaller places where we might do this. The other area of expense improvement is just a number of areas of expense reductions across RPM which we will enact – are in the middle of enacting and we will continue to enact for the balance of the fiscal year.

That's helpful. Switching gears, the presidential election is obviously transpired since your last earnings call. I was curious on two subjects, what you are hearing with regard to infrastructure perhaps from your customer base. And then second as it relates to future tax regime, have you thought at all at this early stage about border adjustment and what that might mean for RPM given your trade balances?

Sure. The issue on taxes is really not an issue for us. We would be affected equally as everyone else. The nature of our products or such that we typically are manufacturing in the country and which we sell and distribute and there are some exceptions across the UK and Europe and so that wouldn’t be affected. And then the biggest cross border transactions that RPM has of any meaning which [has hurt us] relative to my earlier comments on foreign exchange translation and transaction is between the U.S. and Canada beyond that it's not really an issue. And then let me let Barry Slifstein address the infrastructure question.

Kevin we have about $500 million worth of sales in the U.S. that has exposure to infrastructure. Now a lot of the highway bridge work might be below our margin profile, so we'll be selective, but anyway you slice it, infrastructure spending is going to help RPM.

Okay. Thank you for that. And then the final quick one if I may. What is the magnitude of inventory step up impact that you anticipate in the fiscal third quarter?

We don't have that number, but we will highlight the transaction cost and inventory step up when we report the third quarter if that would be helpful.

Fair enough. Thank you very much.

Thank you. Our next question comes from Mike Harrison from Seaport Global Securities.

Hi, good morning.

Good morning.

I was wondering if you could – we could go back to the Kirker business and just talk a little bit about, you mentioned that there were some actions that you took that seem to kind of turned off some customers and I was wondering if that was the addition of the bottling line and this idea that you could go from selling barrels to taking of the middleman and selling bottles and somehow that process didn't go over with the customers. Are we still moving forward with adding the bottling line and kind of transitioning the business to more of a direct to the warehouse type of process or are we going back to selling in drums?

We have the capabilities today which are expanded from three or four years ago to supply our customers anywhere from bulk drums into supporting direct packaging for them and that’s what they would choose to do.

But it wasn't that transition or – that additional capabilities that was the issue that drove away some customers, it sounds like that's what you're seeing? Can you talk about what happened to some of those customers away?

I think we had some decision making at a leadership level of sales and marketing that did not work out and we have made appropriate leadership changes in relationship to their sales and marketing.

All right. Understood. And then I was also hoping just in terms of the corporate expense number, what can we expect in terms of that exact number for the remainder of the year. I know you said there were some professional fees those probably go ahead with the acquisitions you've done, but are we back toward a low-to-mid $20 million per quarter level as we look at the second half of the year and into 2018?

Mike, it’s Rusty here. In terms of the corporate other expense, what we saw in the second quarter isn't too different from probably what we'll see in the third and the fourth quarter. I would expect those expense is the range between $28 million and $30 million probably on the higher side in the third quarter due to the acquisition related professional fees, so that’s what I could tell you.

Great. And then the last question I had is can you give us an update on your efforts to expand the industrial business in Asia? Is that something that we're gaining some traction with now or is that more of a fiscal 2018 or even fiscal 2019 benefit?

I think it's more of a fiscal 2018 benefit, but it is a program that we are continuing to pursue and we are investing in a – what was a Flowcrete plant in Malaysia to expand capacity for other RPM product lines and we are looking at opportunities to either add, initiate or acquire productive assets in other parts of Asia. And I think the benefit of that will start to show up in the middle part of 2018.

All right. Thanks very much.

Thank you.

Thank you. Our next question comes from Arun Viswanathan from RBC Capital Markets.

Good morning. Thank you.

Good morning.

I guess I just had a question – you guys as you noted had stronger than peer performance in the Consumer segment. I guess I just want to get your thoughts on the DIY channel in general and what you're seeing at your home center customers, many of your peers has noted a pretty strong de-stocking and slowdown? Have you seen that as well and if not what would you attribute your strengths to specifically with your product lines?

First of all I think I would attribute to strengthen our product lines to what just been good consumer takeaway, good small contractor activity that purchases from our core customer base and new product gains across pretty much all of our core consumer product brands. I do think every year you see some inventory adjustments in de-stocking which typically hit our third quarter as a lot of our major retail customers approached there year-end. And I think we've already hinted that we would anticipate across all of RPM perhaps some operational slowdown year-over-year just in light of tough winter versus the winter we had last year. Those are all circumstantial though in terms of our core business consumer takeaway in our categories is good to the extent that contractors and are doing like contracting work and purchased our products through our customer base, that’s continuing to be pretty strong and the market share gains that we have picked up I think will benefit us in our stronger spring and summer selling season.

Okay. Thanks. And do you expect a large amount of new customer load-ins or at least new product lead-ins at your customers in FQ4 this year again?

No I mean not beyond kind of what's driving our results now and we would expect it would carry into the spring selling season.

Okay. Then I had one more on Kirker. It looks like if I heard it correctly you said you were up 6.5 ex-Kirker, but then organic was up 5.8 without it or with it. So if I did that quick math it sounded like Kirker was a kind of a $2 million to $3 million revenue drag on the quarter, is that accurate or was it greater than that?

Beyond the comments that we've made, we typically don't provide revenues or earnings by individual operating unit given the negative impact of Kirker and the impairment charge I think we felt it was appropriate to provide some more detail than we normally would have, so that investors can understand what's going on in light of a significant impairment charge. But beyond that I wouldn't provide anymore detail other than what we have.

Okay. Thanks. And last one if I may is just on your non-U.S. businesses are you seeing any improvement or stabilization in Brazil and Europe?

Latin America as a whole we were up in local currencies. I think Brazil which our Brazilian operation gain market share and grew remarkably despite all those challenges. This quarter was the first down quarter in Brazil pretty much ever since we've gone that business and that remains to be – remains a challenging market. The rest of Latin America is doing well for us and we'll see what a new government and what feels like a flattening out of some of the economic challenges and Brazil brings in the coming quarters and years.

Thank you.

Thank you.

Thank you. Our next question comes from Christopher Perrella from Bloomberg Intelligence.

Good morning.

Thank you for taking the call. Question with the Flowcrete expansion going on in Malaysia, does the closure of the Middle East business. How does that read to your expansion plans over in Southeast Asia and how does the Flowcrete closure relate back to the energy sector in the Middle East?

The Flowcrete closure in the Middle East is pretty unique, again we look at our business in a number of ways and this was a CANE-negative business narrowing its cost of capital. It was specific to some major projects in some certain countries around certain sporting events and that activity is down, it's not been as profitable for us as we had thought and the prospects of improving that were not high. And so when you look at what we're doing with Flowcrete and Euclid and creating a global construction chemical business whether it's in the United States, Latin America, India or Asia. Our investment footing is forward and we're doing quite well, but at the same time we're looking at areas that have been a drain on resources and this was one of them. Aside from that, we still have a very good base of business in manufacturing in Saudi Arabia and Dubai that supports Stonhard, our USL business and most importantly Carboline and those businesses are continuing and continuing to do fine. But where we have discrete units particularly in our entrepreneurial culture that are underperforming and the likelihood for their improvement is not on the horizon. We're going to be more aggressive in shutting them down.

All right. Could you just touch on your wood stains and coatings business in the U.S. and sort of what product lines you have and maybe what areas you would be interested in expanding it?

Sure. That business has been doing quite well. We are a leader in touch-up and repair products for wood stains and finishes whether at furniture retailers basically in the furniture supply chain, furniture retailers, distributors, touch-up and repair shops and manufactures. We also had a very strong line of wood stains and finishes and topcoats that are mostly sold through distribution. And then we do some OEM direct mostly to the furniture manufacturing that it is still located in U.S. which obviously smaller than it used to be. Very profitable and nicely growing business for us and we would look for opportunities to continue to grow there.

Thank you very much.

Thank you. Our next question comes from Kevin Hocevar from Northcoast Research.

Good morning.

Hey. Good morning, everybody. Wondering if you could comment, so organic sales growth was 3.8% for the quarter, I wondered if you could comment on volume, particularly price in there - was that price move at all just because I know on the industrial coatings some of your peers there have seen some pressure on price, so just kind of curious if there's pretty much a volume number or if there's any movement in price in there as well?

With very rare exceptions and the rare exceptions are around FX issues for instance to Canada or few other places it's all volume.

Gotcha. Okay. And then you noted that the acquisitions you've made should be pretty fairly neutral in the back half of the year to earnings. What about when we think 2018 what type of benefits might you get from the recent slew of acquisitions you've made?

We would expect them to obviously add on an annualized basis $200 million of sales; we won't get all of that obviously because these acquisitions have occurred at various stages in our first and second quarter and now in our third quarter and all of them should be accretive to earnings. It’s the bread and butter of RPM. I think we sometimes get accused of focusing on small and medium size deals. When you do five or six deals across five or six different business units in a relatively low cost to capital environment and we can add value immediately. They certainly will add pennies per share to the whole total.

Gotcha. Okay. And maybe you've already answered this with some of your comments and answers to questions, but when I look at the consumer segment guidance for the back half of the year for mid single-digit type growth, it looks like SPS and Touch 'N Foam both had about $60 million in annual sales. So when I think of when applying seasonality it looks like that adds kind of the mid single-digits alone to sales. And so I guess I was kind of curious, I don't know if that implies that organic growth because you grew sales organically 6% here in consumer in the second quarter. So wondering for any reason we expect organic growth to slow down. I know FX will be a little bit of a bigger headwind, it sounds like and I don't know if Kirker maybe I'm not sure if you got the full impact of some of the recent business losses in Kirker in the second quarter maybe that you start seeing more of that in the third and beyond and I know that there's some tougher comp in here in the third quarter which is kind of wondering if you could comment on that. What are kind of the moving pieces there that you're adding these acquisitions would seem to get you to that mid single-digit number alone? What are the other moving pieces I guess that gets you to the kind of keeps you at that mid single-digit growth rate as opposed to something higher?

Sure. As you mentioned and Rusty commented on Kirker will not be helpful to the second half, otherwise the dynamics were the same and we feel really good about them. I think the variable there is the third quarter and third quarter weather and those types of factors. But that dynamics that have been driving the organic growth in the second quarter remain and we would expect that to be true in general, but the third quarter as we commented on earlier weather related issues could certainly impact some of our industrial business and some of our consumer business in terms of takeaway and activity, but the underlying dynamics have not changed and they are very positive.

Gotcha. Okay. Thank you very much.

Thank you. And our question comes from Rosemarie Morbelli from Gabelli & Company.

Thank you for taking my follow-up. I was wondering you gave us $160 million of revenue contribution from the last four acquisitions. Could you share with us the EBITDA contribution?

Typically Rosemarie we’ve not done that and it’s not a practice that we would start.

Even if you put them in the aggregate [brings them altogether]?

What I think we have typically done and we will do again this year as when we talk about our 2018 results we’ll certainly talk about our expectations for growth. How much of that would be organic versus acquisition and then I think provide some general guidelines as to what between our segments in our organic and acquisition growth will be driving our earnings. But specifically we've not done that and for all kinds of reasons competitively we would not start.

Okay. And then another quick one which you may not given answer to either, but what is the size of the professional fees that you have experienced and how much of that will go away in 2018?

We've certainly experienced high single-digit professional fees and I'm hopeful that a significant amount of that will go away in 2018, but time will tell.

Okay. Thank you very much. End of Q&A

Thank you. We have no further questions. I would like to turn the call over to Mr. Frank Sullivan for final remarks.

Thank you for your participation in our call this morning. As we’d commented earlier, we feel we have the right balance of supporting and driving sales growth in a challenging environment while appropriately tackling cost and expense reductions all of which bode well for the fourth quarter of this fiscal year and for the fiscal year which starts June 1. I'd like to thank the 13,000 RPM employees around the world who are continuing to compete and win in their markets and we greatly appreciate your participation, your questions, and most importantly your investment in RPM. Thank you. Happy New Year and have a great day.

Thank you. Ladies and gentlemen, this concludes today's conference. We thank you for your participation. You may now disconnect.