Welcome to the RPM International's Conference Call for the Fiscal 2014 Third Quarter. 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 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 those are filed with the SEC.

During this conference call, references may be made to non-GAAP financial measures. To assist you in understanding these non-GAAP terms, RPM has posted reconciliations to the most directly comparable GAAP financial measures on the RPM Web site. (Operator Instructions) Please note that only financial analysts will be permitted to ask questions.

At this time, I’d like to turn the call over to RPM’s Chairman and CEO, Mr. Frank Sullivan, for opening remarks. Please go ahead, sir..

Thank you, Kim and good morning. Thank you for joining the RPM International Inc. investor call for the third quarter ended February 28, 2014. We are pleased with our operating Company’s performance during the third quarter, particularly in light of the negative impact of the severe winter weather experienced throughout North America on our businesses.

Our industrial segment businesses have continued to show momentum over the last couple of years, which despite weather conditions continued in the third quarter with a modest improvement in revenue growth and excellent leverage to the bottom line.

This improved industrial segment performance was particularly true of our international businesses as we saw stronger sales in earnings growth in Europe and part due to prior year restructuring and cost reduction initiatives, Latin America and Asia where we continue to invest for growth all of which regionally grew at faster rates than our core North American business.

We expect this steady improvement in sales growth and operating profit leverage in our industrial segment to continue in the coming quarters. Our Consumer segment businesses whose revenues are roughly 90% in North America where severely impacted by the extended winter weather.

Having said that, the dynamics that have been generating strong sales and earnings growth across our Consumer businesses for many quarters remain, while one-month does not make a quarter, we’re off to a good start in our fourth quarter and expect much of the reduced income from the weather impact in the third quarter to be made up in the coming spring and summer months.

On all, this was a good quarter with only a temporary halt to our Consumer segments strong performance and a continuation of the building momentum in our industrial segment businesses.

I would now to like turn the call over to Barry Slifstein, RPM’s Vice President, Investor Relations and Planning to provide you some of the financial details on our third quarter..

Thanks, Frank, and good morning, everyone. Thank you for joining us on today's call. I'll review the results of operations for our fiscal 2014 third quarter, with prior year figures on an as-adjusted basis and then cover some February 28, 2014 balance sheet and cash flow items.

I'll then turn the call over to Rusty Gordon, who will discuss the outlook for the balance of fiscal 2014. Just to remind everyone, in last year’s third quarter, RPM incurred one-time charges of $68.8 million for an accrual relating to the investigation of Tremco roofing contracts with the U.S.

General Services Administration and a $6.1 million charge associated with the strategic repositioning of an existing flooring business in Brazil resulting from the Viapol acquisition.

Using last year’s as-adjusted figures, third quarter consolidated net sales of $863.4 million increased 2.3% year-over-year due to organic growth of 1.9% and acquisition growth of 0.4%. Included in organic growth was unfavorable foreign currency translation of 1.9%.

Industrial segment sales increased 5.3% year-over-year to $560.5 million due to organic growth of 4.9% and acquisition growth of 0.4%. Included in organic growth was unfavorable foreign currency translation of 2.5%.

Consumer segment sales decreased 2.7% to $302.9 million due to organic sales decline of 3.1%, partially offset by acquisition growth of 0.4%. Foreign currency translation was unfavorable 0.8%.

Our consolidated gross profit increased 4.2% to $358 million from $343.5 million last year, principally due to restructuring activities in fiscal 2013, supply-chain initiatives and continued strong performance from prior year acquisitions, all of which have resulted in the recovery of margin loss in prior years due to material inflation.

As a percent of net sales, gross profit increased from 40.7% last year to 41.5% this year, representing an increase of 80 basis points. Consolidated SG&A increased 1.1% to $322.2 million from $318.6 million last year. As a percent of net sales, SG&A decreased from 37.8% last year to 37.3% this year representing an improvement of 50 basis points.

Consolidated earnings before interest and taxes, EBIT, increased 41.4% to $37.2 million from $26.3 million last year due primarily to efficiencies gained through plant operations and better leverage of SG&A expenses in the industrial segment.

At the industrial segment, EBIT increased 162.4% from last year, primarily due to cost reductions implemented last year and better leverage of SG&A expenses on higher volume sales. Consumer segment EBIT declined 11.4% from last year, due to lower than expected top line sales.

Corporate/other expenses of $16.3 million decreased $0.8 million from last year. Interest expense decreased from $20.5 million last year to $19.7 million this year, primarily due to the retirement of a 6.25% $200 million bond in December 2013 upon the issuance of a 2.25% $205 million convertible bond and the resulting lower effective interest rate.

Investment income was $7.7 million for the quarter compared to $6.3 million last year, due primarily to larger gains on sales and marketable securities this year versus last year. Our income tax rate for the quarter increased from an adjusted effective tax rate of 27.1% last year to 32.9% this year.

The change in the quarterly income tax rate was due principally to comparative differences in levels of actual income, changes in the jurisdictional mix of earnings and the relative impact of quarter versus quarter adjustments to income tax reserves. Net income increased 87.1% to $16.2 million compared to last year’s $8.7 million.

Diluted earnings per share increased 71.4% to $0.12 per share compared to $0.07 per share last year. With regard to the year-to-date results, consolidated net sales of $3.1 billion increased 6.5% year-over-year due to acquisition growth of 2.7% and organic growth of 3.8%. Included in organic growth was unfavorable foreign currency translation of 0.9%.

Net income increased 25.3% to $182.9 million compared to last year's $146 million. Diluted earnings per share increased 24.5% to $1.37 per share compared to $1.10 per share last year. And now a quick look at the balance sheet and cash flows. Cash from operating activities was $25.9 million compared to $170.9 million last year.

The decrease was driven by higher working capital and the $63 million settlement payment to the General Services Administration during the first quarter of fiscal 2014, which was approved for in fiscal 2013.

The lower cash generated by accounts receivable this year compared to last year was attributable to the geographical mix of sales and the timing of those sales and related collections.

Inventory was a greater use of cash due to adverse weather conditions across most of North America during the third quarter of fiscal 2014, which resulted in lower than expected organic sales and higher levels of inventory. Partially offsetting the decline was higher net income this year compared to last year.

Depreciation and amortization expense was $67.3 million compared to $64.4 million last year. CapEx of $54.3 million this year compared to $45.7 million last year. Our accounts receivable day sales outstanding was70 days this year compared to 65 days last year. Days of inventory increased to 113 days this year compared to 105 days last year.

Inventory days are typically higher than normal during the seasonally slow third quarter. Finally, a few comments on our capital structure and overall liquidity. As of February 28, 2014, total debt was $1.39 billion compared to last year at $1.40 billion. Our net debt-to-capital ratio was 47.3% at February 28, 2014 compared to 49.8% at February 2013.

Our long-term liquidity at February 28, 2014 was $927 million, with $216 million in cash and $711 million available through our bank revolver and AR securitization facilities. On December 9, 2013, RPM completed the issuance of 205 million 2.25% convertible senior notes due 2020.

Substantially, all of the net proceeds from the sale were used to repay 200 million in principal amount of unsecured senior notes due December 15, 2013, which carried an interest rate of 6.25%. Following the sale of these notes, virtually all of RPM’s total debt is fixed, with an average interest rate approximating 5%.

With that, I'll turn the call over to Rusty Gordon..

Thank you, Barry. Much like we discussed throughout this year, our third quarter’s earnings growth can be attributed to a continuation of the recovery in our gross margin, significant revenue growth and earnings leverage from our European operation and a continuation of good performance from the businesses acquired last year.

We are pleased with the improved leverage in our industrial segment, which was anticipated after our restructuring was completed last year.

We believe that the third quarter’s decline in our Consumer segment performance is only temporary, since some of the DIY activity was delayed as a result of the harsh winter and we continue to invest in new product development and marketing programs.

I’d like to point out that even though we expect a recovery in residential housing to continue, the Consumer segment is coming up against difficult comparisons in the fourth quarter when an organic growth in Q4 of FY'13 was 9.1% and total sales and EBIT were up 22% and 29% respectively.

Based upon our fourth quarter’s forecast for increased DIY and construction project, activity returning with more normalized weather patterns, we’re raising guidance for the third time this year.

We are increasing our previous guidance of 13% to 15% EPS growth or $2.05 to $2.10 per diluted share to 15% to 18% EPS growth or $2.10 to $2.15 per diluted share. Our sales outlook is unchanged. This concludes our formal remarks, and we’re now pleased to answer your questions..

(Operator Instructions) Your first question comes from the line of John McNulty from Credit Suisse. Please proceed..

Good morning. Thanks for taking my question. A couple of quick questions.

The first one is can you quantify or try to quantify what the actual EPS impact was around the weather getting kind of pushed out to the fourth quarter?.

You know its hard to say John and I don’t know that we’d be able to quantify it in the quarter, but I can tell you when you look at the prior two quarters, new product introductions and just good momentum and the underlying dynamics were evident in our Consumer businesses and keeping in mind Rusty’s comments about the very tough comp year-over-year because we had a booming fourth quarter last year for our Consumer businesses.

I think we see in the fourth quarter a continuation of what we’ve had prior to the third quarter, which is solid single-digit revenue growth and good solid teens earnings growth in our fourth quarter from our Consumer segment.

Given -- and we’re off to a good start in the quarter, but given how long the winter was, I think we may see some of the recovery not only in the fourth quarter, but maybe into Q1 of the next fiscal year as well..

Okay. That’s definitely helpful.

On a somewhat maybe a related topic, how should we be thinking about the operating leverage or incremental margins for RPM looking out over the next few quarters given what appears to be a lower cost structure and we certainly saw that in industrial, but also with some of this pent-up demand that you’re looking at? Like how should we be thinking about how that leverage really kicks in?.

We’ve been very focused over the last two or three years on improving our gross margins and it’s been a very deliberate focus on supply chain, it’s also been a very deliberate focus on mix, and it's actually been a very deliberate focus from an acquisition perspective.

And so I think you can see that evident in our numbers, we’ve had good gross margin recovery in Consumer, and you could see that in our EBIT line also through the leverage of SG&A on higher volume. I think our Consumer operating margins are sustainable.

I don’t think you’re going to see the same type of improvement in the coming years that we’ve seen over the last couple of years. On the industrial side, I think you’re going to continue to see some operating margin leverage, particularly as the volumes come back.

Interestingly enough, on the industrial side the reliant share of our growth was outside of the U.S. Europe was up in sales and earnings double-digits, Latin America and Asia for us was up high single-digit on the top line and double-digit on the bottom.

And I think particularly in Latin America, particularly in Brazil and particularly in Europe, the strong results that we have indicate a couple of things.

Number one, I think we’re taking market share as our performance in terms of sales growth is better than the underlying dynamics and secondly the costs, actions and restructuring that we took a little more than a year-ago in Europe is paying off..

Great. That’s very helpful. And then just one last question. It seems like -- on the asbestos front, it seems like there has been some positive developments in the courts, including like the Garlock ruling among other things.

Can you walk us through how you see the landscape maybe shaping up and if its improving in terms of some of these developments and how that might potentially impact your ability to bring SPHC back into the fold at some point?.

Sure. It has always been our goal to participate in a establishment of a 524(g) trust, which would provide appropriate resources for current and future asbestos claimants and bring the SPHC businesses basically reconsolidate them back in RPM.

Recent developments that you’re referring to, there has been some positive rulings in the Bankruptcy Court that have been favorable to the SPHC companies.

The Garlock ruling in Charlotte, North Carolina uncovered what appears to be a substantial amount of fraud or inappropriate manipulation of data in the tort system and that resulted in a very favorable ruling for Garlock. That ruling does not directly impact us, but certainly indirectly will help us.

And then lastly our estimation ruling in the Bankruptcy Court, which was certainly disappointment to us, we appealed that to the District Court and its part of our appeal we asked for an expedited appeal right up to the Third Circuit Appellate Court, the district court, granted that expedited appeal up to the Third Circuit and I think we’d expect a decision by the Third Circuit as to whether to push that back down to the district court or to take it directly sometime in the next two or three months.

And so lot of good favorable action, hopefully it will move the resolution of the SPHC bankruptcy more quickly. If not, we will continue to or they will continue to -- or they will continue to litigate this process and it could take as long as two to three years, but hopefully we can come to some type of resolution before that..

Great. Thanks very much and congratulations on the quarter..

Thank you..

Your next question comes from the line of Vincent Andrews of Morgan Stanley. Please proceed..

Thanks. Good morning. Wondering if you could just drill on a little bit more on the industrial side and in particularly what you’re seeing, whether its end markets or products or specifically in Europe, but just, you kind of noted that there was kind of a step up, so if you could just help us better understand that, that would be great..

Sure. Well in Europe, we took a number of cost-cutting measures a little more than a year-ago across a lot of our industrial businesses. In our Rust-Oleum business in particular we get some plant consolidations and took some charges last year for that.

Most of that has been completed and we also reorganized what was formerly our building solutions group and now we have a direct reporting business unit Tremco-illbruck, and they’re doing extraordinarily well.

And so I think as I said earlier, combination of the restructuring and cost reductions which was completed and a pickup in revenue growth, that quite candidly surprises us a little bit because it's high single-digits and in some areas low double-digits.

I think we just have good leaders and good people over there who have been very focused and positioning themselves for the recovery. Clearly from our perspective in our markets, the European markets and we principally serve northern Europe. So we’re mostly France, Germany, Benelux, Scandinavia and U.K.

Those markets are generally recovering more quickly in the industrial sector than what we are seeing in the U.S., which quite candidly is a disappointment. And our revenue experience I think is better than the underlying economic indicators and it's leveraging to the bottom line nicely..

Sure.

So just as a follow-up, do you think you’re gaining share or even the markets are just going faster than you anticipated for both?.

I think we’re gaining share. Its disappoint to me relative to a lot of the policy issues in the U.S., that Europe is -- at least the northern section of Europe and the U.K. is recovering in the industrial markets that we serve more quickly than the U.S.

But clearly and the surprising thing for us was clearly our companies are gaining share because their revenue growth on an organic basis in Europe is high single-digits and that’s pretty good..

Okay. Thanks very much. That was great. I will pass it along..

Your next question comes from the line of Ghansham Panjabi from Baird. Please proceed..

Hi, good morning. It’s actually Mehul Dalia sitting in for Ghansham.

How are you doing?.

Good. Good morning..

Great.

For North American commercial construction, are you seeing any sequential improvement there, and if you’re, what’s driving that?.

We’re seeing sequential improvement in areas that serve building envelope and sealants. Generally throughout the year flooring and corrosion control product lines have been showing good improvement. In particular, in the third quarter our Legend Brands product lines have had a extraordinary year.

Those products -- the Legend Brands was an acquisition two years ago. They manufacture equipment for aggressive dehumidification, water movement and serve repair and maintenance markets.

We learned of that business because they were buyers of a lot of our Zinsser and other patch and repair and coating products and the flip side of a really bad winter meant a lot of business for them in terms of broken pipes and other cold weather related issues particularly in the U.S Southeast.

So that was a real strength for us in the third quarter.

Our roofing business which as most know was reorganized or restructured last year along with resolving some of the GSA issues, had a challenging third quarter and that is just like our Consumer businesses, all winter weather related, it was a milder winter last year and nobody can get up on a roof when there is a foot of snow on it.

And so, hopefully that gives you some product line ideas of what worked in the third quarter and what didn't..

Now that’s great.

Do you expect the flip in performance between Industrial and Consumer to continue in the back half of the year, and into 2015 or will it be more balanced going forward?.

I think in the next couple of quarters it will be more balanced going forward. I think we are seeing some better revenue growth and leverage in our industrial sector and that should continue. I think you'll see good but more modest growth out of our Consumer business, because starting in the fourth quarter, two things.

Number one, they're going to both annualize some very difficult comps in the coming quarters. And number two, all of what you are going to see from them for the most part will be organic growth, because we've also annualized all of the acquisition activity that occurred in our Consumer business over the last year and half..

Great. And just one final question. I was just wondering if you could comment on your new product pipeline.

Any updates on OEM wins or commercialization of the various new products, you introduced such as NeverWet and Tuf-Strand, et cetera?.

Sure. The Tuf-Strand continues to expand. We are adding capacity because the demand for that product exceeds our current capacity. On the Consumer side in February, we just turned on a new Rust-Oleum high-speed aerosol line that as far as we can tell is the fastest aerosol line in the paint industry globally.

It almost doubles our capacity -- not our capacity, but doubles our speed from our prior lines. So that gives you a sense of what happening in both those areas. Our Stonhard flooring business through this Expanko acquisition, which was a small specialty flooring company now, is involved in cork flooring, terrazzo tile and some other similar products.

So we are making both through their liquid elements, internal growth and product development efforts and the addition of product lines like Expanko's product lines in cork and terrazzo, a much bigger push into commercial flooring, which is starting to take hold.

We're traditionally -- the Stonhard business in particular was almost all backroom heavy industry. On the Consumer side the SmartBond DAP product is going to get much bigger push in terms of training and marketing.

It is a unique, patented product that is going to be successful, but it's different and so we need to do a better job on that, and so you're going to see more of that from DAP. And Rust-Oleum continues to be a new product machine. They just came out with a product introduced this in the last month called SpraySmart.

It's a patented application device that utilizes paint in a pouch for line-marking. And for heavy line-marking users it's going to be pretty revolutionary. Lastly, and I'm excited about this because there are a lot outdoor furniture.

Rust-Oleum will be introducing in May a single component NeverWet for use on fabric and it will be a better product for use on boots and shoes. It won't have any of the cloudiness that the original NeverWet has.

It won't be as effective on things like wood or concrete or steel that the original NeverWet is, but it will be very effective for fabric, whether it is outdoor, furniture pillows or utility clothing, awnings, boots and shoes. They're very excited about that and it will be a single component product.

So that gives you just a sense both on the Industrial and Consumer side, some of the things that we are doing..

Great. Thank you..

Your next question comes from the line of Kevin McCarthy from Bank of America. Please proceed..

Yes, good morning. Frank, I wanted to come back to the subject of the weather. What we hear from other companies in our coverage away from RPM is that, the U.S. weather was quite atrocious, but that Europe benefited from an early Spring.

And so, my question is, was that your experience well? And if so, is it still fair to say, I assume it is, that weather was a net headwind for you in the quarter directionally recognizing your U.S.

sales are more than double Europe?.

In general, I think that the weather was a net headwind. I mean, if you look at our Consumer business in the quarter, we try to emphasize the fact that the underlying market dynamics and the strength of our new product introduction still feels really solid.

And so, I think the only reason we didn't have a year-over-year gain in sales and earnings in Consumer was weather. And our Consumer business is 90% a North American business..

Right..

Absolutely, it was a milder winter in Europe and that certainly helped our results there. But I still think that high single-digit; low double-digit revenue growth in certain product lines indicates that we're picking up market share.

Lastly, I would tell you that on the flipside and weather as I commented earlier, it was a difficult year for the Tremco roofing business, because they are entirely weather-related. And particularly when the weather in their entirely U.S. business and particularly when the weather impacts the southeast and other parts of the U.S.

where you might have some outdoor construction roofing activity and that was negatively impacted this year as well. So, net-net weather hurt us in the quarter..

Okay. And a second question, normally when sales mix shifts away from the U.S., tax rate seem to decline in general.

Your rate rose about 580 basis points year-over-year, and so I was wondering if you could speak to that; what is driving that and what is now embedded in your range for the year or what might next year look like there?.

I'm going to punt, because I have the least understanding of our tax rate. And I'll let Rusty answer that question in terms of what's going on with taxes. But it is, jurisdictional mixes, it is -- whether in one quarter or another we can get tax loss -- not tax loss carry forwards, foreign tax credits.

There’s a lot of element’s in there that clearly from my stumbling, I don't understand..

Hi, Kevin. The third quarter being a seasonal low quarter, we typically have low income and low amount of income taxes. So, certain discrete items can stick out like a sore thumb sometimes in a third quarter. But nevertheless our guidance for the year most importantly is unchanged on the tax rate.

We are still going to be probably between 29% and 30% for the year..

Great. Then final one if I may, just for Rusty. I think Barry had mentioned some of the working capital accounts in the prepared remarks. It sounds like maybe there's some transitory issues there.

If you look out, I don't know, two to four quarters or so, would you expect the trade working capital, DSO and inventory days to regress back down?.

I would think so as we get a more normalized geographic mix. I think the growth in Europe and in some of our general contracting businesses in the Performance Coatings Group; that has pushed up our DSO, but I think that will become more normalized as the Consumer segment becomes a bigger share of sales when weather is less of an issue.

On the inventory days, clearly, when we have frigid weather and POS is down at the end of February, it's tough to get inventory out the door. But nevertheless, we need that inventory when the weather breaks. I am sure the parking lots that some of the big-box retailers will be jam full of cars all at once and we need the inventory.

So, I think once we get more normalized weather, you'll see inventory days come back down to more historical levels..

It's really helpful. Thanks a lot..

Thank you..

Thanks..

The next question comes from the line of Mike Ritzenthaler from Piper Jaffray. Please proceed..

Hi, good morning. I wanted to dig a bit more into the non-resi construction in European markets. In terms of the volumes that RPM has seen there over the past, say, six, nine months.

Is there a way to frame up where you feel like we are in the current environment versus, I don't know, say, eight years ago or so, when demand was more robust in that particular geography?.

I think European markets are unique for us. Probably about 20% are Consumer DIY which is mostly U.K. and Germany and mostly Rust-Oleum, and that business is doing really well, both as a result of their restructuring and plant consolidation and just pickup at both of those countries.

The remaining 80% is driven by industrial maintenance and you’re starting to see like we saw in the U.S. a few years ago, industrial companies picking back up deferred maintenance. And so that's really helping a lot of our industrial presence there. On the non-res market, our Tremco-illbruck business is our largest business. They're German based.

They sell throughout all of Europe and Eastern Europe into Middle East, and they're a particular unique company.

They have a lot of patented products around tapes and foams and sealants and building envelope products that go into putting windows or doors or skylights or other building components into some residential and a lot of non-res construction.

Given the energy efficiency building code mandates that are national in Germany, and are national in Scandinavia, and are starting to grow as building permit mandates throughout more and more of Europe. Our Tremco-illbruck business is particularly well-positioned to take advantage of that with their various products and patented products.

And so, that’s a long-winded answer of saying, yes non-res construction is picking up, but our business over there has particularly favorable position when it comes to energy efficiency and the building mandates that exist in Europe, that for the most part do not exist in the U.S. at least yet..

Thank you, that all makes sense.

Still the question was around, the particular -- basically where we are in this upswing versus the potential earnings power for the business and particularly in non-resi in Europe?.

Yes, in Europe, I think we're starting to get to where we can go. I would redirect that question to the U.S. I think we remain frustrated by low single-digit growth in our industrial businesses in the U.S. We don't see any signs that it's dipping down or going to go negative, and we have every expectation that that momentum in U.S.

industrial spending and U.S. non-residential construction and infrastructure spending is going to build momentum. And I think there are signs that or that they are, but you know it's been frustrating to us that other parts of the world are outperforming in our industrial markets versus the very modest growth we're still seeing in the U.S..

Okay, I thank you for that. A related international follow-up, in Brazil and throughout Latin America, Frank I think you had mentioned the good growth in six currencies.

Are we at a place where Viapol is fully ramped-up under the Euclid umbrella or perhaps could you give us some sense of the runway that's left -- just getting that -- getting Viapol's products up and running?.

Yes, two things. Number one, Viapol business in Brazil is very well lead and executing very well. It's a great team of people, and they have performed extraordinarily well under RPM. We are -- I don't think anywhere close to the full ramp-up of other RPM products that we're introducing.

They're performing exceedingly well in their own product categories with some new product introduction, and I think taking advantage or benefiting from some of the infrastructure spend in Brazil broadly. Certainly, some of it is around the World Cup and the Olympics, but there's good spend and they're picking up market share.

We are selling single millions of dollars of admixtures from a standing stop and so we expect that momentum to keep building. We are investing, as I've said in the past, in a sales force and tech service force for concrete admixtures and in a sales force and tech service force for polymer flooring.

All of those should be ramping-up in the next, let's say year to year and a half. And we're being very deliberate. There are other product categories that we feel that we can introduce into the Brazilian market through the tremendous leadership and management team at Viapol that got a lot of good assets down there.

But I think we want to do it smartly as opposed to confuse these guys who are otherwise running a business that's growing high single, low double-digits on the top line and killing it on the bottom line in their own currency..

Okay, great. Thanks and congrats on the execution this quarter..

Thank you..

Your next question comes from Ivan Marcuse from KeyBanc. Please proceed..

Good morning..

Hi, good morning. I just have a couple of quick questions. One, the acquisitions have sort of -- I guess, you're running at pretty good rate the past couple of years and slowed down a little bit.

What's the pipeline look like and what's your expectation looking forward for over the next 12 to 18 months for -- on the acquisition front?.

Well, as you know we're always looking for acquisitions and either product lines that can complement our existing businesses and product lines, and there's reasonable pipeline of that type of activity. They tend to be smaller, but the IRRs in those are pretty good where we can really do something with them.

And we're also looking more aggressively at acquisitions that would expand our geographic presence, but the nature of acquisitions as you know is such that, you can't predict when things will close and you can work on deals for multiple years and not get them done and you can bump into something that our companies would bring us and that we're not aware of today and get it done in six months.

So, our acquisition activity remains as it's always been and the things that we're working on are complementary product lines that we can really leverage or acquisitions either outright or through our companies that would help expand our geographic presence..

You've always had sort of a conservative and targeted acquisition sort of how you look at on a financial basis.

Have you seen any multiples within some of these companies or expectations for multiples get sort of out of the -- I guess, historical RPM wheelhouse, if you will?.

We are at a pretty good place today. I think the only time in my 30 years of doing deals here that we saw that was really in the run-up to the financial crisis.

From the early 2000s right up until 2008, we lost a couple of deals to private equity and more likely not losing, but we were unable to get our number of transactions done because of private equity created value expectations, that ended with a financial crisis.

Net-net, private equity has been more of a seller in the last couple of years than a buyer. Obviously those dynamics will change. They tend not to play in our space, which is kind of the $5 million, $10 million to $200 million to $300 million space. But they certainly can impact expectations in the future..

Got you, and then a couple of quick ones.

For the organic growth, was there any pricing in there, or was there pretty much all volume growth? And then the second question would be on your cost -- on the cost savings or the cost reductions in dollar terms, how much do you think your costs are reduced in the industrial segment on a year-over-year basis due to your actions that you took?.

Yes, I mean we tend not to disclose by in any great detail pricing action. Net-net, you know the price cost mix in the quarter was slightly positive. We are -- raw materials remained flat, and they are certainly down from where they were a few years ago, but still above where they were six, eight years ago.

The couple of areas where we're seeing some raw material pressures in packaging, in few other chemicals, but it’s not a big pickup..

Great, but on the top-line for organic growth that was mostly volume, correct?.

All most all volume, and when you take out the effect of currency for instance in our industrial segment, organic growth in the industrial segment was greater than 7%. It's almost all volume..

Great. Thank you for taking my questions..

Thank you..

Your next question comes from the line of Rosemarie Morbelli from Gabelli & Company. Please proceed..

Thank you. Good morning and congratulations on a great quarter. Going into my first question; is this type or this level kind of a good number going forward for third quarter? I mean, you have never gone anyway near $0.12 in that particular quarter, which sometimes is just a breakeven level.

So, could you give us a better feel for what you expect going forward in the next couple of years? And I understand Industrial and Consumer are going to be moving up and down, but when you look at your operations what you have done in terms of cutting cost, that $0.12 it could be in the realm of possibilities going forward?.

I think we have a better seasonal balance in our Industrial business with the Legend Brands business, and so in severe weather environments, they'll do better. In mild weather environments, they'll do worse.

And so, do I think that this is a good base of business for us in the third quarter going forward? As long as the economy stay positive, I think the answer to that is, yes. We have a bigger presence in South America which has different weather patterns than we do in North America. Legend Brands is a little bit countercyclical.

So, as long as we have positive economic activity and momentum in the major markets that we're in, I think the current level we're at is a solid level for the third quarter..

Okay, that is very helpful. And you said you are larger in South America.

We talked about Brazil, but could you talk about the entire region and the size of those operations?.

I think, generally -- and this is off the top of my head, it will be roughly accurate, but for the year we'll be somewhere in $250 million to $300 million range in revenues in South America. But we are growing very fast. We are taking a lot of market share. We have a really good presence in Mexico.

We have a really good presence in Colombia and Chile, relatively small presence in Argentina, but very well run, and I think a very exceptional team in Brazil. So we've got a real good base of business that we continue to invest in and to grow, and so there's good opportunities for there.

The growth percentages are very impressive but as you know, it's on a relatively smaller revenue base. The same is true in Asia and the Middle East and Africa, where our growth percentages look impressive, but they're on smaller revenue basis than even what we have in South America..

So if we look at what you call the impressive growth; are we talking top line growth of high single-digit or are we in the low-to-mid double-digit?.

Depending on the region, we're high single-digits or low double-digits. That's correct..

Okay. And then, I was wondering, looking at NeverWet and your introduction for fabric, are we talking about only selling to the consumers, so I buy my outdoor cushions and can spray them by myself by buying one of those things at Home Depot.

But are you also selling it to OEM, to the fabric manufacturer or the pillows manufacturer or the umbrellas manufacturer? Could you…?.

That's a great question. When we first -- we teamed up with the inventor of the formula and it's a patented formula, and they've been working on it for a while, and our original rights were, I think North America only. We now have the global rights to that technology.

We are working with the inventor to continue to modify the technology for different substrates.

And we have a lot of introductory meetings with OEMs and we were hesitant to push that too hard until we had global rights, because there is a lot of OEM products that are either made globally or in some instances made or produced outside of the United States, but sold into the U.S.

So, there's a number of areas where we are very excited, but right now that is expensed in promotions and testing and there's no revenues associated with that. But hopefully a year or so from now we can talk about the OEM applications for NeverWet.

It's a hope and a desire and something that we are pursuing, but we don't have any revenues to talk about yet..

Okay. No, it is nice to know you are pursuing it. And one last question if I may. If we look at government spending on bridges, highways; are you seeing any sign of life in that particular category which will definitely help your U.S.

industrial business?.

Yes, we are. And for a number of years, surprisingly, one of the easier things for Congress to come together on historically has been a major highway bill and that languished for a number of years. There was a highway bill passed last year and those dollars are making their way to States and Departments of Transportation.

And so, at least in the bridge, highway area we would expect to see improvement..

And if you look at that, what is the percentage of your industrial operations in the U.S?.

It's not big. It principally impacts our Carboline subsidiary and their high-performance coatings and corrosion control coatings. It impacts some of our coatings that go into concrete. And so, on a grand scheme of things, it's not huge.

But obviously if you're talking single millions or tens of millions of dollars of revenues and you can leverage it to your bottom line, that's the nature of RPM with 50 different business units and literally thousands of markets of product lines. If a good one perks up, that helps.

And that’s one that is an area that's been meaningful for us and received very little funding in the last few years..

Okay. Thank you very much..

Thank you..

(Operator Instructions) Your next question comes from the line of Richard O'Reilly from Revere Associates. Please proceed..

Okay, thank you and good morning..

Good morning..

I want to ask -- get back to the Consumer business.

Is there a way of talking about the retail point-of-sales for you in the quarter, because I would think there would be some sort of normal inventory shelf build in the winter months for your products?.

Well, normally there is in the end of the third quarter, but with severe winter weather, we didn't see it, and I think that's reflected in two things.

Number one, it reflected in the lower or decline in our Consumer revenues, and it's also reflected in the inventory build on our balance sheet, which normally would start to be relieved at the end of February and didn't happen, from our perspective almost exclusively from a weather perspective.

And I think early indication’s in the fourth quarter is that assumption is correct..

Okay, fine. Second question, I want to make sure your North American Industrial sales were up in the -- I think you said low single-digit.

Did I get that right?.

That is correct..

Okay.

So overall for North America, you might have been flattish if you could look at…?.

I think that's correct. I mean if you look at our North American Consumer up modestly and -- I'm sorry North American Industrial up modestly and Consumer down in the third quarter. We probably were flattish, and we certainly don't expect that to continue..

Right, but surprisingly a good story considering the overall weather impact on your products. Okay, thank you then..

Yes, thank you. And we agree..

Your next question comes from the line of Kevin Hocevar from Northcoast Research. Please proceed..

Good morning, Kevin..

Hi, good morning. I was wondering if you could comment on your outlook for the roofing business here in the U.S.

I know you mentioned it was down and I think it's been down for a little while, but is the damage from -- do you expect that there's damage being caused on the roofs from this harsh winter weather, and kind of do you expect replacement roofing to pick up as a result? What’s your outlook in that business?.

We’d certainly hope so. We’ve got a great sales force, a great team. We’ve got new leadership at our Tremco business, and there is a lot of enthusiasm there. And so I’d expect to see our Tremco roofing business pick up certainly as we get into the new fiscal year and we will see what impact they have in the fourth quarter.

Yes, there is probably pent-up demand in some roofs that need repair or replacement, that’s a good thing for us. But the month of March was not exactly friendly across the United States for getting up on roofs. And so -- of all our businesses, I think the weather negatively impacted them the most..

Okay. And then on the NeverWet side of things, I thought I saw that there you do have an OEM application. There is a plunger out there. I was wondering if you could comment on that, what type of business you are seeing from that and expectations for it..

I’m not aware that we’ve any OEM customers yet. There is a lot of stuff on the Internet of people using NeverWet for certain applications. We welcome that.

As we had mentioned in the past, most of our products we -- like most companies, we’ve a pretty good sense of the end use in the market and what we are targeting and when we get a real homerun, maybe there is a 15% or 20% use that is driving revenue growth that we didn’t think of.

In this case, we continue to be on an exploratory journey with Consumers and OEMs in terms of how and where we can use this product. And so if you go online, you will see a lot of different ideas. Some are very intriguing to us; some are just short of crazy of how people are trying to use NeverWet.

And so that might be online, but I’m not aware that we’ve any OEM revenues yet. We have a lot of OEM pitches in the works..

Okay. Thank you very much..

Thank you..

This concludes our question-and-answer session. I’ll now turn the call back to Mr. Frank Sullivan..

Thank you, Kim. This concludes our investor call for our 2014 third quarter. We look forward to releasing the results of our fourth quarter and our full 2014 fiscal year on July 28, 2014 at which time we will be providing sales and earnings guidance for our new 2015 fiscal year.

Although we’re highly confident that it will be another year of sales, earnings and dividend growth for RPM and our shareholders.

I’d like to thank the RPM associates worldwide who continue to compete and win in the marketplace every day, delivering for our customers and our shareholders, and also thank you for your participation on our call today and for your investment in RPM. Have a great day..

This concludes today’s conference. Thank you for your participation. You may now disconnect. Have a great day..