RPM International Inc (RPM) 2010 Q3 法說會逐字稿

Welcome to RPM International's conference call for the fiscal 2010 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 measure on the RPM website. Following today's presentation, there will be a question-and-answer session. (Operator Instructions)

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, Tuwanda. Good morning and welcome to the RPM International Inc. third quarter conference call. With me this morning on the call is Kelly Tompkins, RPM's Executive Vice President and Chief Financial Officer, and Barry Slifstein, our Vice President and Controller.

We are pleased with our third quarter results. In fact, we believe that they are somewhat understated as an odd tax rate in the quarter and the first real impact of new acquisition regulations for acquisition costs, which now require all costs to be expensed rather than capitalized, cost us $0.02 to $0.03 in the quarter. Most importantly, we believe that the severe winter weather experienced throughout the United States in February dampened what otherwise would have been stronger revenue growth. Our March results, which show accelerating growth in both our industrial and consumer businesses, bear this out.

To provide with you details on the quarterly results, I would like to turn the call over to Kelly Tompkins.

Thanks, Frank. Good morning everyone. I will review the third quarter in some detail and then provide a few year-to-date comments before I turn it back to Frank for some closing remarks and your questions.

Third quarter results, consolidated net sales increased 4.9% quarter-over-quarter to $667 million, including 5.1% from favorable foreign exchange, and 1.9% from acquisitions, with organic declines of 2.1% partially offsetting these increases. Industrial segment net sales of $457.7 million accounted for 69% of total sales, increased 6.7% over last year's third quarter. Favorable foreign exchange and acquisitions of 6.1% and 2.8%, respectively, were partially offset by organic declines of 2.2%. Consumer segment sales of $208.9 million improved 1.3% quarter-over-quarter with favorable foreign exchange contributing 2.9% and acquisitions 0.2%, partially offset by organic declines of 1.8%.

Consolidated gross profit was 39% for the quarter up from 36.9% for the same quarter last year. Industrial and consumer segment gross profit margin of 40.2% and 36.2%, respectively, improved from last year due to better raw material cost comparisons and the benefits of improved plant operating leverage attributable to last year's cost reduction initiatives.

Consolidated SG&A, as a percent of net sales, decreased to 38.6% of sales from 41.8% last year, due again to prior-year cost reduction actions. Industrial segment SG&A as a percent of net sales decreased to 39.9% from 43.6% last year, due primarily to prior-year cost reduction actions combined with lower distribution and bad debt expenses. Consumer segment SG&A decreased to 30.3% from 31.5% last year on slightly higher sales and a lower cost structure.

Corporate/other expense decreased year-over-year to $10.9 million from last year's $13.3 million due to lower health insurance and environmental related expenses, which were partially offset by higher pension expense. Consolidated EBIT dollars increased to $2.6 million this year from a loss of $31 million last year, due principally to better raw material cost comparisons and the continued benefit of cost reductions across both segments. Interest expense increased from $12.4 million last year to $15.8 million due to higher average interest rates for the quarter of approximately 6.6%, compared to 4.7% last year, offset by lower average borrowings in the quarter. With the new $300 million, 6.125% bond that we issued last October, substantially all of our outstanding debt at the end of the third quarter is fixed. Investment income in the quarter of $1.8 million improved from a net expense of $1.1 million for the same quarter last year mainly due to the $4 million of other-than-temporary impairment charges incurred last year compared to only about $100,000 of OTTI charges this year.

Tax rate for the quarter of 17.2% was impacted primarily by changes in the mix of earnings jurisdictionally, which had a significant impact on the quarter since the pretax loss was minimal compared to the entire year. The net loss of $9.4 million, or $0.07 per share for the quarter, was substantially improved over last year's loss of $30.9 million, or $0.24 a share.

Briefly on a year-to-date basis, sales are down 2.8% with organic declines of 4% partially offset by foreign exchange of 0.6% and acquisitions of 0.6%. Consolidated gross profit of 41.7% year-to-date is up from 39.6% for the same period last year. Consolidated SG&A improved to 32.8% from 33.3% last year. EBIT dollars and margins increased 37.1% to $216.1 million, or 8.9% of net sales this year from $157.7 million, or 6.3% of net sales last year.

I will wrap up with a few comments on the balance sheet and cash flow, including asbestos data for the quarter. For the quarter ended February 28, 2010, we had dismissals and/or settlements of 644 cases compared to 228 cases for the same period last year. Total asbestos payments of $19.9 million for the quarter included $12.9 million of indemnity and $7.0 million for defense, which compares to $19.8 million last year, of which $12.9 was for indemnity and $6.9 was incurred for defense. As of the end of the quarter, we had a total of 10,329 active asbestos cases compared to 10,281 cases for the same period last year, with new case filings for the quarter of 442 versus 461 new case filings in last year's third quarter. Our asbestos accrual at the end of the quarter stood at $432.9 million.

Capex year-to-date of $14.1 million compares to $37 million in the same period last year, which tracks to our full-year fiscal 2010 CapEx budget of $25 million. Depreciation and amortization expense on a year-to-date basis was $63.2 million, slightly lower than last year's $64 million. Accounts receivable days sales outstanding decreased 5.1 days year-over-year, and our days of inventory decreased 6.4 days year over year as both segments maintained tight inventory controls. Cash from operating activity through nine months provided $188.9 million compared to $134.6 million last year with the improvement attributable to year-over-year higher net earnings as well as contribution from balance sheet accrual changes including compensation and benefits and other accrued liabilities. Free cash flow, defined as operating cash flow less CapEx and dividends, of $96 million this year compares very favorably to the $21.4 million of free cash flow last year. At the end of the quarter, total debt stood at $908.1 million compared to $983.2 million a year ago, which is $75 million lower year-over-year. Our net debt-to-capital ratio improved to 35.1% compared to 42.8% last year, and total liquidity of $696 million includes $256 million in cash and $440 million through committed credit facilities.

With those comments I will turn the call back to Frank and look forward to your questions. Thanks.

Thank you, Kelly.

We are seeing a number of indicators that the economy is steadily improving. These include warranty, bad debt expense, and healthcare costs that are trending down year-over-year in most all of our businesses. Our OEM related businesses including wood finishes, powdered coatings, our KopCoat protective coatings and Day-Glo pigments, for example, all seem to be in full recovery mode with double-digit revenue growth. Our Performance Coatings Group of companies, who because of a greater geographic presence and more diverse end-market mix, have been able to fight and manage their way through the recession with relatively flat results. All seem to be experiencing a return to growth, and our consumer businesses are continuing to generate, except for the weather impact in the last few months, modest but steady revenue growth. The only RPM businesses continuing to battle declining results are those Building Solutions Group companies, such as Dryvit, Euclid Chemical, and certain product lines of Tremco sealants that serve predominantly North American commercial construction markets. We do not expect to return to growth in these businesses until late in calendar 2010 or early next year.

As Kelly mentioned, cash flow is strong, at an all-time record of $189 million, up 40% from last year. This combined with a strong capital structure will allow us to continue to pursue acquisitions similar to those completed in the quarter, including two small product line acquisitions by Rust-Oleum in Europe and the acquisition of Universal Sealants, which joined RPM in January and will operate as part of our Performance Coatings Group. Combining these factors lead us to believe that we will finish our 2010 fiscal year, the year ending May 31, 2010, towards the upper end of our current EPS guidance of $1.30 to $1.45 per share, and that our 2011 fiscal year will be another year of sales, earnings, and earnings per share in cash dividend growth for RPM and RPM shareholders.

That concludes our formal remarks. We would now be pleased to take your questions on our third quarter results and our outlook for the balance of our 2010 fiscal year.

(Operator Instructions) Your first question comes from the line of Rosemarie Morbelli with Ingalls & Snyder. You may proceed.

Good morning all.

Morning Rosemarie.

And congratulations on a much better quarter than I expected.

Thank you.

Was it better than you expected, Frank? Did you see any change in the trends, based on what your expectations were at the end of the second quarter and what actually developed during the third?

Rosemarie, as I indicated in my comments, the disappointing thing about the quarter was the impact of severe weather, particularly in February 2010. We had a pretty interesting winter across the country in February, and it tended to hamper growth in a number of our businesses like Tremco Roofing. Our March results, which obviously are completed, indicate that that's the case because we are generating good revenue growth across almost all of our businesses. And so the quarter came out as we expected. A couple of odd items, we had about [$2.1 million] (corrected by company after the call) of expensed acquisition costs, which historically would have been capitalized, and that's according to new accounting regulations, so that will be the case going forward. But in general, the quarter came out how we expected, and I think could have been stronger, and we're seeing that expected strength, I hope, continue all the way through our fourth quarter. We're off to a good start.

Okay. And were there any specific items in the -- both the consumer and the, and the industrial, which affected margins. I was expecting, and I could have been wrong, obviously, but I was expecting industrial margins to be a little lower than you reported, then the opposite for the consumer. I expected them to be higher. What was going on there? Anything specific?

I think you are seeing margins improve in both of those segments. The margin impact in our third quarter is obviously the lowest because our revenue base relative to seasonality is the lowest. If we experience the type of revenue growth in the fourth quarter that we hope for, I think you'll see, through a combination of some improvement year-over-year in our gross margin, and a lower SG&A investment as a percent of sales, the type of leverage maybe that you would expect, but generally this does not show up in our seasonal low third quarter.

Okay, and if I may ask one last question, and then I'll get back in queue, could you talk about the European economy? What you are seeing there? Whether the Greek situation would have an impact on your business in Europe?

Yes, the Greek situation does not seem to be having any impact on our business. We don't have much business in that southern Mediterranean part of Europe with the exception of Italy. The UK is improving. The UK economically, at least from our experience, had the same if not worse impact as the United States, and we see that improving in some of our businesses. In particular, our Building Solutions Group, Tremco illbruck businesses, have held up nicely and are doing quite well. I think a lot of that relates to their building envelope and weatherization sealant products. We've done quite well in renovation and new construction related to higher code requirements in places like Germany relative to renovation, or new construction around building envelope and energy efficiency. And that has helped us perform better than the overall German market, for instance. So we're seeing pretty good strength -- strength is relative. We're seeing decent growth there, which is different from what we experienced a year ago.

Okay. Thanks a lot.

Thank you.

And your next question comes from the line of Kevin McCarthy with Bank of America Merrill Lynch. Please proceed.

Yes, good morning, how are you?

Good, Kevin, good morning.

Frank, I think you mentioned early on in the call that you were seeing accelerating growth in the month of March 2010. Should we take that to mean beyond any normal seasonal strength that you would see? And perhaps could you provide a bit more color as to the product lines where you're most pleasantly surprised by the trend.

I could go first to industrial. Our more OEM related product lines and businesses were obviously the first to be impacted by the recession, and they've been the first to come out, and so we had some significant revenue declines in the past 18 months. And so now you're seeing a pretty solid recovery there. It's been building over the last three or four months. And this spring we're seeing double-digit growth in a lot of those businesses, which I think is the combination of recovering economic activity, some of them are double-digit growth but not back to their record levels. But that seems to have been steadily building and both in terms of month-after-month positive sales growth and most of them an acceleration of that sales growth. Our performance coatings businesses, the Carboline, Stonhard, Fibergrate, Flowcrete and a lot of their international operations, really did a great job through broader geographic diversity and a broader market mix versus the last recession of being able to kind of keep their head above water. I think we're starting to see -- we are starting to see in March those businesses generate some stronger revenue growth.

In the Building Solutions Group in particular, Tremco Roofing and in our consumer businesses, I think we're going to need another month or two to see if this early strength in the fourth quarter is really indicative of the right level of growth, or whether some of that is just revenues that were deferred from the third quarter into the fourth quarter because of the severe weather, particularly in New England, the Mid-Atlantic states, and the Southeast. There was clearly some order flow that was disrupted in our roofing and some of our consumer businesses because of the weather in February in particular. And so, hopefully, that break-down between our industrial and consumer businesses and product lines gives you a sense of where we think we're headed. But March is a much stronger month than we've seen, but it's been in most of these businesses a steady building of revenue recovery in terms of growth.

Okay, that's helpful. Just to follow up on consumer in the quarter, I think you mentioned the organic sales growth was minus 1.8%. Perhaps weather was an issue, part of that, but was there also a shelf space impact, Frank? And if so, maybe you could comment on lines and regions and how we should think about that next couple quarters?

No, we maintained and or increased shelf space in almost all of our accounts. We have picked up shelf space in the automotive retail channel in almost every major account, small project and spray paint, which is an area of market share gains for us versus 12 or 18 months ago. We are starting to see, and it's fun to see now, a little disappointing, as will you recall, we introduced some upper-end new products, Universal at Rust-Oleum, DAP 3.0 at DAP, a year and a half ago right into the teeth of this recession. And so the excitement we had around those wasn't realized in take-away, like we had hoped. That's changed. And those product lines are moving in the right direction. At a major account we have introduced a kitchen counter repair and refurbishment product line, which I believe has a retail of $250 or $300 bucks. It's the most expensive kit in the paint aisle, and it's something that we are very excited about in terms of the opportunity for homeowners to remodel kitchen or bath areas to the tune of a few hundred bucks and get a real -- a granite-like high-end look as opposed to the $20,000 and $30,000 and $50,000 makeovers that people were doing pre-recession. So we've had a lot of good new product introduction, and, in fact, in some new categories, like automotive, are picking up market share.

Great. Final question, if I may. On the corporate line, the $10.9 million that you indicated came in a little bit less than we were looking for, declining sequentially and year-over-year, I think you mentioned lower health and environmental. What should we be thinking about there for the May quarter and beyond?

Kelly might have some color on that. I think in the May quarter we're going to see probably some higher numbers there. Our pension costs throughout the year are higher, much like other companies that have a pension plan still as part of their retirement program, and that will continue in the the fourth quarter. Our compensation cost in the fourth quarter will be higher. Last year we had lower to no incentive bonus programs in a lot of areas, whether it was in the field or at the corporate executive level. And, in fact, reversed some long-term equity incentive programs where they were clear they weren't going to be met. This year, we're hopeful to have higher levels of compensation at year end, not obviously back to where we were a few years ago, but certainly higher than where we were last year. So those are the items that I see impacting the Corporate Other line in Q4.

Okay, thank you very much, guys.

Thank you.

And your next question comes from the line of Saul Ludwig with Keybanc. Please proceed.

Hi. Good morning, guys.

Good morning, Saul.

Morning Saul.

Question. With the expense related to the acquisitions, Frank --

Yes.

-- Where did that show up? Was in that the gross margin of those certain segments, or was it the SG&A?

It's in SG&A.

And which -- was it industrial or consumer?

Mostly industrial.

Industrial mostly, a little bit consumer, but the lion's share, $2 million or so, was industrial, then balance was consumer.

And that goes away, unless you make more acquisitions.

That's correct. Those are expenses that historically we would have been capitalized. For this quarter, and for all future quarters, your due diligence expense, any banking fees or finder fees or legal fees, all of those types of fees associated with acquisition, some of which could have been capitalized will all be expensed as period expenses, but they are one-time expenses associated with specific transactions.

Second question, in Tremco Roofing, certainly we understand that the weather has delayed certain repair projects. But maybe the more positive is did this harsh weather cause some maybe additional damage that you should see in, maybe, better business than you normally would have had as we move into the spring and summer months?

Tremco Roofing, like a number of our other businesses, are businesses that seem to -- not seem to, have had a pretty strong result in the month of March, Saul. And we're usually not that demonstrative about a single month or giving that type of color into our upcoming quarter, but it's some combination of a continuing economic recovery, which we're seeing across enough of our different businesses to start to believe in, and also in some businesses I do think, and Tremco Roofing is an example, deferred shipments or project completion because of February winter weather, which we're seeing picking up in March. But I think that's a business that should have a relative good fourth quarter. That's certainly our expectation.

Great, thank you very much, guys.

Thank you.

Your next question comes from the line of Chuck Peterson with Morgan Stanley. Please proceed.

Good morning.

Good morning. Could you talk about your commitment to investment grade as your M&A strategy progresses?

Sure. We have long viewed, and I have to qualify this, in normal circumstances, which from a capital markets perspective was the prior 30 years up until a year and a half ago. We have long viewed mid-BBB to low-BBB as the sweet spot of cost of capital for companies like RPM. Because it allowed a fair amount of balance sheet flexibility, while still maintaining an investment grade and the differential in borrowing costs between a BBB-rated company and an A or AA-rated company wasn't that much. Whereas if you fell into junk, both cost and flexibility started to be impaired. And so, we've been able to manage our balance sheet over the last 30 years between, historically, a 40% and 60% debt/cap ratio and maintain our investment grade rating. When you look at our cash flow multiples today, you look at our interest coverage multiples, all those are at levels at kind of the best we've been, and we expect that to continue.

So it will be our goal to continue to use our balance sheet flexibility and strength to manage our debt/cap ratio in a range, and have cash flow ratios such that we will be able to maintain an investment grade rating, and we've always done that. One way we have done that is equity linked transactions sometimes, every one of which was tied to a specific acquisition, so that we don't necessarily look at it as dilutive, but as part of the borrowing and part of the cost of capital associated with larger transactions. Lastly, our sweet spot, in terms of acquisitions, is really anywhere from $2 million or $3 million product lines that we can buy relatively cheaply and quickly integrate into an existing business to what we view as acquisitions as large as $200 million or $250 million, and everything in between. And so kind of with that appetite, and the track record that we have, our outlook and expectations for how we will manage our balance sheet, our cash flows, which continue to be strong, we fully expect to manage our business in the coming years the same way we have over the last 30 years, which is to pursue acquisitions, to be disciplined in pricing to use our balance sheet flexibility and our cash flow all in a manner that will allow us to maintain our investment grade rating.

Terrific, thank you.

Thank you.

And your next question comes from the line of Jason Rogers with Great Lakes Review. You may proceed.

Good morning.

Good morning.

Hi.

Wonder if you could talk about the asbestos reserve and the likelihood of another increase for the foreseeable future?

Sure. We have a current reserve of about $433 million, and we review that quarterly. That reserve is reviewed by obviously us, our actuaries, and our outside accountants, and we're comfortable that that reserves as we sit here today, is appropriate out to 2028. And that's something that we look at every quarter and will continue to do so.

Okay, and what's your outlook for raw materials for the fourth quarter and going into next year?

You know, I think the raw materials situation is an interesting one. Obviously we've been the beneficiary of some raw material price declines from the peaks of a couple years ago. Those declines have stopped. Our raw material costs have stabilized, and there are inklings and hints and efforts at raw material price increases. So far we've been successful in fighting those off. I don't see any raw material price declines from our current level. But conversely, I think that it'll take continued recovery and economic activity and demand before you see anything in the way of significant raw material price increases.

Having said that, in terms of a trend, it is much more likely that we will be seeing rising raw material costs over the next four to six quarters than anything going the other way.

Thank you.

Yes.

And your next question comes from the line of Edward Yang with Oppenheimer. Please proceed.

Hi, good morning.

Good morning, Ed.

Good morning, Ed.

Frank, it sounds like on the raw material side, you were looking for more stability I think for the year out, now it looks like the trend might be more on the upward slope. How does that influence your pricing decisions on the consumer and industrial side?

Year-to-date, pricing has been essentially negligible, and I don't know that rising raw material issues will be significant impact for us in the fourth quarter. As I just mentioned, I do think that the trend could be up in the coming four to six quarters, and that's really going to be dependent broadly on demand recovery, not just in our markets, but in other markets. And so, we will do in relationship to that what we have been doing forever, and certainly for the last seven years which is where appropriate pursuing price increases and also pursuing raw material sourcing options. There's a lot more raw material options today than there were four or five years ago in some basic chemicals in different parts of the world, and also some different approaches to various raw materials for packaging. So those are the challenges that we face in those areas. Not a big issue as we sit here today but certainly something that we are ready and prepared to address if it becomes an issue.

And as a reminder, how quickly could you get pricing in industrial and how quickly can you get pricing with the big box retailers in consumer?

The ability to get pricing in our industrial businesses tends to be easier because we can change price sheets tomorrow, we can -- we have an opportunity to bid project by project in some of our businesses, change price structures to distributors or end-use customers, and adjust as market conditions dictate. With our major consumer customers, it's more challenging because you sit down with them, explain the reasons for price increases and go through that process, and it takes some time, it takes some understanding, and once it's done you can't turn around and change your mind a week or month later. So it's a more rigid process with longer lead times versus our industrial businesses which have the flexibility to change their pricing up or down based upon market conditions and in some cases based upon the nature of different projects.

Okay. And just coming back to consumer, that business has always been somewhat lumpy, and this weather -- this quarter especially due to weather. But it sounds like, from your comments that a lot of the volumes that were impacted in the third quarter were more deferred than eliminated, and possibly pushed out into the fourth quarter. So in terms of getting a better sense of the trend, excluding the weather impact, what was the kind of volume run rate before the February weather impact, and what's the current volume run rate in consumer in March?

Including the third quarter, which ended February 28, 2010, on a year-to-date basis, our consumer revenues are up 6.1%, and I think that's a -- around that number is a pretty good way to think about our consumer businesses on a month-by-month basis. And if there's -- if there's any more than that, for instance, in the month of March, some of that may have just been deferred revenues from one month to the next.

Okay. And just final question on FX, just because it's been so volatile. I think your prior assumption on currency, as related to the Euro, for example, was something around $1.40, $1.42 or so, and currently we're kind of well below that, and yet you've reiterated EPS guidance, still at the high end of your prior range. Should we interpret that to mean that maybe the FX is a bit worse than you expected, but volume and pricing trends are slightly better?

I think that's good way to think about it.

Okay. Thank you.

Thank you.

(Operator Instructions) Your next question is a follow-up from the line of Rosemarie Morbelli with Ingalls & Snyder. Please proceed.

Thank you. Just quickly, when you look at the company's organic revenue of negative 2.1% as a combination of volume and price mix, could you split volume and price mix for us?

Rosemarie, it's Kelly. Through nine months, on a consolidated basis, most of that is volume, down about 4.5% on volume with pricing up about half a percent.

Okay.

And foreign exchange had had a moderate impact through year-to-date, but obviously it was much more significant in the third quarter.

Right. You made a large acquisition in the UK, at least the largest of the three, which is mostly selling into the construction and, in fact, structured markets. While you say that the economy overall seems to be improving in the UK, as it is in North America, could you address those two particular markets where you are going to be selling $55 million worth of products?

Sure. We acquired Universal Sealants from George Paxton and his family. It was a business that was started by he and his brother. Typical RPM acquisition. There's a strong management team, which includes one of George's sons, who are staying to run that business. They are involved -- they are the leader in the UK markets in bridge deck coatings, highway bridge deck coatings and expansion joints. They also have both export and local manufacturing growth in international markets, basically a lot of the former UK commonwealth-type countries in different parts of the world. So they are growing in the Middle East, and they are growing in parts of Asia. I think the way to look at them is less commercial construction or industrial construction, and more public and private infrastructure, bridge and highway in particular. And those markets continue to benefit globally, because there's a huge need that's being funded, and I suppose to a certain extent, in the UK, like the U.S., some stimulus dollars that is finding its way into public infrastructure, which has helped and will continue to help that business.

So it's a very well run business. It's going to be a great and growing part of our Performance Coatings Group, and they are in the right infrastructure segments as their results have shown and will show, to continue to grow profitably despite these challenging times.

And I don't remember if you shared their EBIT with us?

We did not. The only thing that we disclosed was the revenue base, which in dollars, their principal currency is pounds, in dollars is $55 million. And that was on a trailing basis. We would expect for our 2011 fiscal year that that business will demonstrate some nice sales and earnings growth. Should be nicely accretive to earnings relative to its size, but we were able to pay for that with existing cash in UK in Europe.

So you are not willing to share the EBIT at this point.

That is correct.

Okay. And the product lines, small acquisitions of two product lines by Rust-Oleum, which channels do you sell them through, and are those products that you can bring into the U.S.?

The product lines that we acquired in Europe with Rust-Oleum -- typically Rust-Oleum's business in the European market, historically, has been kind of an industrial MRO distribution business. And they sell that through distributors, they sell that through very successful catalog business, and these product lines are principally going into those channels. But Rust-Oleum has done a nice job in the last two or three years of establishing a base of business in the UK and growing its base in Europe. As a result of that, this year, we invested in a new aerosol filling line, and we have taken market share from a major competitor at a number of the big box equivalents in the UK. This year, 2010 calendar year, we'll be introducing those consumer products into continental Europe, and so we've been able to establish a base over there. We're investing in that base. And really, in the last year and a half, for the first time, growing the consumer products, both the products that we've acquired, Rust-Oleum branded products now and the know-how that we have developed here in terms of marketing and category management into the UK market, so that's an exciting new avenue for growth for us.

And can those product lines be brought into the U.S. and grow off of new product into your channels here?

I think the obvious answer to that is yes, but I couldn't tell you the specific plans or details because I'm not aware of them.

Okay. And then lastly, if I may, you talked in your remarks, in the press release, actually, of important capital improvements and marketing initiatives. Could you give us a little more details on what you mean by that? (Inaudible)

Well, one of them is the one I just mentioned. We continue to look, even during this challenging recessionary period, for growth opportunities and investing in a start-up aerosol and small project manufacturing and filling line in the UK was one of those. And we did that last year. And that's bearing fruit in terms of market share gains in that market and in continental Europe. We have continued to expand our product offering and invest accordingly with our Tremco illbruck businesses, and they're serving the UK, European, and kind of central-eastern European markets, even into Russia. So that's continued to be an area that we've invested in.

And so those are just two examples of some capital investments that we made towards growth initiatives despite what's been a very challenging time.

Lastly, we are picking up, and this is part of our expense base, and perhaps an increase in our expense base in the fourth quarter and in the summer, I think you'll see a much more aggressive marketing and advertising campaign by many of our consumer businesses around some of their new products and some of their core products. So that's what that was meant to reference.

Okay, thank you, Frank.

Thank you.

Your next question comes from the line of Ivan Marcuse with Keybanc Capital Markets. Please proceed.

Hi guys, couple of quick questions. How much was the weather impact in the third quarter?

It's hard to say, but, you know, we expected -- it's really the month of February which traditionally is a -- we have -- our third quarter is seasonally low, and December and January are just seasonal low months, and we struggle at the operating line and have for most of our history to show profitability then. February in a lot of our product lines is where spring load-ins start to happen, and some of those were deferred because of weather, and it's also to the extent that you got decent weather, where some of our industrial businesses like re-roofing start to pick up. Especially in regions like the Mid-Atlantic and the Southeast and places like that. And that just did not happen in February. So it's really about the month of February which typically is the beginning of the seasonal pickup for us. It didn't happen. But I can't quantify, or won't quantify specific dollars for you, other than to say our suspicion that that was the case has certainly been realized because our March is quite strong.

Okay, would you say majority of the weather was in consumer segment, or was it split between industrial and consumer?

A little bit of both. I think it impacted consumer more, but it impacted some, like Tremco Roofing, of our industrial businesses quite significantly. But on the whole, given the fact that industrial is a better part of two-thirds of our revenue base and more of our global international business, it impacted proportionally our consumer businesses more than industrial businesses.

Okay. Kelly, I might have missed this. How much was consumer up in the third quarter and also in industrial?

In terms of Q3, consumer unit volume was down about 2%, and industrial was down about [0.6%] (corrected by company after the call).

But on a year-to-date basis, consumer volume is up about 4% unit-wise.

Unit volume is up about 4% year-to-date. That's right. (inaudible)

Okay. I'm sorry, and then for the tax rate in fourth quarter, what are you thinking?

Still looking at the 31% to 32% rate for full year.

Okay. And what were -- and raw material costs, were they up at all for the quarter, or were they down?

They were stable, and they have been for awhile.

Okay.

And we would anticipate them to be stable, or perhaps marginally up, in the fourth quarter, but not having a discernible impact.

All right. Thanks a lot for taking my questions.

Thank you.

And with no further questions in the queue, I would now like to turn the call back over to Mr. Frank Sullivan for closing remarks.

I'll wrap up here with a couple of comments. This is Kelly Tompkins.

Just wanted to say on behalf of our colleagues here, both Frank and Barry, thank you for your participation in today's call and your ongoing investment in RPM. Also want to recognize our RPM colleagues around the world, who have once again done a phenomenal job of managing through what certainly has been a great recession, and whose efforts have returned RPM to our more usual pattern of consistent growth of sales and earnings, and certainly look forward to discussing our full-year results on July 26, 2010, this summer. So, with that, we'll wrap up and thank you all again for participating in the call and have a great day.

Thank you for joining today's conference. That concludes the presentation. You may now disconnect, and have a great day.