Frank Sullivan - Chairman and CEO Rusty Gordon - Vice President and Chief Financial Officer Barry Slifstein - Vice President of Investor Relations

Frank Mitsch - Wells Fargo Securities Rosemarie Morbelli - Gabelli & Company Ghansham Panjabi - Robert W. Baird Vincent Andrews - Morgan Stanley Steve Byrne - Bank of America Arun Viswanathan - RBC Capital Markets Silke Kueck - J. P. Morgan Mike Harrison - Seaport Global Securities Jason Rogers - Great Lakes Review Mike Sison - KeyBanc Capital Markets Kevin Hocevar - Northcoast Research Christopher Perrella - Bloomberg Intelligence

Welcome to RPM International’s Conference Call for the Fiscal 2017 Fourth Quarter and Year-End. Today’s call is being recorded. This call is also being webcast and can be accessed live or replayed on the RPM Web site at www.rpminc.com. Comments made on this call may include forward-looking statements based on the current expectations that involve risks and uncertainties, which could cause actual results to be materially different. For more information on these risks and uncertainties, please review RPM’s reports filed with the SEC. During this conference, references 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 Web site. 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, Vanessa. Good morning, and welcome to the RPM International Inc. Investor Call for our fiscal 2017 fourth quarter and year ended May 31, 2017. On the call with me today are Rusty Gordon, RPM’s Vice President and Chief Financial Officer; and Barry Slifstein, Vice President of Investor Relations. Today, we’ll discuss our fourth quarter and full year results and then provide some detailed guidance for our new fiscal 2018. After which we will take your questions. In the fourth quarter, we took additional actions to reduce our cost base and position RPM for double-digit earnings growth in fiscal 2018. We generated steady organic growth given the challenging economic environment, which especially in our industrial segment businesses, appears to be accelerating. Adjusted EBIT increased 1.7% despite a sharp rise in raw material costs compounded by shortages and availability in a few key product line areas. A significantly higher tax rate in this year’s fourth quarter compared to last year further reduced adjusted EPS by $0.12 per share, which otherwise would have been flat year-over-year. Sales in our industrial segment increased 5% in the fourth quarter, driven predominantly by current year acquisitions and strong organic growth in the U.S. at our high-performance polymer flooring and our roofing businesses. Consistent with the results reported in our fiscal third quarter, our businesses, the oil and gas sector were down in the mid single-digit range versus double-digit range we experienced over the last two fiscal years. Industrial sales in Europe increased in the low single-digit range in local currency, which is consistent with a more positive outlook we’ve seen over the last few quarters. Sales in the consumer segment increased 3.9% in the quarter, driven predominantly by the recent acquisition of Touch 'N Foam in U.S. by our GAAP subsidiary and SPS in Europe by our Rust-Oleum. Organic sales were down 1%, principally due to underperformance at Kirker, which we now believe has stabilized at a lower base for fiscal 2018. Very difficult comparisons to last year when we experienced a 9.9% increase in organic growth in our consumers segment also made a difficult year along with weather challenges in the early part of the quarter. Sales in the specialty segment increased 5.4%, driven by recent acquisitions and solid organic growth of 3.6%. We saw stronger results in our specialty cleaning products, building restoration and wood preservatives businesses during the quarter. All-in-all, while we are disappointed in our quarterly results, we’re pleased that our organic growth continues to outperform our peers and seems to be accelerating as we enter the new fiscal year. I’d now like to turn the call over to Barry Slifstein to provide you with more detail on our fourth quarter results.

Thanks, Frank and good morning, everyone. I will review the results of operations for our fiscal 2017 fourth quarter and full year on an adjusted basis. Then cover some May 31, 2017 balance sheet and cash flow items before turning the call over to Rusty who will provide more detail on our guidance for fiscal 2018. During the fourth quarter, we adjusted out $15 million in company-wide severance charges. Fourth quarter consolidated net sales of $1.49 billion increased 4.6% from last year. Organic sales increased 1.2% acquisition growth added 4.8% and foreign currency translation reduced sales by 1.4%. Industrial segment sales increased 5% quarter-over-quarter to $733.5 million. Organic sales increased 2.2%, acquisition growth added 4.3% and foreign currency translation reduced sales by 1.5%. Specialty segment sales increased 5.4% to $194 million from $184.2 million. Organic sales decreased 3.6%, acquisition growth added 3.3% and foreign currency translation reduced sales by 1.5%. Consumer segment sales increased 3.9% to $565.3 million. Organic sales decreased 1%, acquisition growth added 5.9% and foreign currency translation reduced sales by 1%. Consolidated gross profit increased 2.5% to $663.4 million from $647.2 million last year. As a percent of net sales, gross profit declined 100 basis points due principally to higher raw material costs and an unfavorable shift in mix towards service install sales. Consolidated SG&A increased 3.4% to $438.9 million from $424.6 million last year. The increase was largely driven by higher warranty, pension and bad debt expenses and increase in the earn-out accrual relating to the success of our Citadel acquisition and additional SG&A on fiscal 2017 acquisitions. Consolidated earnings before interest and taxes, EBIT, increased 1.7% to $224.1 million from $220.4 million last year on higher sales, which was partially offset by lower gross profit margins due to higher raw material costs. Industrial segment EBIT decreased 7.9% to $101.1 million from $109.7 million last year. Included in last year’s industrial results was an $8 million gain on the purchase of the remaining 51% of Dalian, China. Excluding this gain, industrial EBIT in the quarter was essentially flat for last year. Consumer segment EBIT increased 6.1% to $103.9 million from $98 million last year. Included in last year’s consumer result was $9.3 million in a legal settlement relating to the restore product line. Excluding the legal settlement, consumer segment EBIT declined 3.1% from last year, driven predominantly by the bold performance at Kirker. Specialty segment EBIT increased 10.2% to $34 million from $30.9 million last year due to SG&A spending controls, partially offset by higher raw material costs. Corporate other expenses of $14.9 million compared to $18.2 million last year. The decrease is predominately attributable to lower incentives, outside professional service fees and insurance expense. Income taxes, our fourth quarter income tax rate increased from an effective tax rate of 22.8% last year to 30.7% this year. The increase in the quarterly income tax rate is principally due to an unfavorable fiscal 2017 fourth quarter adjustment to the estimated benefit from the domestic manufacturing deduction combined with non-recurring fiscal 2016 fourth quarter tax benefits related to valuation allowance reversal, the benefit associated with the non-taxable gain from the purchase of the remaining 51% of Dalian, China and a deferred tax benefit from state tax rate changes. Net income of $138.3 million decreased 9.6% from last year’s $152.9 million. Current quarter EPS of $1.02 per share compared to EPS last year of $1.13 per share. A significantly higher tax rate this year compared to last year accounted for the difference. And now a quick look at the cash flows and capital structure. Cash provided by operating activities was $386.1 million this year compared to $474.7 million last year. The decrease was principally attributable to an increase in inventory and the pre-funding of the fiscal 2018 pension plan contribution included in other accrued liabilities. Total debt as of May 31, 2017 was $2.1 billion compared to $1.6 billion last year; the increase is largely attributable to cash used for fiscal 2017 acquisitions of $254.2 million, the payment of the 524-G trust in December 2016 of $102.5 million; the pre-funding of the December 2017 524-G trust payment of $119.1 million; and the pre-funding of the fiscal 2018 pension plan contribution of $52.8 million. Included in total debt for this year is $253.6 million of short-term debt, reflecting the upcoming maturity in February 2018 of our 6.5% $250 million bond. With that, I’ll turn the call over to Rusty.

Thanks, Barry. I’ll provide some color now on our fiscal 2018 guidance. 2017 was a difficult year for RPM, but we accomplished a lot to improve both our top line and bottom-line in fiscal 2018. On the top line, we did a number of acquisitions, which did well with existing RPM businesses. And for the bottom-line, we closed on profitable operations and also embarked on a severance program in the fourth quarter, which eliminated 230 positions. We ended the year with adjusted EPS of $2.47 a year, but that result included some non-recurring expense items that we called out in our third quarter conference call in April. Three items, in particular; number one, the impairment charge on the restore product line; number two, a European facility closing; and number three, we experienced very high one-time acquisition cost. All three of those items added up to $0.08 a share of non-recurring expenses. So to develop the FY’18 outlook, it is first necessary to add back $0.08 of non-recurring items to our adjusted EPS of $2.47 a share. Now, in FY’18, we expect incremental earnings from the following items; first of all, we expect $0.10 per share net benefit of cost reduction initiatives undertaken during the past year; secondly, we expect $0.10 a share from acquisitions that were completed during the FY '17 year; and then number three, we expect to get $0.10 or $0.20 a share from our core organic growth estimated at 3%. So in summary, if you take our adjusted EPS in fiscal '17 at $2.47 add back the $0.08 for non-recurring items, the $0.10 for cost reduction, $0.10 for acquisitions and the range of $0.10 to $0.20 for organic growth, you end up in fiscal '18 with our outlook of $2.85 to $2.95 per share. Now, I'll address some specifics for each segment, first, our industrial segment. We expect steady growth in U.S. and we expect this to benefit our Company's participating in commercial construction market. Also, we think that the oil and gas markets will bottom out during the year, and we can start to get positive comparisons in our industrial coatings business. And then also, we expect Europe to contribute positively to growth both on the top-line and on the bottom line. So in summary, we expect our industrial sales to grow in the low-to-mid single digits. Next, I'll move to specialty. We expect our growth in fiscal '18 to be driven by our fluorescent pigments business also, our wood preservatives and treatment business. We expect to lose revenue due to U.S. patent expiration that affects our eatable coatings business, and we believe this will negatively impact EBIT by roughly $10 million. So in summary, we expect our specialty segment sales to grow in the low single digits. Moving next to consumer, we expect organic sales growth in consumer in the low-to-mid single digit range. As we have favorable market conditions, we continue to pick up new listings and new accounts, both in the United States and Europe. Our DAP capacity issues have been resolved, and now we can manage the recent uptick in growth that we've experienced there. Kirker, as many of you know has met our consumer segment performance over the last three years and we believe this has stabilized now under new management, and we're positioned to rebuild and move to this business forward. In addition to our internal growth initiatives, we also expect a meaningful boost from acquisitions for DAP purchasing, touch and foam and Rust-Oleum purchasing FPS. So in summary, we expect our consumer segment to grow sales in the mid-single digit range in fiscal '18. Now, as we move throughout fiscal '18, please keep in mind there will be some variability in our year-over-year comparisons each quarter. The main thing will be the tax rate and I'll come back to this later. But we expect our tax rate in fiscal '18 to be in line with fiscal '17, but the quarters during the fiscal '17 year range between 23.6% tax rate in the first quarter all the way up to 30.7% tax rate in our fourth quarter. So I'll come back to this. Let’s focus on the first quarter for a moment there is couple of things to keep in mind. We have headwinds and we have tough comparisons, I’ll start with the tough comparisons. If you turn back to the first quarter of fiscal ‘17, nearly all our goals were on plan at that time, and the results weakened thereafter. As an example, in Brazil, our business there grew nicely in the first quarter of fiscal 17 while that country was hosting the Olympics, but our business there declined in subsequent quarters. Another aspect of tough comparisons, like I mentioned the first quarter of last year, we had a very favorable 23.6% tax rate and we expect that to be up in the first quarter of fiscal 2018, and probably cost us $0.03 a share in the year-over-year comparisons. Now, I’ll move to a couple of headwinds. First of all, material cost. As Barry and Frank mentioned, they were higher in the recently ended fourth quarter of fiscal 2017. We expect those to continue to be elevated in the first quarter of fiscal 2018. Secondly, we do expect some headwinds from a foreign exchange perspective on both the translational and transactional FX front. So as a result, our EPS estimate for Q1 of fiscal ’18 is for $0.83 to $0.85 per share. Now, looking past the first quarter to the balance of the FY 2018 year, on the positive side, we do see raw material availability improving and our announced price increases taking hold. We expect the foreign exchange headwinds to move to neutral or even positive territory as we move throughout the year. This will be a nice change after consistently negative impact of that FX for the last three years. And let me offer before I close the couple of more specific items on the quarters. In the third quarter of fiscal 2017, as I mentioned earlier, there were $0.08 a share of non-recurring, non-operating item that we called out in our April conference call. You should add those back to fiscal ‘’17 for a base for modeling fiscal ‘18. Also, in the fourth quarter of fiscal ’17 as we discussed, we have 30.7% tax rate, and we would expect in the fourth quarter of 2018 to pick up $0.05 a share as we move to a more normalized tax rate. With that, we will now be pleased to answer your questions.

Thank you. We will now begin our question-and-answer session [Operator Instructions]. And we have our first question from Frank Mitsch with Wells Fargo Securities.

Frank, you don’t often see companies hit the top line or post a pretty good top line and then obviously, the bottom line was negatively impacted. You’ve made a good case regarding the tax rate being somewhat elevated here in Q4 but obviously, a lot of discussion regarding cost. And I really want to get a little better handle on the raw material side of things, the release mentioned shortages and I think you guys said that, as well in your prepared remarks. What specifically are we looking at? And the pricing actions that you are undertaking, when will that be enough to equal or more than offset the increase in raw materials?

Let me address the fourth quarter. A 100% of our underperformance in the fourth quarter in terms of our results in our internal budget was at the gross margin line, and principally driven by higher raw material costs and the shortages that we’ve mentioned. There had been shortages in items like MDI, MMA resins, which are a critical resin for a number of our specialty flooring products, particularly in Europe, and then tightness in a number of other markets and certainly, an interesting time from that perspective. When I was first out of school, I was in the banking business and loan agreements and remember of course me hear clauses, which essentially meant act of war or act of god. Apparently in 2017, they mean unplanned maintenance shutdowns for some of our suppliers that is not unique to us. And so that is the principal cause of our underperformance in the fourth quarter. We are committed to executing better in ‘18 and you will see that. We’re also committed to communicating better and I mentioned that without providing quarterly guidance, I think we communicated poorly this year around the third quarter items that Rusty called out that we identified but did not adjust out of our numbers to the extent that there is an item that’s big enough to identify we will adjust it out of numbers accordingly. And we did not look forward and appreciate the $0.12 year-over-year hit that was coming from a tax perspective. So that was much as anything poor communications. As we look to the first quarter, June was a little bit funky, July is booming. I think you’ll see us continue the organic growth numbers that we showed in the fourth quarter plus some price that will be reflect little bit in the first quarter and better as we get into the rest of the year. So it’s highly likely that versus the guidance that Rusty provided, we would have a first quarter with sales that are equal to or slightly higher than our bottom-line performance for the raw material reasons we mentioned, as well as $0.03 adjustment backwards on the lower tax rate year-over-year.

So pricing action is a little bit coming through in F Q1 and more or so thereafter?

That’s correct. We are initiating price increases in a number of product categories, some of which have taken hold, some of which will take hold in the coming months. It’s a function depending on market category of what’s lag between announcing price increases and when they take effect. And we will see how that works. But all-in-all, I think we are pleased with the continued organic growth numbers that our businesses are putting up, particularly on a relative basis to our other public company peers.

And then lastly on the severance and the cost cuts, you’re expecting a dime improvement in fiscal ‘18 versus ‘17 from that action. Is that equally spread out throughout the year, is that how we should think about that dime?

Yes, and that’s a net figure. Obviously, with 40,000 employees around the globe, we’ve got some increases in G&A. And so that dime is a net figure that it will hit our bottom-line. The actual positive benefit of the risk and the factory shutdowns were greater than that. So that’s meant to be net of ongoing operations.

And our next question comes from Rosemarie Morbelli with Gabelli & Company.

Frank, I was wondering you said that you are seeing a better July and June was funky, which may assume you mean volatile. But I also assume that this is company-wide. Could you give us a better feel as to what you are seeing on the consumer side?

So the consumer performance for us, I think, is stronger than the numbers would indicate. Keep in mind in the fourth quarter last year, our consumer segment generated 9.9% organic growth. When you look this year, ex- Kirker, we were actually slightly positive year-over-year in the fourth quarter in consumer. I think that’s the benefit of some of the market share gains that we had talked about a year ago and picked up. And I think versus some of our more directly comparable public peers and some of their segments that in some cases are customer and geography and product wise, almost identical to RPM’s consumer segment. To be flat year-over-year in a period of time in which they were weather difficult rain and cold weather issues at the start of spring versus peers that are down in the 10% range is actually a good indication of the benefit of the market share stuff that we picked up a year ago. And the fact that when consumers are going into stores or choosing RPM brands. We see that continuing into the first quarter. And I think we feel pretty good about where our consumer businesses are, particularly without the distraction in the new fiscal year of some of the DAP capacity issues that we had in fiscal ’17.

Do you see any change in the ways the Lowe’s and the Hope Depot operates vis-à-vis your product lines they may be working on the inventories on the paint side. What about our new categories?

So I think broadly speaking in home centers and across retail, there have been some efforts to payer back inventories. It’s been broadly across paint, not just in our categories. And so that’s affected us and others. But I think mostly that’s behind us, and I would not comment specifically about any particular customers.

So I understand. And if we look at Kirker, I understand there is a new management in place. Could you share with us the new size of Kirker in terms of revenues, and are they losing money at the EBIT level or what are they doing at this particular stage and what kind of incremental improvement, do you anticipate next year?

So traditionally, we have not provided revenue or financial information on individual subsidiary companies. I think in the past couple of years, we felt compelled to do-so on Kirker because it's significant deterioration. So I’ll remind you of what we said in the past, revenues peaked 2.5 years at $100 million. It was a very profitable business with a slightly higher gross profit margin in the RPM average and a lower SG&A spend. Revenues are after 2.5 years dive less than 50% of what they were, and the business is modestly and modestly with capital profitable. We have new leadership there, and the business seems to be stabilized. And I don’t anticipate that Kirker will be anything we talk about in fiscal 2018. The significant loss in revenues and significant loss in earnings for that business unit mask, what otherwise, have been continuing industry leading performance of our other core consumer product lines. And so I’m looking forward to a year in which our investors can look at our consumer segment performance and know that its principally our core small project patch repair, products and sealants primer and all the specially businesses where we have the leading brand. We would expect Kirker to be a modest contributor to sales earnings growth, but nothing material.

And our next question comes from Ghansham Panjabi with Robert W Baird.

I guess if you could provide some more color on what drove the strength in polymer flooring, and you also told that roofing within industrial as well. Just give us a sense as to what’s driving that?

So we had a change in leadership at our Tremco business about 3.5 years ago. You may recall, we had a liability issue there, change management and there has been a real concerted effort to improve that business. And so we are seeing that take hold this year. I would say it’s a combination of decent spending in the construction markets whether it's regrouping, which is about 90% of what Tremco does the industrial sealants business, which is driven by both heavy commercial and light commercial construction. And so it’s a combination of decent dynamics in the underlying markets, and an outright improvement in the roofing business versus some challenges we had three years ago. Leadership matters everywhere and that’s made a difference for Tremco. In the polymer flooring area, again, it’s a lot of industrial capital spending. RPM probably has a revenue base in polymer flooring that’s 3 or 4 times greater than any one of our competitors globally between Flowcrete, Stonehard, aspects of Euclid chemical and RPM Belgium business. And those businesses would have actually been higher except for a significant M&A area, particularly in Europe where literally we have a backlog where we normally wouldn’t have of mid-single digits and growing for orders we have that we can’t fill because of MMA shortages. That is now improving. And so some of the shortages that we saw in the fourth quarter are improving as you might guess, they’re improving with higher raw material prices and we are getting in front of that with our own price increases.

And then in Europe, do you sense any sustained improvement or do you think that this is just a function perhaps easier comparisons from a year ago. And then also, Frank, could you just touch on your other geographies from a macro perspective?

The improvement Europe seemed sustained is not anything that’s roaring, but it’s a steady improvement across most of big economies in which we do business from UK to France, and Germany. And so we would expect that to be a benefit, as Rusty commented as well, we along with most of our peers that have an industrial presence in most of industrial America have been clobbered for three straight years transactionally and translationally from a rising dollar, that’s now reversed. And so after the first quarter if FX rates just stay where they are, they will not hurt us in most currencies and we'll actually get a benefit, a slight benefit going forward in terms of the euro and the pound and a few other currencies. So that it's been a headwind that will reverse which will be nice. And I think that dynamic in terms of currencies is evidence as well that what we're seeing in Europe seems to be pretty sustained. Geographically, I think the area that's hurting us the most now is Brazil. We have a great management team in Brazil with Viapol business. They had defied logic in terms of their strong performance through the Olympics, the construction market a lot of their products are at the end of big project cycles so they were completing projects that had been started a few years earlier. We'd also added capacity for a number of product areas sealants, Carboline corrosion control coatings. But the continuing recession and political turmoil in Brazil has really caught up with our business. And so we're seeing significant downturns, 10% plus in terms of business deterioration and we see that continuing probably for the balance of fiscal '18. That's the only region that's meaningfully down. The flipside to that, as Rusty highlighted, is we're annualizing some easier comps and starting to see some more steady-spending in the oil and gas sector and the energy sector, which is also a big market for our industrial coatings businesses.

And then just one final one, maybe for Rusty, in terms of the EPS spreads fiscal year '18 versus '17. How should we think about the price cost differential year-over-year? Thanks.

In terms of price cost, like Frank mentioned, we would expect our price increases to take hold through the first and second quarters, and give us some relief on the margin. But we don't think that will play out really until we get into the second quarter of this year.

Our next question comes from Vincent Andrews with Morgan Stanley.

You mentioned this patent cliff on your edible coatings costing you $10 million of EBIT this year. I guess I'm just curious, are there any other issues similar issues with patents and expiration that we should be aware of?

No.

And then in terms of the oil and gas market bottoming out, I understand what you just said on the software comps. But the underlying market still looks a bit volatile. So what gives you the confidence that that's actually going to happen this year?

I think we're starting to see a return from or to some basic maintenance spending that had been deferred. And I believe in the oil markets that we're settling into a base. So it's a combination over the last few years of both the steep decline in oil prices, but also the volatility. And obviously rig counts went down, capital investment went down and maintenance went down, maintenance and it would be deferred for only so long. We're actually seeing some pretty significant pick up, which is benefiting our revenues now and pipeline activity. And that's a core product for our Carboline business and also the principle products of a SPC business that we acquired a year ago in Canada whose products are exclusively for pipeline business, mostly oil and gas. So we’re seeing spending there, and we would anticipate if that picks up at a modest but steady basis, which speaks 2.5 years of watching your revenues decline 10%.

And then in the fourth quarter we saw that. It was really the first quarter where the decline was in mid single-digit. So we’re seeing some improvement there.

And our next question comes from Steve Byrne with Bank of America.

What’s the split in your sales within the consumer segment between what you would estimate as do-it-yourself or purchaser versus contractor?

So the vast majority of our Rust-Oleum product line small project paint, spray paint, concrete products are sold to DIYr I would take a rough guess it maybe 80-20. Whereas the DAP business is probably a little closer to 50-50 between consumer DIY and homebuilders or light maintenance or small contractors, that’s not in the heavy commercial market that our Tremco sealants business are in. But to a certain extent, home building would impact DAP and our DAP product lines in ways that it would not, for instance, with Rust-Oleum.

And do you see opportunities to strengthen that exposure with the contractor? It would seem you have high brand equity in a lot of these products, you don’t require any customs blending or colorants or so forth. Why couldn’t that be direct-to-sale to a contractor either Internet-based or through some channel than just big boxes?

What we sell to our Tramco sealant business a lot -- and with chemical operations, sealants and concrete repair products and a lot of coatings for concrete and construction markets through industrial distribution base, and you’ll see some of that growing in online sales. But on the DIY space, I think that’s the space that so far has really not negatively impacted by online sales, I think; it has to do with in part cost weight ratio relative to shipping cost; has to do plan flammability of certain products; it has to do with the fact that when people go into any one of our resale customers that typically doing projects so they’re bind different and end, it’s something that we pay a lot of attention to. But I would highlight again a comment I had made earlier. Our consumer businesses are doing well; they’re well positioned; they’re in almost every retail outlet. We are recognized as the innovator and when you compare our year-over-year results with a number of our competitors, we’re outperforming significantly.

And our next question comes from Kevin McCarthy with Vertical Research Partners.

Frank, could you comment on what you’re seeing in the M&A pipeline today, and specifically whether you see any meaningful potential for a larger deal, given the backdrop of the industry consolidation? Or should we expect bolt-ons all have the Key Resins deal last week?

The type of M&A that we’ve been comfortable in commenting on is the just traditional RPM bread and butter where we are a really good home for entrepreneurial companies, family businesses, or whether where we’ve gotten to be very good at acquiring businesses or product lines and completely integrating them. Key Resins is a great example we just announced it last week. We do a lot in polymer flooring. And so someone might say what you already buying another flooring business, a key product area for industrial and commercial flooring is terrazzo flooring and it’s not an area that any of our businesses have much of a presence or strength in. And Key Resins is a leader in the U.S. in the terrazzo flooring market. So we’re very excited about that. Jeff Cain has been part of the founding family and he is going to stay and run that business for us as part of Euclid Group. So that’s something we’re very excited about. You will see more of those acquisitions. ‘17 was probably a larger year in M&A than typical, we did nine deals. And I think on an annualized basis, they would move about $220 million, $240 million in sales somewhere in that range. I don’t know that we would do nine deals a year, but I think this year, I would anticipate handful of deals, maybe in the same size and that’s really where we are focused.

Same dollar amount you mean, Frank, or same size?

I would say, again, transactions are opportunistic. A lot of them are companies that we followed for years. Every once in a while, opportunity pops up through a bank auction or some other process that we’re not aware of. So we could get some sizable. But we’ll get a couple of deals done this year just based on what’s in the pipeline. But to be able to say it would be to do $50 million or $100 million or $200 million, it's really hard to say at this point in time other than we are continuing to focus on the transactions going forward that we completed in 2017.

And second question, if I may. Did the shortages that you referenced in DI and MMA have a measurable impact on your volumes? And I guess on the pricing side, were your pricing contributions, on average, positive in each of your segments year-over-year or did they go negative?

Virtually, no pricing to speak up in ‘17 and virtually no pricing in the fourth quarter, so to a certain extent, I think we and a lot of folks in our industry got caught short in the fourth quarter. Everybody is working to make up for that in terms of price increases where it’s appropriate. And I don’t know the volume was not inconsequential in our industrial segment relative to MMA and MDI and a few other things. With higher prices, amazingly the shortages, are improving. And so it won’t be a headwind to revenues, going forward. But as Rusty highlighted, we do anticipate a hit to our gross profit margin year-over-year in the first quarter.

And our next question comes from Arun Viswanathan with RBC Capital Markets.

So just wanted to ask about couple of dynamics we’ve being seeing. Are you guys noticing a noticeable shift and I think from contractor to -- or away from DIY, and more towards to pro, it seems like some competitors in adjacent industries are seeing. I just wanted to get your thoughts on that?

In our product categories that is not necessarily the case. I think that more relates to the dynamics in tint based architectural paint, which is really not a space that we plan. We have some gallon good products that are specialty in niche areas to a certain extent our Zinsser primer business is a very solid business that doing quite well. And so we don’t see it there. I think it has more to do with the dynamics in the architectural paint market and how that’s playing out relative to some industry consolidation and challenges of company-owned stores versus other retail outlets for architectural paint.

And then on the raw side, understanding that there was a little bit of pressure from availability. I would have thought that you guys have being seen less pressure, just given that none of your own make up more than 5%. So do you think that, going forward, I know your price increases, but just from a inflationary standpoint that you won’t see as much inflation in your raw bucket?

We anticipate that some of the price spikes that we’ve seen will be mitigated or at least stop rising here as we get towards the end of the summer, I think there are some indications that that is true, particularly with some of the availability. But broadly speaking, there were efforts across a number of resin categories, acrylic resins epoxy resins some of the shortages we referenced. So broadly speaking, there were efforts, some more successful than others to raise prices across most of our industry’s raw material base. We are certainly not as big a buyer of certain raw materials like TiO2 for reasons I just mentioned relative our not having a presence in the architectural paint market to say the house paint market. if you will. And so that hasn’t hurt us as much and will not be a challenge for us like it would be for folks in that business.

And then just a question on the guidance and how it relates to some of the challenges in ’17, the 285 to 295, maybe you can just characterize a couple of factors that would get you to the upper end of that or the lower end, if that’s a fair statement. And then, also on Kirker, I understand that management hasn’t changed. But what kind of gives you the confidence that that business has stabilized at a new level? I thought that there were some structural issues that may continue. But maybe you can just give me some thoughts there? Thanks.

On, Kirker I think we found a base of business that we won’t lose, and we’re growing from there. On the other areas, I think, it really -- the two factors that we have to manage in fiscal ’18 to be at the upper end of our range are growth, which if, what we’re experiencing as we speak is in the indication and we end up adding some price to that, will not be the issue. And the other issue will be raw material costs. And our current understanding or view of the market is that we and the folks in our industry have some catching up to do on price that’s happening, and that the raw material base will not continue to increase as we get into the fall. And I think that’s every indication that we see. If those prove to be true then our ability to be at the upper end of our range will come out. If we wake up, like unfortunately we have for too many years in a row now with growth mitigating as we get towards the end of the year and GDP being back in 1% or 1.5% range and continuing challenges on the raw material front then we’ll be at the lower end of that range. I think we’re very confident in the range we’ve provided and there is some dynamics out there that suggest us this will be a positive year. But I think the performance over the next three or four months will be very telling for how we and our whole industry performed for the rest of the year.

And our next question comes from Silke Kueck with J. P. Morgan.

The acrylic and epoxies shortage an issue specifically in Europe, or is that also some that touches North America?

So it's mostly Europe, the raw material issues that we have seen, both in terms of first increases and as well as the first shortages were European based, and principally impacting our industrial segment businesses.

And then perhaps just you can tell, it looks it's something that may persist for like another quarter and then thing will get loser again?

We’re already seeing some availability in MMA and a couple of other areas that were tied to the point of building backlogs in a couple of companies where we normally wouldn’t build the backlog because we had order flow that we couldn’t meet. That persisted for about 30 or 45 days and seems to be clearing up.

And second, is there a positive cash flow item that you expect in fiscal ’18 from funding and pre-funding the SPHC trust, like say like a positive on tax component?

We’re a May 31 fiscal year, so that is also our tax year. And to the extent that we could pre-fund our pension obligation before May 31 as opposed to spread it out on a quarterly basis throughout the year and the decision to accelerate our December 17 SPAC trust payment, while it was also a tax driven event. So if there is any tax reform out of this Congress whose effective date is before May 31, 2018 we will be happy to have made these decisions. If there is not, it essentially serves as an acceleration of payments that otherwise would have been made over the coming 12 months.

And our next question comes from Mike Harrison with Seaport Global Securities.

Frank, I was wondering if you could talk a little bit more about the weather impact that you saw this quarter. Roughly, how much of a drag was weather on organic sales growth in consumer, and did you see any impact in the industrial business this quarter?

We saw a lousy start to our quarter in March because of wet cold weather. It was relatively mild winter right up until March. And for better or for worse, I’m not the only industry CEO crying the weather blues, but it negatively impacted our quarter. So we get off to a very difficult start and a slow start year-over-year. And as the quarter progress, we continue to do better. And so when you look at our quarterly results and obviously we don't publish and nobody publishes monthly results, but our April was better than our March and our May was much better than our April. And June was a little bit funky, weather wise as well. But we are seeing pretty robust growth right now for the month of July. So again I think that was more just temporary weather related, demand seems to be pretty good across most of our businesses, right now.

And was there any impact in the industrial business?

Not that I could tell per se. It was a little bit of an impact in March in our Tremco roofing business I think we made up most of that. There was a negative impact in our drive-it business, which is a water based entirely exterior use product. And so that didn’t perform as well in the fourth quarter as we like but there is nothing about either of those business that suggested it wasn't just temporary, they’re both doing very well.

And in terms of the cost actions that you've taken, I was wondering if you could give a little bit more detail on that. And in particular, you said that the $0.10 number was a net number. Where are some of the incremental growth spending initiatives taking place?

We look across our businesses mid-year when it became apparent to us that we were going to underperform to our business plan and after the impairment charge on Kirker. And really challenge our businesses to look to where there might be some areas of underperformance that we could either improve or close. So we identified a plant in Germany and identified a plant in Middle East, both of which were closed. And basically both of which were underperforming business units that were liquidated. And we also challenge our businesses in the second half of the year to look across their business units and take a hard look at headcount reductions. And as a result of that, we affected 230 persons pretty evenly across RPM business segments. It was not even across our business units, those that are doing well were not impacted and those that had a disappointed year took some hard decisions there. The net nature of it is when you got, the simple way to think about it is when you got a 14,000 person global business and you've got a cost and benefit base that would rise even under some constraints in modest terms of about 2%, that offsets some of the expense cuts and headcount reduction benefits that we got year-over-year. So rather than give people a number in the tens of millions of dollars that would be misleading, we thought the best way to do it would be to provide a net number that people should think of as incrementally positive from these actions for the new fiscal year.

And our next question comes from Jason Rogers with Great Lakes Review.

I apologize if I missed it. But did you give a CapEx estimate for fiscal '18?

No, I think it will be relatively flat year-over-year somewhere in the $130 million range.

And would you provide perhaps some more detail on what changes you’re looking for new management to make Kirker to improve results, going forward?

Better management of our customer base and a better focus on customer service. And I think recommitting to their place in the supply chain.

And then finally, any update on some of your significant products, such as AlphaGuard, Roof Tech, Tough Strand, any milestones or new developments there?

We are selling all the Tough Strand Fiber we can make, and we’re starting to sell it more internationally; AlphaGuard for Tremco Roofing continues to grow at double-digits; drive-it introduced in the spring, a new patented product called New Brick and it is a brick façade surrounded a piece of installation, and they’re very excited about the potential for that products in commercial and light commercial markets. It opens up a drive-it product to brick layers as an entirely new contractor base to sell that product. And so we are doing a number of things from a manufacturing perspective to get at that in terms of volume and efficiency, and continuing to try and get it specified. So that will be interesting product that’s relatively new. The potential is pretty exciting. But we need to get out there more with it and get market acceptance. The Rust-Oleum rock solid product for crash words is booing, it is related to an acquisition we bought with some unique technology that actually improves upon our and all of our competitors’ products in terms of performance. And a 12-hour cure time as opposed to cure times that were 24 hour plus with old technology and competitive technology so that’s going quite well also.

And our next question comes from Mike Sison with KeyBanc.

Just wanted to get a better feel for the squeeze and raw material sensitivity, you said organic growth should provide $0.20 in EPS incrementally, and I assume that covering the raw material headwinds. In the event that the environment for no more reason is more difficult, what type of headwind is this, just like a nickel or maybe $0.10?

Well, we said that organic growth would be $0.10 to $0.20 and I think the variability there is really how well we manage raw material cost versus our ability to get priced. And then our expectation and I think it’s pretty generally believed that things will stabilize towards the end of the summer or fall. But I think you’ll see a first quarter that -- the fourth quarter was disappointing to us on a growth basis, we’re still getting at it. I think you’ll see first quarter than on a growth basis, we’ll see even better. And in a stable raw material environment, we put a lot of it on our bottom line. And as we’ve indicated with the guidance that Rusty provided for the first quarter, our ability to leverage that in the first quarter will be muted. If we can manage that better and we can get some raw material relief or some combination of raw material price release then I think there is an opportunity for us to outperform in the back half of the year.

And then a quick follow-up and I apologize if I missed this. But I thought Euclid has been a pretty good performer, generating pretty good organic sales growth. Any thoughts there and how that’s doing as we head into ‘18?

So our Euclid Group is continuing to grow well in U.S. and North America, expanding globally and all of that’s the good news. The bad news is within the Euclid Group is the Viapol Brazilian business, which is killing us month-by-month where we’re down about 10% and we see that continuing for the balance of the year.

And our next question comes from Kevin Hocevar with Northcoast Research

You called out $5.5 million of transactional FX headwinds in the industrial segment. Could you remind me what currencies are causing that? And I think you called out it was continuing to be a headwind to you in the first quarter. Wondering if you could give a sense that a similar magnitude is it getting any better, what’s happening there?

So it is getting better. And the currencies that impact us the most, particularly on the transitional side, is a relationship between U.S. dollar and the Canadian dollar. We produce a ton of products in the U.S. that are sold in Canada. The ratio, which sometimes helps and sometimes hurts between the UK pound and euro where we have a lot of cross-border transactions with the big manufacturing base in the UK but also in Europe, so depending on which way those products go. Day-Glo, which is the world leader in fluorescent pigments, our manufacturing basis are in the U.S. and Europe and the UK. And there is a lot of different technology products that are produced exclusively for global distribution in one place or another. So there is the strength. So are the principal areas along with some just inter-company items that drive transactional FX issues. On the translational side, it’s been the euro, the Canadian dollar, the UK pound and then odds and ends to a lesser extent the Brazilian real. As we sit here today, all of those have been proved in relationship to translational. And if currency rates stayed the same today for the rest of our fiscal year, after the first quarter, you will see either no impact or a positive impact on transactional -- on translational impact of FX, which is the first time that that’s happened in three years. We lost this is the year ago -- I don’t know up-to-date, but we’ve lost $400 million to $500 million in revenues and probably $50 million or $60 million in operating earnings due to FX translational and transactional impact over the last three years.

And how big of a headwind was the DAP disruption in fiscal ‘17? And I don’t know if this was -- I thought the non-repeated DAP disruption would be a tailwind in fiscal ’18. But I don’t know if that was necessary, or specifically called out or not. So correct me if I am wrong. But shouldn’t that then be a tailwind in fiscal ‘18?

Yes, it should. And it negatively impacted us in terms of our ability to supply customers. We actually lost a little share temporarily. Fortunately, we’ve gotten and we follow that back and we have cleaned up the manufacturing pinch points. And so it should be a tailwind for us as we go into fiscal ’18. And DAP would be a great example of the macro issue for RPM, which it will be a combination of growth but also raw material cost issues that we’ll be managing for the year in terms of how much of that growth we can put on our bottom-line.

And just a quick one, what do you expect corporate expense to look like in 2018?

For the 2018 year, we’d expect it to be fairly flat. We expect pension expense to go down but we do expect increases in healthcare, and there maybe some other small increases in professional services and bonus as we restore the bonus after poor performance in FY17.

Yes, we have a pretty levered compensation program for corporate executives in our operating leadership team. And our underperformance in ’17 will show up in our proxy. And so there will be a category back to the net savings of in anticipation of better compensation relative to variable combination themes to the extent we hit our internal numbers.

And our next question comes from Christopher Perrella with Bloomberg Intelligence.

Could you give a breakout, what portion of the consumer sales close to the retail channel as opposed to industrial distributors? I was just trying to size your big box exposure?

On annualized basis, our consumer segment is about $1.6 billion. And we probably do $100 million or so in MRO distribution the balance of its across. We’re in virtually every North American retail outlet that you would like to be in with one major exception.

And then what -- could you give color behind the rise in accounts receivables the rise in the doubtful account allowance and the inventory on the balance sheet?

In terms of the doubtful account, we did have, as we mentioned in our second quarter conference call, some bad debt reserves that we put out that’s part of the decision to close Flowcrete, Middle East. And there are also some other bad debt reserves taken in certain emerging markets during the year. On the inventory front, the growth in inventories would really in the consumer segment and I was involved with trying to maintain customer service at very high levels in-spite of some capacity challenges that we had, especially early in the year we mentioned DAP as one example.

I would see the challenges in DAP reverse. Will you be working it down and maybe see a release in working capital in ’18?

And you’re also likely to see allowance for doubtful accounts and reserves for bad debt expense lower in ’18 versus ’17 as well.

Thank you. We have no further questions, at this time. I will now turn the call back over to Mr. Sullivan for closing remarks.

Thank you for your participation on our investor call today. With a strong acquisition program, particularly in 2017 and the cost actions we’ve taken in this past fiscal year, we’re excited about returning RPM to solid double digit earnings growth in 2018. And I think we have rebuilt the momentum to continue that for a number of years to come. I’d like to thank to more than 14,000 employees around the world for their continued efforts and dedication to RPM. In this challenging growth environment, we are continuing to compete and win in the markets that we serve. And thank you for your interest in and investment in RPM. We look forward to talking to you in October when we talk about the first quarter of our new 2018 fiscal year. Have a great day.

Thank you. Ladies and gentlemen, this concludes today’s conference. We thank you for participating. You may now disconnect.