RPM International Inc (RPM) 2011 Q1 法說會逐字稿

Welcome to RPM International's conference call for the fiscal 2011 first 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).

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, Keshia.

Good morning, and welcome to the RPM International, Inc. conference call for our 2011 fiscal year first quarter ended August 31, 2010. With me on the call today is Bob Matejka, RPM's Senior Vice President and Chief Financial Officer, and Barry Slifstein, RPM's Vice President and Controller. During today's call, we will provide some commentary on our first quarter results, as well as some of the detail on our first quarter financial statements. We'll then provide some general outlook comments for the balance of our 2011 fiscal year and then answer your questions.

The best way to think about our quarter is really in three parts. The first part I'll comment on is our consumer businesses. We were disappointed to see consumer take-away slow pretty significantly over the summer months after the very strong growth we experienced this spring. It is also important to note that we generated record consumer sales and earnings in the first half of our prior fiscal year as a result of return to stores by consumers in the summer and fall of 2009 and a significant improvement in gross profit, due to a good product price and lower raw material cost mix a year ago. During this first quarter and continuing into this fall, we are seeing a little bit of the opposite, with weaker retail environment, a difficult pricing environment, and continuing raw material cost challenges.

The next third relates to RPM's businesses, which are principally part of our Building Solutions Group, that are involved in North American new construction. While in some product lines we are seeing moderate deterioration into construction markets, in most all product categories, we now seem to be hitting bottom, with sales and earnings flat to the economically depressed prior year periods, and expect moderate improvement in the coming months.

The last third involves our industrial maintenance coatings area (high performance coatings for use on concrete or steel) and roofing and waterproofing products and services. Broadly across most industrial market segments, we are seeing high single-digit, or in some cases even low double-digit revenue growth, with a return to maintenance spending in industrial markets globally. This strong sales performance is somewhat negatively impacted on the bottom line by the raw material environment I mentioned earlier. This different performing mix of consumer North American construction and global industrial maintenance markets allowed us to generate consolidated sales growth of 6%, driving an 8% increase in year-over-year net income and earnings per share on a pro-forma basis versus record operating results for our industrial and our consumer businesses last year in the first quarter on a pro-forma basis, with pro-forma being the adjustment in fiscal 2010 of the Bondex Specialty Products Holding Corp. Chapter 11 filing.

I would now like to turn the call over to Bob Matejka, RPM's Senior Vice President and Chief Financial Officer, to provide you some more details on our quarter.

Thank you, Frank, and good morning, everyone. Thanks for joining us on the call today. I'll review the results for our fiscal 2011 first quarter, touch on a few balance sheet and cash flow measures, and then I'll turn it back to Frank for closing comments before we take your questions.

All of the income statement comments that I will speak of here compare actual 2011 first quarter results to 2010 pro-forma results, which exclude the operating P&L's of Specialty Products Holding Corporation, or SPHC, as we call it. As you recall, SPHC was deconsolidated from RPM International effective May 31, 2010. On the P&L side, we saw consolidated net sales have an increase of 6.1% quarter-over-quarter to $894.8 million. It was driven by volume increases of 4.9% and acquisition growth of 2.5%. These increases were partially offset by unfavorable foreign exchange and price issues that aggregated to a 1.3% reduction.

On the industrial side, net sales of $602.3 million, which accounted for 67% of our consolidated sales, had an increase of 9.3% over last year, with volume up 7.4% and acquisition growth up 3.5%. This increase generally mirrors the sharp turnaround in revenue growth started in the fourth quarter of last fiscal year. Partially offsetting these increases were negative foreign exchange and price increase issues of 1.6%.

In the consumer segment, net sales of $292.5 million were flat to last year, with increases in volume and acquisition growth completely offset by ForEx and price issues. The gross profit increased on a consolidated basis to $375.4 million from $363.9 million last year on volume increases, but it decreased 120 basis points to 42% of net sales due primarily to the unfavorable raw material cost challenges. The industrial segment gross profit increased to $260.4 million from $246.3 million, also on volume increases with a decline of 150 basis points, primarily due to unfavorable raw material costs. On the consumer side, gross profit of 39.3% declined 100 basis points due to raw material and labor cost issues.

At the SG&A level, looking at SG&A as a percent of net sales, it decreased to 28.4% of sales from 29.8% a year ago, a reduction of 140 basis points, and it was due primarily to lower bad debt and advertising expenses, coupled with SG&A leverage on recent acquisitions. Additionally, at the corporate/other category that we reported on our segment statements, we experienced a year-over-year reduction in the pension and medical benefits areas of some $2.5 million, and this was caused by higher health claims a year ago related to accelerated coverage closeout issues for employees that were involved in our late calendar 2008 and early 2009 work force reductions.

Earnings before interest and tax increased to $122 million this year from $113.2 million a year ago, or 7.8%, due primarily to higher sales volumes and better SG&A leverage. As a percent of sales, EBIT improved slightly from 13.4% to 13.6% this year. Interest expense increased from $12.8 million last year to $16 million this year, due to a higher average interest rate of 6% today compared to 5% last year. The higher rate is the result of our 6.125% note offering last year that took place early in last year's second quarter.

At the investment income line, the investment income of $1.2 million this quarter improved from $1 million last year in the first quarter, due to a combination of both higher interest income and gains from sales of marketable securities. The income tax rate of 30.5% for the first quarter compared favorably to the tax rate last year of 32.6%, principally due to jurisdictional mix of earnings and the income of certain foreign operations on our US taxes. Additionally, the first quarter of fiscal 2011 was favorably impacted by changes in the UK's tax law. Prospectively, we see a projected tax rate for the ensuing nine months of this fiscal year being modestly under 31%. Net income attributable to RPM shareholders increased to $69 million, or $0.53 a share, over the same period last year of $63.7 million, or $0.49 a share, representing an 8.3% increase.

I'll close with a few comments now from the balance sheet and cash flows. On the balance sheet, it reflects CapEx being flat to last year at $3.3 million. Our depreciation and amortization expense combined for the first quarter was $18.2 million. Our receivable DSO are controlled and flat to last year roughly at about 60 days, while days of inventory did have a decrease of 2 days, year-over-year to 73 days.

On the cash flow statement, cash from operating activities for the first quarter provided $41.1 million, compared to $52.1 million last year. On the plus side, higher net income added $2 million, and the elimination of asbestos payments this fiscal year provided a positive after-tax cash flow of approximately $12 million. The operating cash decline was due to higher working capital requirements, which added in $20 million for the major components therein. While receivables were $12 million favorable year-over-year, inventories consumed $5 million more. Payables were negative by $14 million, and compensation and benefits drew $13 million more cash this year, as we settled fiscal year end 2010 bonus obligations, which compared favorably to a year ago when they were nominal in size.

Finally, a few comments on capital structure and overall liquidity. At August 31, 2010, our aggregate debt was $936 million compared to $907 million for the same period last year. Our net debt-to-capital ratio was 38.6% compared to 34.7% a year ago. Total long-term liquidity at August 31, 2010, was $717 million, with $219 million of cash and $498 million available through our bank revolver and accounts receivable securitization facilities.

With that, I'll turn the call back over to Frank.

Thanks, Bob.

This fall, our consumer markets and retail activity continue to be flat at best and slightly down in certain product categories. We expect a continuation of the bumping along the bottom performance that we are experiencing in our construction-related product lines and continuing strength in our more global high-performance industrial coatings, roofing, and waterproofing areas. Having said that, particularly in light of the much more challenging price and raw material cost situation we are facing this fall, versus the more favorable price and raw material cost mix environment of a year ago, it will be challenging for us to generate flat year-over-year results for our second quarter. In the second half of our 2011 fiscal year, we anticipate earnings growth as a result of continuing sales growth in global industrial markets, steady, modest improvement in our construction-related product lines, mostly related to significantly easier comparisons from prior-year weak results, and relatively flat to slightly up performance from our consumer businesses.

There are also a number of expense items which we incurred in the prior year, particularly in the fourth quarter, including some extraordinary warranty expense, one-time environmental reserve charges, and other restructuring costs, which we do not expect to repeat. Based upon these elements, we expect earnings in the second half of the year to increase year-over-year by 15% to 20% and thus, remain comfortable with our full-year guidance of $1.35 to $1.40 per share.

While our first quarter cash flow performance was weaker than the prior year for reasons addressed by Bob on the call, we expect full year free cash flow to be up more than 30% year-over-year. This original guidance on free cash flow did not include our acquisition activity or repurchases of RPM stock. Year-to-date, we have acquired slightly more than 1 million shares at an average price of $17.31 for a total investment in RPM of $17.8 million. We also announced the completion of the acquisition of a $10 million company in Turkey. We are excited about this first investment in the dynamic Turkish market. This acquisition of Park Dis Ticaret will provide an exciting opportunity for our Tremco illbruck business in Turkey, Russia, and broadly in Middle Eastern markets. This transaction is indicative of a number of small- to medium-size acquisitions we are working on across a number of developing countries, and would expect to complete before the end of the fiscal year.

That concludes our formal remarks for the quarter. We would now be pleased to answer your questions.

(Operator Instructions).

Your first question comes from the line of Rosemarie Morbelli with Ingalls & Snyder.

Good morning, all.

Good morning, Rosemarie.

Frank, you did talk about the material costs climbing and the difficulty of getting price increases. Could you give us a little more detail on that? It appears as though the material costs may be flattening, but then maybe not as of more recently. If you could give us a feel for what it looks like and what your capability - capabilities -- are in terms of catching up with the higher costs?

Raw material costs across our industry have been challenging, particularly starting in the spring and through the summer months. It's not only been a function of price, but it's also been a function, in some critical areas, of availability, particularly downstream related to monomers. This challenge continues and we have instituted across most of our businesses additional price increases this fall. We are experiencing, I think, easing of some of the availability issues starting at the end of the summer, and I think we're kind of in the peak -- or were in the peak -- in our first quarter of the raw material challenges.

The other issue is that this time last year, we had some significant gross profit margin improvement for just the opposite reason. You had very weak demand and, while we were improving in terms of some volumes, we had a favorable raw material environment and some favorable pricing. So we think we're kind of at the height of the raw material challenges, although we don't expect any significant dramatic improvement. I think you'll just see a slow improvement as the year works its way out, both as a combination of improved availability, the impact of some pricing action across some RPM companies, and some moderation in pricing as the year goes on.

As the price increases flow through the company and raw material costs more or less flatten out, could we see a sequential gross margin improvement -- and I am not talking about last year, just second quarter versus the first?

I think that's possible certainly, and we anticipate improvement sequentially. I think that you'll see for the full year, probably, gross margins flat, not up, and the improvement will come from leveraging sales growth across our SG&A base, which we will continue to manage pretty well.

And just to make sure I understood properly, gross margin for the full year, flat with last year, or was it first quarter of this year?

I think year-over-year, at best, gross margins will be flat.

Okay, and if I may ask one last question, what are you seeing in the consumer segment in terms of the trends at the big-box, their inventory situation? Could you give us more detail on that picture?

Sure.

I think that in our small project paint and patch and repair areas, we are experiencing some modest volume growth. In caulks and sealants, we experienced some deterioration, and I think some of that has to do with the impact there of new construction. While disappointing, I think it's better than some of the volume in other paint-related areas.

This fall, we're seeing pretty much the same thing. And to a certain extent, it feels like from a retail take-away, the fall of 2008 as I think people are waiting for the results of election or whatever else, because there was a noticeable slowdown in retail take-away from what was pretty healthy activity in the spring and early summer to what has been essentially flat across our consumer businesses. As I said, slightly up volume-wise in small project paint and patch-and-repair and somewhat down in the caulks and sealants categories.

Are the big-boxes living off inventories?

Yes, I don't see any inventory situations out there that are extraordinary. There's no excess inventory, but I wouldn't say things are short. And I think the take-away, flat, or challenges that we're seeing are pretty much across all of our retail channels.

Thank you.

Your next question comes from the line of Kevin McCarthy with Merrill Lynch. Please proceed.

Good morning, Kevin.

Good morning. This is [Alex Ufrema] for Kevin, actually.

Frank, question on industrial markets. What type of customers are driving the recovery? Is it mostly private or government spending? And also, is the US outperforming Europe or vice versa?

The improvement in the construction markets, we are seeing some government spending there. Some of it is just hitting business activity levels that go back four or five years. So we've bottomed out there. And to the extent that we're seeing government activity, it's more in our Building Solutions Group and highway work, things that are driving concrete that weren't driving concrete for us, let's say, a year ago.

In our industrial maintenance coatings, high-performance coatings for concrete, for steel, flooring products, waterproofing, roofing, it's pretty broad across industrial markets. Our more global businesses are doing better because that's where we have our presence in developing countries and South America or marginally in China or India. In general, our experience is that the European, particularly continental European -- Germany's a big market for us -- our businesses are doing slightly better there than in the United States.

Our weakest markets right now are probably US retail, which is the lion's share of our consumer businesses, and US commercial construction.

Okay, great. Thank you.

So the rebound in concrete additives was mostly driven by government spending, is that correct?

Not mostly at all. I think we've hit a level of construction activity that's going to be steady. Some of it is repair activity. We've got some major projects in certain airports. It's repair activity, not new.

I would put it the only place that we're seeing, and it's modest, government spending impact our business positively is in those construction markets, but it's not -- it's not close to mostly. We've been looking hard to figure out where it is and that's the only place we can see it. More broadly, industrial capital spending is returning and it's pretty broad across all the categories that we serve, and RPM I think is indicative of what we're seeing.

Two years ago, we spent $75 million in CapEx. This past year, we spent $24.5 million. That is not a sustainable capital spending level for our business, and so in the current new fiscal year, we expect to spend about $44 million, $45 million in capital spending. Significant percentage improvement over a year ago, but slightly more than half of where we were two years ago. So I tell that story because I think that's indicative of what many of our industrial customers are doing in energy and food service and all kinds of industries. You're seeing a rebound in capital spending that we're benefiting from, that year-over-year percentage wise looks impressive, but probably isn't half of where capital spending levels were a year or two ago.

Okay, great. Thank you.

On raw material supplies, have your volumes been lower this quarter because you couldn't get them, or no?

No, there's not really anyplace where we have been ultimately short. There's a couple places where our lead times have been less than we would like because of availability, but the availability issue is also impacting price.

We are seeing the availability issue abate a little bit. And so I don't think that's an issue so much and we would hope to see -- and I think the industry is expecting to see -- some relief in certain raw material areas. To a certain extent, it's related to some plant closures and a plant fire and some things that happened in the spring, early summer that have now been rectified.

Okay, great, thank you.

And finally, a question for Bob on pension expense. Where do you see pension this year versus last year?

Pension this year ought to be roughly about, I would say, 5%, 10% increase year-over-year.

Okay, great. Thank you.

Your next question comes from the line of Ivan Marcuse with Northcoast Research. Please proceed.

Hey, guys.

On the back of that capital spending comment, do you think that there's been a benefit in the industry through some pent-up demand of people who didn't spend last year and now you're getting the benefit of that in these quarters? Or do you think capital spending on the industrial side is probably going to maintain where it is, or even continue to increase? I was hoping to get a little bit more color on that area.

When you look at our broad revenue base, probably 70% of our revenues go into maintenance and repair and only about 30% into new construction and that includes our consumer businesses. I commented on some of the flattish and weak retail take-away that we're experiencing now.

On the industrial side, maintenance spending, re-roofing. You can only put off repairing a floor, repairing a roof, doing the type of maintenance, painting for exterior exposed structural steel or concrete, for so long before you either inhibit the efficiency of your plant, maybe skirt safety issues, or just finally decide you're not going to put up with buckets on the floor to catch leaking roofs. So some of that is literally basic maintenance that was put off that is now coming back and from our experience, while it's nice business, it's not close to where maintenance CapEx was two or three years ago for most of our industrial customers, so we see a good ramp there for a period of time with that coming back. That's different from industrial capital spending, which in some industries seems to be improving for new capacity and plant expansion, but very modest relative to where it was a few years ago.

Great.

And then on the raw material side, how much was it up sequentially from fourth quarter to first quarter? What was the year-over-year increase?

I think from fourth quarter to first quarter, it was up modestly in certain product categories. Again, we were starting to see these challenges in the fourth quarter. It's up dramatically. I don't have the percent in front of me. I think it is 120 basis points on our gross profit margin, but in a number of categories year-over-year, we were looking at some raw material pricing weakness a year ago.

There's been certain product categories in certain resins driven by some monomer shortages that are up 25%, 30%, or even 50%. There have been other broader product categories that have been up 5% or 10%. So, we have seen significant percentage increases on certain categories of resins and items like that. Not so much in solvents, not so much in packaging. Those have been relatively moderate, but resins in particular, relative to some of the monomer shortfalls and some of the industry consolidation issues.

So, looking at going to the second quarter, you should still see a pretty good bump-up sequentially in raw material costs, but the pricing you that commented on, that should offset it and your gross margins should be sequentially a little bit better just because of the price/cost situation?

Yes, sequentially we don't see raw material prices being higher in the second quarter from where they were in the first quarter.

Okay.

So, we think both in terms of where raw material costs are and pricing action, that sequentially you'll see an improvement. Year-over-year, you will not see an improvement because, again, a year ago we were in a different cost/price environment than we are today.

Great.

And a quick question, I think I missed it, your comment on it. What was the FX impact to the industrial side of the revenues?

On the industrial side?

Yes.

That was -- that plus price aggregated to 1.6%.

Negative.

Negative.

The FX was 1.6 negative.

Was that all FX?

No, it was a combination of that, plus price.

Okay, and then with the reduction of the pension and medical expense, year-over-year, what are you looking for the corporate expense for the full year?

Relatively flat; yes, back to normal.

Okay, great. Thanks a lot for taking my questions.

Sure.

Your next question comes from the line of Jeff Zekauskas with JPMorgan.

Good morning. This is Silke Kueck in for Jeff. How are you?

Good morning, Silke.

I have a couple of questions. Was there a benefit in fiscal 2010 on the consumer side from new product introduction and in EPS, how much, roughly, was that?

It's hard to say. A lot of the new product categories -- we got a boost from new products that were introduced a couple years ago right in front of the recession, and so we really didn't see that improvement until last year, so the answer is yes.

We did pick up some market share in some major accounts with a new product, Rust-Oleum called 2X. We also a year ago picked up significant market share in an entirely new channel for us in the auto retail channels.

So that, that was somewhat new last year. We've maintained all those market shares, but that helped boost prior year results versus where we are today, which is more driven by just retail take-away.

Okay.

And a follow-up on the raw material price questioning as well, and that is I'm surprised that prices really have been negative since the beginning of the calendar year for RPM because it seems like raw materials have been trending up for a while and other companies have tried to push through price.

Prices are not negative. We'll get the right answer to you. The number that Bob gave you was a mix of price and ForEx.

Frank, I would say that 1.3, it is probably almost all ForEx, and you might have 0.1 or 0.2 of price deterioration, a 0.10 of a 1.

Okay.

But, yes, it just depends on product category, Silke. We've had price increases in some categories. We've had a couple categories where we've not been able to get price increases, and this fall, there were a number of price increases initiated across different RPM companies affected by their September 1 or September 15.

Okay. That's helpful.

And this is just to clarify, so what you said during your remarks is that the second quarter, the second quarter earnings are probably down year-over-year on a pro-forma basis because there's still some headwinds on the consumer side, and the new construction business and industrial may still be operating around the bottom, but you expect to make it up in the fourth quarter, because there's some one-time expenses that you probably won't see.

Is that correct?

Well, I think in the second half of the year, we'll start to be annualizing some of the raw material issues that we didn't face in the first half of last year. I think we're starting to see slow, modest improvement in the construction product categories that have been a drag on our results for the last two years, and consumer, I would expect, will again show modest improvement in the second half of the year.

We think some of the choppiness that we're seeing this summer and early fall is temporary. I think as it relates to the second quarter, we'll be working hard to generate a pro-forma flat quarter year-over-year. As we talked about today, I think you'll see sequential improvement in our cost/price mix and gross margin, but certainly a negative comparison to last year's second quarter.

And the last question I have is just a small housekeeping item. Net income in the quarter was $69 million and diluted shares outstanding was 128.3 million. So it means your earnings really should be $0.54 per share rather than $0.53? Is there something that I'm missing, or is it just rounding?

It may be rounding. We'll look into that.

Okay. Thanks very much. I'll get back into queue.

Thank you.

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

Thank you.

Most of my operating questions have been answered, but wanted an update on your progress on the SPHC restructuring. I read some articles that there were some delays there.

And also any comments on the search for CFO. Thank you.

Sure.

As it relates to SPHC, that is a long, slow process, and if there's any significant activity or elements to report, we'll do so, but there's really nothing to report there. It is proceeding as we would expect and it, quite candidly, is not the focus of our attention these days because it's not part of the RPM consolidated operations or the areas where we're investing for growth. And so there's really nothing to report there and we're continuing to focus on growing RPM International as it exists today.

As it relates to the CFO situation, Bob, as you know, is our CFO, and intends to remain so for some period of time. We will be working with our Board to initiate a search after the first of the year coming up. That's where we stand on that.

And how long do you think that search will take?

Well, I think Bob would be happy to stay here for many more years and he's doing a great job, but I don't know the answer to that. Once we initiate the search, and again, it will be initiated shortly after the first of the year, it could take four months, six months, nine months, however long it takes.

We're in a good position here with a good staff and Bob, who obviously knows us well. And so we have the luxury of going through a process with our Board and our Audit Committee, at whatever pace it takes, to find the right person for the job.

Okay. Thank you.

Thank you.

Your next question comes from the line of Greg Halter with Great Lakes Review. Please proceed.

Yes, good morning, guys.

Good morning.

Your international business is now approaching about 40% of the total relative to sales. Just wondering what the future plans are there, where you would like to see that go, and if you could comment on the profitability versus your US business?

Our business outside of North America is about 30% and we would expect that to continue to grow. I think from a longer term perspective, and we'll talk about some of our -- broadly, some of our long-term strategies at our annual shareholders meeting tomorrow-- but I think through a combination of internal growth and acquisitions, we would expect to see 7% to 8% growth out of North America and Europe in the coming years and a much more aggressive 20% plus growth out of developing countries. We now have a real nice base of about $100 million in each of the Middle East, Africa, South America, and the Asia-Pacific region, through a combination of just experiencing better growth, which we are in each of those regions, just core growth of double digits on relatively modest bases.

And acquisition activity that's heating up. I would expect to see over the next four or five years our business base in the southern hemisphere grow from about $300 million to about $800 million, so we're pretty excited about what we're seeing both in terms of how our existing businesses are growing and the acquisition opportunities that we're looking at.

In general, the thing in the next couple of years that will really help accelerate our earnings growth, given the fact that 65% of our revenue base is in the United States, is how quickly and when the US economy starts really moving in the right direction.

Okay. I guess I don't need to come to the annual meeting tomorrow. I stole the show.

No, I, I would encourage you to come to the annual meeting. We'll have a good meeting to address some longer-term expectations and also announce whatever decision our Board makes on the dividend.

Okay. I was just kidding on that.

I know last quarter, you had some advertising expense in the retail and the environmental charge. Did that repeat this quarter at all to any extent?

No, I mean, I think we're at normal marketing and ad spending levels. The environmental charge was fourth quarter. We had some restructuring costs.

We had a one-time true-up on an environmental reserve, which is an old superfund site, and that's been resolved, so there were a number, as I referenced earlier, a number of year-end restructuring and/or reserve hits that we don't expect to be repeated in the second half of this year.

Okay.

And on the debt side of things, all your rates, are pretty much all your rates still at a fixed basis? And any chance you'll make any changes there or swap anything out?

We're 90% plus fixed. Our average interest cost is right around 6% and we're hesitant to swap any of that out. We do have $400 million or $500 million of liquidity from a long-term revolver, as well as a receivables securitization program.

Both of those are floating at attractive rates, and so, to the extent that we would utilize debt for acquisition activity, in addition to our cash or cash flow, we would utilize those floating rate facilities so that we would bring that average back down. But, you should expect the interest expense this quarter to be about what you'll see quarter-by- quarter-by-quarter for the rest of the year. The only change to that would be anything related to acquisition activity in excess of our available cash and cash flow.

Okay, and one last one.

Can you provide the status of new product introductions, which I think you were looking to move into Europe, and then also the countertop coating product.

Sure.

There's a number of new product categories that we're looking at in our consumer areas, some countertop coatings which are starting to move into distribution nicely, and some other interesting product categories that will be introduced at the end of the year. You'll see some marketing and ad support for some of those programs as well.

We continue to expand organically in Europe, particularly with our consumer businesses. We've been working very aggressively with Rust-Oleum in particular to break out of their core North American market. And we have gone from a $40 million base of business to a $130 million, $140 million base of business across Europe.

A year ago, we completed an aerosol filling line. It's my understanding it's the first new aerosol capacity in the European marketplace in about 25 years. We just replaced a major competitor in B&Q and Homebase in the UK and we're introducing a number -- and those were under Rust-Oleum brands, not only the Tor or Blackfires brands that we acquired a few years ago. And we're also looking to move some of the Rust-Oleum brands of product lines into some major continental Europe markets as well.

Okay, great. Thank you.

Thank you.

(Operator Instructions)

Your next question comes from the line of Summit Roshan with KeyBanc. Please proceed.

Hey, good morning. Just a quick question on SG&A. I know you had mentioned the benefit from bad debt there. I don't know if I missed it, but can you give me a sense of how we can look at that going forward?

I think that SG&A has trended down and you should expect us to have a moderate improvement in SG&A as a percent of sales, both as a function of keeping costs in good control and leveraging to what we expect to be quarter-by-quarter, a higher revenue base.

Okay. So you're expecting both sequential and year-over-year improvements in that?

Yes, I think you'll see a year-over-year improvement in the second quarter and for the balance of the year as well.

Okay. Appreciate it.

There are no further questions in queue at this time. I would now like to hand the call back over to RPM's Chairman and CEO, Mr. Frank Sullivan, for any closing remarks.

Thank you.

I would like to remind those listening to our call today that RPM will be holding its annual meeting of shareholders tomorrow at 2.00 PM at the Holiday Inn in Strongsville, Ohio. We expect to welcome nearly a thousand RPM shareholders at our annual meeting, where we will review our 2010 fiscal year, our first quarter results, generally address some of our longer-term growth expectations, as well as addressing any Board consideration on the possibility of increasing RPM's dividend for a thirty-seventh consecutive year.

I had the pleasure of participating in our Euclid Chemical's one-hundredth anniversary celebration last evening, which is a great story of an RPM company that went from $8 million to over $200 million since 1984 and is growing globally. And so that's a very exciting event and typical of RPM companies.

Many thanks to our nearly 10,000 RPM employees worldwide for generating continuing growth and success in what remains a very challenging economic environment. And thank you for your participation on our call today and for your investment in RPM. Have a great day.

Thank you for your participation in today's conference. This concludes the presentation.

You may now disconnect your lines. Good day.