Frank Sullivan - Chairman and CEO Barry Slifstein - VP, IR Russell Gordon - VP and CFO.

Rory Blake - Wells Fargo Securities Matthew Krueger - Robert W. Baird & Co.

Matt Gingrich - Morgan Stanley Jason Rodgers - Great Lakes Review Ivan Marcuse - KeyBanc Capital Markets Mike Harrison - Seaport Global Securities Arun Viswanathan - RBC Capital Markets Rosemarie Morbelli - Gabelli & Company Christopher Perrella - Bloomberg Intelligence Richard O'Reilly - Revere Associates.

Welcome to RPM International’s Conference Call for the Fiscal 2016 Third Quarter. Today’s call is being recorded. This call is also being webcast, and can be accessed live or replayed on the RPM website at www.rpminc.com.

Comments made on this call may include forward-looking statements based on current expectations that involve risks and uncertainties, which could cause actual results to be materially different. For more information on these risks and uncertainties, please review RPM’s reports filed with the SEC.

During this conference call, references 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 website. Following today’s presentation, there will be a question-and-answer session.

[Operator Instructions] Please note that only financial analysts will be permitted to ask questions. At this time, I would like to turn the call over to RPM’s Chairman and CEO, Mr. Frank Sullivan for opening remarks. Please go ahead, sir..

Thank you, Allen. Good morning. Welcome to the RPM investor call for our fiscal 2016 third quarter ended February 29, 2016. On the call with me are Rusty Gordon, RPM’s Vice President and Chief Financial Officer; and Barry Slifstein, our Vice President, Investor Relations.

Today we’ll discuss our third quarter results including some detail by Barry and comments and the outlook for the balance of our 2016 fiscal year. We’re very pleased with our sales growth as well as our strong leverage to the EBIT line during our third quarter, which is RPM’s seasonally slowest period.

We continue to be challenged by the strength of the US dollar relative to our other major currencies and struggling economies in a number of markets we serve. Over the last several quarters the negative impact from foreign currency exchange appears to be declining slightly.

Nonetheless compared to the exchange rates in effect last year, foreign currency reduced sales on a consolidated basis by approximately $40 million or roughly 4.2% and foreign exchange in total including translational FX reduced the EPS in the quarter by $0.04 per share.

Our consumer segment continues to rebound nicely on a sequential basis over the last several quarters with sales up 3.9% for the quarter. Excluding our nail polish business, which is currently in a down cycle in a fashion oriented cyclical business sales on our core DIY product lines are up approximately 6% year-over-year.

This predominantly organic growth has been driven largely by several product line rollouts resulting from market share gains and new product placements that started to shift later in the quarter when our major customers began stocking for the spring sell in season.

The Industrial segment representing RPM’s largest exposure to international markets continues to be a mixed bag.

Our US industrial companies serving the commercial construction markets performed well with upper single-digit growth, while businesses having exposure to the global energy sector continue to be a challenge with sales down approximately 10%.

In the Industrial segment, we see solid local currency organic growth in Latin America, while Europe continues to be a mixed bag. At current exchange rates we expect continued foreign currency headwinds through the first half of fiscal ‘17, but expect the negative impact to decline slightly with each passing month.

In the Specialty segment, we are pleased with the double-digit growth excluding the positive impact from the additional month of SPHC versus the prior year.

This group of high margin unique entrepreneurial businesses has been reenergized by the reconsolidation of SPHC and continues to take market share in their respective niche markets and delivering strong sales and earnings growth. All-in-all we’re encouraged by the performance of the majority of our businesses around the world in local currencies.

I’d now like to turn the call over to Barry Slifstein to provide more detail on our quarterly results..

Thanks, Frank, and good morning, everyone. I’ll review the results of operations of our fiscal 2016 third quarter excluding last year’s non-cash net tax charge of $83.5 million related to the possible repatriation of overseas earnings to fund the remaining obligation in the SPHC settlement.

I’ll then cover some February 29, 2016 balance sheet and cash flow items before turning the call over to Rusty who will discuss the outlook for fiscal 2016. Third quarter consolidated net sales of $988.6 million increased 4.5% from last year.

Organic sales increased 3.9%, acquisition growth added an additional 4.8% and foreign currency translation reduced sales by 4.2%. Industrial segment sales decreased 3.1% year-over-year to $484.0 million, organic sales increased 2.6%, acquisition growth added an additional 0.7% and foreign currency translation reduced sales by 6.4%.

Consumer segment sales increased 3.9% to $339 million, organic sales increased 4.6%. Excluding the weak nail enamel business organic sales were up 6%, acquisition growth added 1.2% and foreign currency translation reduced sales by 1.9%.

Specialty segment sales increased 37.5% to $165.6 million from $120.4 million principally due to the acquisition related growth from the reconsolidation of SPHC effective January 1, 2015 and the Morrell's acquisition in March 2015. Organic sales increased 7.5%, acquisition growth added 31.5% and foreign currency translation reduced sales by 1.5%.

Our consolidated gross profit increased 8.7% to $413 million, from $379.7 million last year. As a percent of net sales, gross profit increased from 40.1% last year to 41.8% this year, representing a 170-basis-point improvement.

Contributing to the improvement was lower manufacturing costs, partially offset by unfavorable transactional foreign currency exchange and unfavorable business and product line mix. Additionally last year’s gross profit included stepped up inventory cost relating to the SPHC reconsolidation of approximately $5 million.

Consolidated SG&A increased 7.1% to $370.9 million from $346.2 million last year. The increase was driven by the reconsolidation of SPHC and the Morrell's acquisition, higher advertising, severance and product warranty expenses.

Consolidated earnings before interest and taxes, EBIT, increased 23.1% to $42.1 million from $34.2 million last year largely driven by better operating leverage on positive sales growth combined with good cost controls.

At the industrial segment EBIT was down $6.7 million from last year, primarily as a result of higher product warranty and severance expenses. Excluding these items, which totaled $6.9 million industrial segment EBIT would have been slightly higher than last year.

Consumer segment EBIT increased 10.3% to $38.8 million compared to $35.1 million last year, due primarily to better operating leverage on positive sales. Specialty segment EBIT increased 128.4% to $21.4 million, principally due to better leverage on strong organic sales.

Additionally, EBIT was boosted to a lesser degree by the acquisition of Morrells and the additional month attributed to SPHC reconsolidation, which occurred on January 1, 2015. Corporate other expenses of $20.1 million were higher than last year’s figure of $19.1 million due primarily to increased healthcare cost.

Interest expense increased from $21.5 million last year to $23.1 million this year.

The increase was primarily due to higher average daily borrowings towards quarter end compared to last year and the additional interest associated with the 5.25% $250 million 30 year bond issued last May, partially offset by the early retirement of $150 million 5.31% UK bond also last May.

Investment income of $2.9 million for the quarter was down from last year’s 7.7 million due to lower interest income and lower gains on sales of marketable securities. Income taxes, our third quarter Income tax rate increased from an as adjusted effective tax benefit rate of 33.5% last year to an effective tax rate of 11.9% this year.

The current quarter 11.9% rate reflects the reversal of tax contingency reserves and certain other discrete tax benefits necessary to adjust toward our full year fiscal 2016 effective tax rate that is estimated at 29%.

During the prior year’s quarter a tax benefit was recorded due to the reversal of deferred tax asset valuation allowances during the quarter of seasonally low actual income.

Net income of $18.6 million declined 29% from last year’s $26.2 million last year’s adjusted results included a $13 million or $0.10 per share tax benefit during the third quarter. Current year EPS of $0.14 per share compares to adjusted EPS last year of $0.20 per share. And now we’ll quickly look at the cash flows and capital structure.

Cash provided by operating activities was $223.8 million for the first nine months of fiscal 2016 compared to $24.1 million for the same period last year. The improvement is primarily due to the change in working capital caused by faster collections and lower bonus and pension payments.

As of February 29, 2016 total debt was $1.75 billion, compared to last year at $1.87 billion. The decrease was principally due to the early retirement of $150 million UK bond last May utilizing Canadian and European cash.

During the first nine months of fiscal 2016, the company repurchased 800,000 shares of its stock in the open market at an average price of $43.87 per share for a total cost of $35.1 million. With that, I’ll turn the call over to Rusty..

Thank you, Barry.

I would like to briefly cover our updated outlook for the fiscal 2016 year and I’ll go one segment at a time first we’ll start with the Industrial segment, we faced a few challenges in this segment first of all with the continued slowdown in the global energy sector, also we are challenged internationally in certain weak markets such as Brazil, Argentina, parts of the Middle East and Africa and Europe and we’re further challenged by the translation of foreign currency results back to US dollars due to the continued strengthening of the US dollar.

In spite of these challenges there are some positives in this segment however, first of all we are growing in the low to mid-single-digits in Europe and Latin America and expect to continue to do so. We’re gaining share in these markets with our connections creating value strategy to expand RPM’s geographic footprint. We continue to grow in the U.S.

with new products such as Tuf-Strand macro fibers and AlphaGuard roof coating and we do have a favorable backdrop in the U.S. with a healthy commercial construction market. So in conclusion our sales growth in the industrial segment is expected to be fairly flat when translated to US dollars due to the unfavorable impact of translation.

So we are seeing growth in local markets and local currencies internationally. Next moving to our consumer segment, in the third quarter we had another sequential improvement in sales growth in our consumer segment compared to earlier quarters this year. We continue to gain shelf space with new product placements.

We do have great leading brands in this segment and we’re successfully using category management to gain a lot of shelf space this year. We have solid fundamentals as well in the US DIY market, which is a market where most of this segment’s business resides.

Some of these fundamentals include good consumer confidence, improving housing values and housing turnover and historically low interest rates. So all these factors make consumers willing to invest in their homes and that’s good for RPM’s consumer segment.

One drag on results is expected to continue in the fourth quarter and that is a declining nail market. So in conclusion for the consumer segment, we expect a strong sprig and sales growth to be in the mid-single-digit range.

Now moving to our specialty segments, our diversified portfolio of entrepreneurial business is continue to perform well in a variety of different niche markets. For those of you who attended our yearend earnings lunch at the New York Stock Exchange last summer, you might know Steve Canup who heads up this segment.

He is the former head of all M&A at RPM and he runs the specialty segment as Group President. This segment has made acquisitions recently of Holton Food Products and Morrell and these businesses continue to meet expectation and facilitate the momentum and growth in the specialty segment.

So in conclusion for the specialty segment, we expect growth for the remainder of the year in the mid to upper single-digit range.

So to wrap up on the consolidated basis, let me get everybody reminder that last year in the fourth quarter we reversed out the remaining Synta earn-out accrual and we called this out this reversal in the fourth quarter of fiscal ‘15 was worth $9.9 million or favorable $0.05 per share impact. And that will not repeat this year in the fourth quarter.

Another negative as we expect a continued drag from the strengthening US dollar, but the FX impact will be declining somewhat as we look ahead. So in conclusion for the full fiscal 2016 year, we are maintaining our EPS guidance at $2.50 a share. So this concludes our formal remarks. And we will be pleased now to answer your questions. .

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question is from Frank Mitsch with Wells Fargo Securities..

Hi, this is actually Rory Blake in on for Frank Mitsch. Thanks for taking my question.

Just to start off on the 2.50 the maintaining in the guidance, did you already assume that you would get this charge for the additional warranty and severance in your Industrial segment?.

We did not. .

Okay. So it seems like core trends have actually turned it better than you guys have initially anticipated and obviously the U.S. commentary is positive.

When you think about the consumer side and this the sell-in, this new product penetration, how should we think how that should trend as we get through ‘16 and into 2017, is there going to be an acceleration or how do you think the settlement process will go?.

I wouldn’t call it an acceleration; I think we’re continuing to see good benefits from the market dynamics that Rusty referred to in US DIY in particular. We have some strong market share gains at certain small project paint areas, patch and repair as well as interior wood stains and finishes.

So I would anticipate unless the underlying economics change that you’ll continue to see solid single-digit kind of middle single-digit or a little bit stronger than that out of our Consumer segment.

And then the area that could be a positive on the upside is when we finalize all of the filling capacity for the Kirker nail enamel business they will be annualizing some relatively weak comps.

And we would expect them in 2017 to again be contributing to positive sales and earnings growth, which should be additive to the results that we’re generating now in consumer. .

Thank you so much for your time..

Thank you. .

The next question is from Ghansham Panjabi with Robert Baird. .

Good morning..

Hi, good morning this is actually Matt Krueger sitting in for Ghansham, how are you doing today?.

Good, thanks. .

Great.

My first question is within your consumer business, can you talk about inter-quarter trends along with how the business has progressed into March, which is traditionally the start of the spring selling season?.

Sure as you know we had a disappointing first quarter and it was a result of a difficult comparison from the prior year, some weakness in the Kirker nail polish enamel business that we’ve seen throughout the year and also the impact of really lousy summer weather particularly in small project paint.

We came out of that in the second quarter with some decent albeit low-single-digit growth and that’s accelerated as Barry commented excluding the nail enamel product lines our core growth in consumer is up about 6% in the quarter and we see that trend continuing in the fourth quarter and early indications in terms of spring sell-in are very strong.

It’s a combination of I think good dynamics in the market as well as beginning to realize some of the market share gains that we talked about..

Great, that’s really helpful.

And then can you provide some additional details on your recent share gains and product introductions, which specific markets are you targeting and then what is allowing you to gain so much additional shelf space?.

So a lot of it is new product introduction and I will tell you for the most part in the small project paint categories regardless of whether it’s a concrete substrate or a metal substrate or now even in the wood area Rust-Oleum continue to be the innovator in the retail channels certainly we have fast followers at some of our bigger customers.

And so that continues to benefit for us.

We have gained some significant market share in interior wood stains at a number of major retailers that are starting to be filled now at the expense of our largest competitor and we also picked up some significant new shelf space with the DAP patch and repair product lines, which again started selling in this spring..

Great, that’s it from me, thanks. .

Thank you..

The next question is from Vincent Andrews with Morgan Stanley. .

Good morning, this is Matt Gingrich on for Vincent.

As it relates to gross margin expansion in the quarter what were the lower manufacturing cost related to and how did raw material prices changed from the second quarter to third quarter?.

So if you go back to Rust-Oleum in our comments in the January quarterly call they are benefiting from what’s been a two year run of really focusing on manufacturing efficiency and they closed a major manufacturing facility in Europe little more than a year ago and then two smaller plants one in Illinois and one in California they were completed this past year.

So those are the principal areas in consumer where we’ve made some real operational efficiency improvements and then we have had somewhat of a mix bag particularly in industrial with product mix, good news is you can see in the Specialty segment is we got nice product mix there with some higher margin businesses and that’s leveraging nicely in the bottom-line.

On the industrial sector it’s kind of the reverse, in fact in the oil and gas sector, it’s one area where pricing is very challenging in an industry that globally is off in certain categories by 30% or 40% or 50%. We’re pleased with product lines that are down by 10% the pricing environment there is very difficult.

And then in the Tremco business there continues to be a service revenue, which is lower margin higher growth rate in the product sales which is higher margin mix. So those were the principal dynamics in terms of the gross margin improvements for the quarter..

Okay, thanks.

And then just to clarify after the second quarter in your press release industrial sales were expected to be flat for the balance of the year, but in today’s press release that language was removed I’m curious why that was the case and just wanted to clarify what’s changed regarding your expectations for industrial for the balance of the year?.

Yeah I expect our industrial to be flat for the balance of the year, the biggest challenge that we face and we’ve talked about it as have other companies is the FX impact and as we’ve done throughout the year we posted on our website a map of the world, which highlights by region actual rates and then provides growth by adjusting FX rates to the prior quarter’s levels.

And the vast majority of the negative impact on sales and earnings, but in this case your question is sales is in our Industrial segment that I think suffered about 6.5% negative FX impact in the quarter. So for instance in Latin America, which is predominantly Industrial segment. We are in actual rates were down 14% year-over-year in the quarter.

But leveling out at prior exchange rates we were up 15% in local currencies. In Europe which is probably two-thirds industrial one-third consumer in actual rates we are up 1%, in local currencies we are up 7%. And so I think we anticipate that continuing to negatively impact our Industrial segment in the fourth quarter.

So on a core basis you’ll see we hope sales up in the low-single-digit range, there will be a modest impact from prior year’s acquisitions and we expect all that to be offset by FX. So we are not changing our outlook for industrial and it will probably look maybe slightly better than what we saw in the third quarter here more towards flat..

Okay, thank you..

Our next question is from Jason Rodgers with Great Lakes Review..

Good morning..

Good morning..

I wonder if you could talk more about the warranty and severance charges in the Industrial segment in the quarter and if we should expect additional charges in future quarters?.

Sure. The charges in the quarter were of a one-time nature associated with some corrosion-control projects and it was a combination of some warranty issues and quite candidly some customer goodwill decisions.

And it was relatively unique and it’s been resolved and I’d say that because from that perspective it was a unique set of circumstances that we consider one time, which is different from the regular warranty expense that we have in our Stonhard flooring in particular and our Tremco Roofing business where in both of those cases we’re not only supplying the material, but actually doing the application..

And the market share gains that you talked about in consumer, is that due in any part to pricing or would you say it’s mainly through product innovation?.

It’s mainly through product innovation.

We have been pursuing a bigger share in interior wood stains and finishes with higher quality products, with better color in a number of different characteristics like that and I think we finally had some -- we’ve had slow growth in that, this year we’ve had some significant breakthrough in terms of some market share gains in some of our bigger customers.

In small project paints Rust-Oleum continues to be the innovator and different sub straights. And so again it’s really about innovation and bringing new and unique either finishes or new and unique solutions including time savings to consumers and partnership with our big customers..

And then looking broadly at the company, I wonder if you could talk about the pricing environment in North America and overseas as well as the impact of raw material costs in the quarter and the outlook there? Thank you..

Sure. As I mentioned earlier, the prices virtually non-exist in any of sales results, it’s all unit volume growth.

I think the exception to that has been in the product lines that serve the oil and gas market and that’s just been a very, very challenged market for anybody that’s in any services or products that goes into offshore oil or any of those areas. So that’s been a challenging pricing environment.

On the raw material side we’ve had a mix bag of some raw material benefits from some lower raw material cost in certain areas, which has been offset in a number of areas by FX translation, which has been a big problem in a couple of regions.

As an example, Canada, the vast majority of what we sell in Canada is produced in United States and quite candidly we are killed by FX transactional impact of U.S. produced products sold in a weaker Canadian dollar environment. .

Thank you very much. .

The next question is from Ivan Marcuse with KeyBanc Capital Markets. .

Good morning.

Hi, guys good morning. Thanks for taking my questions. Just curious about what you’re saying, you mentioned U.S.

commercial construction continue to be stronger is there a specific product line that’s better than others like add mixtures versus roofing versus water proofing or is it pretty much pretty equal across the board?.

It’s generally pretty solid across most of our product lines. The couple of product lines that are growing nicely in terms of double-digit growth would be a Euclid fiber products that continue to be able to sell everything they can make. They’re expanding that business more globally from what has been basically a North American start.

And our Tremco Roofing business, we are going great guns with some proprietary roofing coatings. Very sophisticated coatings they can extend the life of EPM rubber roofs that are coming off 20 or 30 year life spans.

And it’s kind of fun to see a nice margin double-digit growth out of roof coatings because that’s what started this whole place almost 70 years ago. So it’s a little bit back in the future there and that’s really booming.

And then our Tremco Ceilings business broadly is doing quite well in terms of water proofing as well as ceilings and other water proofing products that goes into commercial construction..

Great. And then you’re seeing I guess continued consolidation in specifically in the U.S.

architectural market, do you think these dynamics will allow -- for you to continue to gain share? Are you sort of see this I guess two big competitors combining is that an opportunity for you or I guess or to be decided?.

I think time will tell. I will say if you go back couple of years ago, you’ve had Akzo sell its architectural coatings business to PPG and you had a Sherwin-Williams swing and miss on Comex and PPG bought that. And now you have the Sherwin-Williams Valspar transaction.

And I hope that the food fight of the architectural coatings companies in North America continues vigorously..

Got it. And then last question and I’ll jump back in the queue.

You mentioned Europe is pretty choppy what’s going well there versus what’s not?.

Sure. Consumer is actually going very nicely there. So Rust-Oleum has a good presence and it’s going nicely for a couple of reasons. In local currencies they’re seeing growth in the UK. The Benelux countries and a little bit on the continent. And they as we mentioned earlier on the call a year ago had closed a major facility in Europe.

And so the leverage of the return of sales growth is sitting in the bottom-line nicely. And in general, we’re seeing pretty good business in the construction markets out of illbruck in Germany and some of our other companies. A big slug of what we do in the industrial segment in Europe goes into oil and gas, and that business is hurting.

And a lot of what we do in the Middle East is either produced in plants in the Middle East where we have two plants one in Saudi and one in Dubai. But also production that comes out of Europe. And the Middle East as you’ll see on our slides is the only region of the world both in local currencies and year-over-year actual rates, which is down.

And it’s predominantly oil and gas..

Got it, thanks for taking my questions. .

Thank you. .

The next question is from Mike Harrison with Seaport Global Securities. .

Hi, good morning. .

Good morning..

We haven’t really touched on the specialty segment yet. The SPHC volumes that have been coming in you had said in the past that those were lower margin and we were seeing a margin drag from those. But this quarter we saw pretty strong margin improvement despite getting another month of SPHC volumes coming in.

Can you walk through what’s driving the improved margin in specialty and maybe give us a little bit of a sense of what our expectation should look like for fiscal ‘17 on the operating margin front?.

Sure the specialty segment truly is a collection of unique entrepreneurial businesses. So there is typically less integration there than there are in our other groups or segments. And they have a mix of margins to the extent that we are involved in OEM coatings businesses, like our wood finishes group or powder coatings or some liquid OEM coatings.

They tend to be somewhat lower margin in that segment versus specialty food or specialty colorants or other product categories there where us it’s the one area where we’re in equipment with Legend Brands business.

But in general very well run businesses and as Rusty alluded to I think that they had a particularly strong focus on internal investment and internal growth and operating efficiency coming out of the whole SPHC process and they are continuing to do really well.

So I would expect -- I guess the last thing I would say about that is, is that the SPHC businesses that came out of bankruptcy were almost exclusively U.S. businesses. The related affiliates of those businesses overseas were generally not part of that bankruptcy process.

So they are also benefiting from being in the region of the world where we and most everybody are seeing the strongest growth. So that is also I think a reason why you are seeing a nice result out of those businesses. We expect that to continue and we also expect to see additional companies added to that specialty segment in the coming years..

And then I was also hoping you could talk a little bit further above the Kirker business. You kind of referred to that as being in a cyclical down swing.

I understand some of the dynamics there, but how was that business performing sequentially, is there seasonality to take into account there and I guess how much of a benefit could we expect to see once the bottling line is up and running and is that a top-line benefit or a margin or both?.

So the nail polish enamel business is a fashion business and it’s a cyclical business in terms of fashion trends and colors and we knew that when we acquired Kirker and hence we ended up negotiating a transaction, which took a couple of years to finalize and ultimately was resolved with these earn-out payments all of which now are behind us.

And we had that structure because we and the owners of Kirker knew that it was a somewhat of a fashion related cyclical business, more volatile than typically what other RPM companies are.

And so now we are kind of a low period, quarter after quarter over the last five quarters maybe we’ve seen significant lower levels of sales and therefore earnings. I think we are going to have a lot easier comparisons next year.

There is a number of new products that are coming out, new categories that are kind of revitalizing that, you see new channels opening up with some of the discount drug store channels.

And so there is a lot of dynamics that suggest to us that as we go into ‘17 the Kirker business are going to be positive contributors to sales and earnings in a way that they were two or three years ago and they haven’t been for any of the last five quarters..

And then the last question I had was on the wood stains business, you kind of referred to interior wood stain is an area where you are gaining shelf space. But I believe you had a competitor reintroduced their wood stains line at a key big box retailer. I think that’s mostly exterior wood stain.

But can you just talk about how much of an impact that’s going to have in terms of a revenue headwind for you guys?.

Sure. Most of our focus in wood stains and finishes has been interior wood stains and finishes with our Varathane brands and you’ll see significantly more shelf space at a number of our big box retailers on the interior Varathane wood stains and finishes.

And we have been working to bring just better quality products, better deeper color, the fact that one of the specialty product businesses is an industrial OEM wood finishes business that’s got real expertise in the color area has helped a lot.

And so that’s the area where we’re picking up market share, we don’t have a particularly big presence in exterior wood stains and finishes we’ve got product lines like Wolman, and we certainly have a lot of Zinsser primers that have been and continue to be used for exterior wood and we’ve got a number of other product lines but that has not been a big category for us yet.

And it’s not in the area of focus in terms of the market share gains that we’re now experiencing..

Got it, thank you very much..

Thank you. Operator The next question is from Arun Viswanathan with RBC..

Good morning..

Good morning guys, thanks. Hope you’re well.

So I guess just a question on the cash usage, looks like you bought back around $67 million stock year-to-date, which is looks like it’s a little bit of normal levels, I mean is there any change in how you’re looking at buybacks versus other uses of cash?.

No I think would be arguable to continue to buy back stock to cover equity program dilution and traditionally not much more. To the extent that we can get a better return by investing in internal growth new products and acquisitions we’ll continue to do that.

From time to time over the last decade we’ve been a little bit more aggressive and I think we felt pretty good about this year.

I think this quarter when you look at a 23% EBIT gain on a 4.5% sales growth and expectations for a strong fourth quarter, I think we continue to feel good about how RPM companies would finish the year and when our stock dropped along with everybody else we got a little more aggressive..

Okay, great. And then on the I guess the M&A environment also that looks like it’s tracking a little bit lower, would you think there’d be any greater opportunities now that maybe Sherwin and Valspar are holding cash and what areas would you be targeting would that be kind of industrial or U.S.

or continued kind of technology and product line in growth?.

We commented on this in particular in the January call. But if you look across the last decade probably 70% plus of the acquisitions that we’ve done had the clients that we’ve integrated into existing businesses, we’ve completed a few of those as you know this year.

And so the pipeline for those types of acquisitions continues to be good they are not material to necessarily sales or earnings for RPM on a consolidated basis, but when you can pick up a $5 million or $10 million product line and expand it through your existing distribution and double sales in a couple of years the IRR is pretty nice.

So we continue to see opportunities like that. We continue to be the only player that’s a really good home for well-run entrepreneurial companies and I would hope that we would see more of those in the coming years as well.

And lastly there has been some speculation as to any divestitures that maybe required of the Sherwin-Williams Valspar transaction. Time will tell. That will be regulatorily driven, but to the extent there are we would certainly have the interest and looking at that as well..

Okay. Last question just on energy you said that there are still some challenges there down 10% in industrial I don’t know if you’ve disclosed exactly how much that is? And then is there any kind of stabilization or bottoming that you see in those businesses? Thanks..

Sure no we have not disclosed the specific revenues there it’s below our segment level.

It’s principally our Carboline business and it’s a little bit of double whammy it’s also Fibergrate in a few other places, but it’s double whammy in the sense that it’s a very global business and we sell corrosion controlled coatings and fireproofing products and other related products into the oil and gas industry in the North Sea and UK or Norway, in Africa, in Asia we are continuing to invest in that business we are investing in manufacturing capacity in the Viapol Brazilian operation for production of Carboline products we’re also in the beginning stages of investing in coatings manufacturing for those product lines in Malaysia in combination with a Flowcrete business that’s already there.

So long-term we are very bullish on that business. I think we are happy to see that the massive and rapid decline in oil prices, which is really unprecedented in my life time has seem to come to a haut and we have got a base of where oil prices are now and I think over time that business will stabilize and come back.

In the interim could be off 10% in what’s been pretty much of a traumatized industrial sector is pretty good performance by our folks..

Yeah. Good to see the consumer turnarounds. Thanks..

Thank you..

The next question is from Rosemarie Morbelli with Gabelli & Company..

Good morning everyone..

Good morning..

I was wondering, Frank, if you could talk about some areas of markets that you may have seen decline sequentially outside of the energy any trickling into other industries that you are beginning to see?.

Not really, I think that most of our other businesses are doing relatively well to very well. The impact is FX. The Middle East has been challenged for a lot of reasons, the construction markets there is the one area that are not good and deteriorating.

I think it has indirect relationship to the oil and gas revenues and their impact on the spending and the government spending there on a lot of major construction products or project. So that is a challenge and we certainly are paying a lot of attention to Latin America in general and Brazil in particular.

The Viapol team down there is doing a great job, year-over-year I think in local currencies we’re up 7% in the quarter, but down significantly when translated back in the real and the headlines on the economy down there and the situation in general are not good. So we pay attention to that.

So those are the two areas of concern for us outside of the broader global oil and gas market..

Thanks. And then I was wondering, I saw a recent advertisement on [Recolor] [ph] which also looked as though NeverWet was incorporated in it and you are apparently selling this only the television.

Can you talk about what is going on there, it is one of your products as I understand they put it under the Rust-Oleum brand or is it something else and are you selling it only on television?.

That’s a license product by Rust-Oleum and they are working with the kind of original inventor of that on a TV sale, but we are also selling it in the automotive channels..

Is that something that you are licensing it now, but I think that you did something for other product lines is that something that you would be interested in having and then offering to large OEM? And then as long as we are talking about OEM, can you touch on the success of the NeverWet on the OEM category?.

We continue to pursue opportunities with NeverWet on the OEM side. This spring you’ll start to see the first NeverWet tag lines on umbrella fabrics and certain outdoor furniture OEM’s and it’s a more robust formula than what would be available to consumers. And so you’ll start to see that so we are having some success there.

On the other products Rosemarie I really can’t answer that. This white new is a new category another licensed idea. So Rust-Oleum is really reaching out to inventors and folks that have some interesting ideas in relationship to coatings products for other treatments, but don’t have the resources.

And if we can find some good products technology and partner with inventors to where the strength of our distribution network and the strength of their good ideas benefit both we’ll do that..

Okay.

And if I may ask one last question on SPHC, I do understand that it is a group of entrepreneur companies, but is there I mean now that they are back under the fold is there some potential for margin improvement in terms of looking at supply raw materials, supply chain and so on can you integrate part of some of those entrepreneurial businesses?.

I would say the integration opportunities there as I commented earlier are significantly less than they are and have been in other groups or segments. But you’re continuing to see margin improvement and nice enhancements there again sales on an organic basis I think were up more than 7% in the quarter.

And I think it will be really reflected in the fourth quarter because you’ll have year-over-year true comparisons while there’ll be some smaller acquisitions in there, this quarter versus last quarter of any impact of the SPHC reconsolidation it was actually one month. And so those businesses are doing well.

They’re benefiting from reintegrating into the RPM global sourcing committee so that is an area that they are benefiting from and they’re pretty good at sharing technology across businesses and I would expect that to drive revenues first, but lever to the bottom-line..

Okay, thank you..

[Operator Instructions] The next question is from Christopher Perrella, Bloomberg Intelligence..

Good morning, thank you for taking my call.

I just wanted to follow-up on the translational impact on your manufacturing cost in Canada, Latin America and South Africa have you seen any pricing to offset the raw material for the transactional FX headwind?.

Yes to a certain extent, but enough to cover the impact. So that’s an area that we’re focusing on and trying to have some influence on. And so in certain particularly in certain extreme raw material categories we have gotten some price, but it hasn’t been sufficient to cover the FX impact.

It’s particularly true in Canada, it’s true for instance with our fluorescent color product lines between U.S., Europe and the UK. It’s less true you mentioned South Africa, most of what we sell in South Africa is produced in South Africa so that’s really an FX impact.

The area that impact’s South Africa or Brazil is raw materials, because typically you’re buying raw materials that are sourced in the U.S. or Europe in dollars or euros even though you’re actually manufacturing in a country like South Africa or even in some raw material areas in Brazil..

All right.

So have you covered I guess raw materials and you’re still trying to -- you are half way there on the FX, how should I think about it in that respect?.

Yeah it’s a real -- it’s a tough question to answer because it’s so specific the product lines and or different businesses at a level that we really don’t report in terms of specific sales or earnings.

But it’s Brazil and South Africa in terms of imported raw materials and its Canada and a little bit of UK in terms of products that are produced outside of those countries and sold into those countries with just dramatically different currencies than they were a year ago..

Okay.

And then a follow-up question how far along are you with the Malaysia expansion?.

I can tell you that we’re continuing -- this is I’m not answering Malaysia specifically, but we’re continuing with the corrosion controlled coating and expansion in Brazil, but slowing down a little bit given what’s happened in those markets. And I think we are making progress in Malaysia.

I would bet it will be a year before we’re in a position to actually products in either of those locations in the corrosion-control or fire proofing product areas..

Okay, thank you very much..

The next question is from Richard O'Reilly with Revere Associates..

Good morning. Q - Richard O'Reilly Good morning, gentlemen. Thank you. Two quick questions. The first is your debt to capital ratio 55% is down a little bit year-over-year, but still I think two years ago was more 47% and historically it was in the 40s.

Do you see ever a time of your debt ratio getting back down to historical levels let’s say in the 40s or do you think the acquisitions will just keep it up?.

Yes, I see our debt cap ratio improving over the time. Historically based on our acquisition activity over the last 20 plus years, our debt cap ratio has ranged anywhere from 40% to 65% and I think we’ve been comfortable in that range. We’ve always targeted a kind of triple B investment grade rating and that’s still very much on our mind.

The greatest impact on our debt cap ratio over the last year has not been on the debt side. We’re through good cash flow as you see we’ve been able to manage the debt down despite growing our business and continuing with the acquisitions. It’s been the impact on equity and in particular the CTA from the foreign exchange impact.

So I think there is two things in the future that will allow us to get our debt cap ratio back down into the 40s. Number one is the fact that with the exception of the last couple of remaining payments to finalize the trust fund payments. The next decade of cash flows will not have $1 billion of allocation to asbestos problem.

And secondly certainly over a period of time you are going to see currencies recover. Where the dollar and certain currencies balanced back out and that will have a positive impact on the equity accounts in our balance sheet. But we would expect to see our debt cap ratio move back down into the 40s over the time..

Okay, good. Second question, it’s on the tax rate or the tax credits in the quarters and last I think you said it was a reversal of a reserve that gave you the 12% grade and last year it was a reversal of a valuation allowance.

Is this just a timing of large items that just so happens to fall into the third quarter or is it because it’s the third quarter the seasonally low quarter these things just have an unusual big impact?.

I think the answer to your question is yes to both. Certainly the impact of tax items particularly with new accounting regulations and stuff like that they are going to be more periodic and more volatile in terms of how you account for your various tax issues number one. Number two, the third quarter is a seasonal low period for RPM.

So any discrete tax item in the third quarter would have a significantly outsized impact when you are counting pennies per share or percent gains or losses over the prior year.

It’s really difficult to compare this year’s third quarter versus last year’s third quarter because of all the issues associated with the reconsolidation of SPHC last year and a lot of one-time items. The big tax issue last year some tax discrete items this year.

And so I think the right way to look at how we are performing is the sale and EBIT line both consolidated by segment and we are very happy with that. Lastly I would say the full year we anticipate having a tax rate of about 29% perhaps slightly lower..

Okay, thank you guys..

Thank you..

And we have no further questions at this time. I’d like to turn the call back to Frank Sullivan for closing remarks..

Thank you, Allen. We continue to remain focused on investing in our future even during times of global economic uncertainly and are extremely proud of the great entrepreneurial businesses that make up RPM and how they continue to compete and win in their respective markets.

I would like to thank to more than 13,000 employees around the world for their continued efforts and dedication and to you for joining our call today and for your investment in RPM. We look forward to updating you on the year end results of our fiscal 2016 in July and providing outlook for our new fiscal year, which starts on June 1.

Thank you for your participation on today’s call and have a great day..

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