WD-40 Co (WDFC) 2003 Q1 法說會逐字稿

Good day and welcome to this WD-40 company first quarter 2003 earnings release conference call.

Today’s call is being recorded.

At this time, I would like to turn the call over to the Director of Corporate and Investor Relations for WD40, Ms. Maria Mitchell.

Please go ahead.

Thank you for joining us for our first quarter 2003 earnings call.

Today we are pleased to have Garry Ridge, President and CEO and Michael Irwin, Executive Vice President and CFO.

This conference call contains forward-looking statements concerning WD40 Company’s outlook for sales, earnings, dividends and other financial results.

These statements are based on an assessment of a variety of factors, contingencies and uncertainties considered relevant by WD40 Company.

Forward-looking statements involve risks and uncertainties which may cause actual results to differ materially from forward-looking statements, including sales of specific brands, timing of advertising expenditures, impact of line extensions, competition and the company’s outlook for the fiscal year.

The company’s expectations, beliefs and projections are expressed in good faith and believed by the company to have a reasonable basis but there can be no assurance that the company’s expectations, beliefs or projections will be achieved or accomplished.

The risks and uncertainties are detailed from time to time in reports filed by WD40 Company with the SEC, including forms 8K, 10Q, 10K and readers are urged to carefully review these and other documents in research.

At this time, I would like to turn the call over to Garry Ridge.

Thank you, Maria.

Good day and thanks for joining us today.

I hope that you had a chance to listen to our webcast annual shareholder meeting yesterday.

I remind you that our website is a great source of up to date company information and the investor relations section contains the latest presentations on the company.

If you didn’t have the chance to listen, the replay is available on the website.

We are pleased with our results in this first quarter and we remain confident that we will meet our expectations for the year.

We're on track with all of our major priorities, and they include growing WD40 internationally, expanding the distribution of in-house penetration of spot shot, launching new products and of course, the development of our carpet fresh brands along with our other brands.

Mike Irwin will now review the results for the first quarter.

Thanks, Garry.

Starting off with the top line with sales, total first quarter sales were $51.4 million, up 6% over the first quarter last year.

Liberty sales including WD40 and three in one in the first quarter were $29.4 million, 1% behind Q1 last year.

Pan cleaner sales were $2.3 million in the quarter, down 3% from Q1 last year.

Helpful products, which includes 2000 Flushes, Carpet Fresh, X-14 and Spot Shot sales were $19.6 million versus $16.4 million a year ago.

Without Spot Shot, household products sales were down by 19% compared to the first quarter last year.

Over all, our quarter sales matched up pretty well with the expectation previously given.

You may remember that we had said sales would grow by 15% on the year and that 21% of total sales would occur in the first quarter.

Here is the math.

We had sales of $216 million last year, multiply that times 115%, multiply that times 21% and that gets you to around $52 million in sales.

Moving on to the business segments, America's Q1 sales were $40 million, up 7% against last year, due to the impact of Spot Shot.

Asia Pacific Q1 sales were $3 million, up 8% as a result of pickup in the Asian market.

Europe’s first quarter sales were $8.3 million up 2% versus a year ago.

We have had good results in France, Italy, Spain, and the distributor markets.

Gross profit margin in the quarter was 49.4% versus 50.4% in Q1 last year.

Product costs and mix had 0.2% decrease in margin and the remaining difference is the result of discounts as well as marketing and promotional expenses now reported as a reduction in sales, things like coupons, co-op advertising and consideration given to retailers for favorable display and shelf space.

We expect the impact of those marketing tactics to fluctuate from quarter to quarter.

Selling general administrative expense for the quarter was $12.9 million versus $11.4 million in the first quarter last year.

We include outbound freight as part of the SG&A, which increased in relation to slightly higher sales.

G&A was up $1.1 million due to higher insurance costs, legal fees, R&D activities and head count costs.

Corporate insurance costs are risen as a result of Enron and September 11, legal fees are influenced by those factors as well as having more brands in the family on which we need legal work.

R&D activities have picked up as an outcome to develop new products.

Overall employees costs have risen due to insurance and benefit costs, as well as the addition of staff to handle Spot Shot.

Advertising and sales promotion expense was $4.3 million in the first quarter, versus $4.1 million a year ago.

As a percent of sales, A and P was less than it was projected to be an annual basis.

A and P expense will fluctuate quarter to quarter based on the timing of advertising and promotional campaigns, some of which are executed on an opportunistic basis.

Nonetheless, we expect that A and P for the year will fall in the range of 9 and 10% sales.

How that looks going forward, as we expect A and P costs to represent about 22% of its annual total during Q3, about 26% of its annual total falling in Q3 and about 33% of its annual total falling in Q4.

Earnings before interest, taxes, depreciation and amortization declined by 6.6% from the prior year first quarter to $8.5 million.

Amortization expense was $71,000 on the quarter.

As a result of the previous items, operating income for the quarter was $8.1 million compared to $8.8 million in the same quarter last year.

Net interest expense for the quarter was $1.7 million versus $1.3 million in Q1 last year.

The higher interest costs reflect fund forwards for the Spot Shot acquisition.

Net income in Q1 was $4 million compared to $4.4 million in the same quarter last year.

On a diluted per share basis, quarter earnings were 26 cents compared to 28 cents last year.

At the end of Q1, our (inaudible) including dilutions increased to 16.7 million shares versus 15.7 million shares last year.

The increase stems from shares that were issued to finance the Spot Shot acquisition as well as employee exercises of stock options.

Regarding dividends, on December17th, the Board of Directors for WD40 declared a regular quarterly dividend of 40 cents per share payable on January 31, 2003 to shareholders of record on January 8th, 2003.

A few words about our balance sheet at November 30th, 2002.

Cash to cash equivalents were $22.4 million at the end of the quarter, Up from $11.1 million at the beginning of the fiscal year.

The increase in cash stems from receivables, collections and employee exercises of stock options.

The cash rise in the quarter while representative of the cash generation of the business is larger than would be expected in typical quarters going forward, due to variations in the flow of receivables which reflect our business and stock options exercises.

Accounts receivable decreased to $30.8 million due to the phasing of sales quarter to quarter.

We had expected Q2 to see a buildup in receivables due to the promotional phasing.

Inventories were $5.1 million, down $1.1 million as a result of sales of company inventory of (inaudible).

Once again, inventories remain low relative to a business of this size.

In looking at our debt position, we have $95 million outstanding on two fixed rate term notes.

Total debt has declined by $7 million since May 31, 2002.

As described in our 10K filing, our debt repayment schedule is as follows; $10 million is due on May 31, 2004 with another $10 million due on May 31, 2005. $10.7 million is due on October 18th, 2005, and for a six-year period after that.

Clearly, our priority and use of cash in the years ahead will be to pay down debt according to the payment scheduled.

We believe it is pertinent to carry some cash balance, particularly in the challenging economic and political times.

Excess cash aside from debt payments to be used for dividends as determined quarterly by the Board of Directors for general corporate purposes and in ways that we believe will create shareholder value.

As reported, there have been some stock transactions by officers in the past quarter.

We take a long term view of that and we encourage all of our employees to be owners in this business.

It's good to see that executive officers as a group have increased their direct holdings of company stock by 77% in the past year.

Finally, we would like to comment about regulatory compliance.

We have always taken seriously the responsibility for accurate financial reporting and we continue to be committed to that obligation, regardless of the regulatory climate.

After all, at the end of the day, the softest pillow is a clear conscious.

That's a financial update.

Thanks.

I will turn it back over to Gary Ridge.

Thanks Mike.

A couple of things we're proud about-- the company recently received high corporate governance ratings from the Institutional Shareholder Services, an organization that evaluates corporate leadership for institutional investors.

WD40's company percentile ratings were 97.3 on a scale of 1 to 100 in its market index and a hundred in its industry group.

One of only three companies in the San Diego area, public companies to receive 100% rating in the industry group.

The ratings are important, since many investors use ISS ratings to evaluate companies.

We have been -- as Mike said, we have been practicing good corporate governance long before (inaudible) and are pleased to know this is recognized.

As part of our governance program, we have retirement guidelines for our directors.

And a number of our current board members are approaching retirement.

Our chairman is one of those and it is anticipated Dan Derbes will retire in the next 12 to 80 months.

We're currently searching for qualified board members, as part of our board succession planning.

Another thing we're proud of, in the October 28th issue of "Forbes" magazine, WD40 was listed number 31 in the best 200 small companies list.

Updating our annual guidance, it has not been our practice in the past to give earnings guidance.

We are now doing that but only on a full year basis.

Again I want to warn you, we do not run this business on a quarter to quarter basis and therefore, we believe quarterly guidance has a negative impact on our long term strategy.

The guidance I am giving is based on our expected full years results.

I’ll update that guidance on a quarterly basis during our regular conference call.

The update will be for the full year.

This guidance is based on revenues and reporting using the adopted EITF0109.

Our guidance and our target remains unchanged for fiscal year 2003 as between $1.65 and $1.70 a share.

We expect our EBITDA in 2003 to be between $50 and $55 million.

We have shared in our annual strategy, that one of our goals this year is to grow our business within our brands.

I am pleased to share with you the great news about 3 in 1 brand.

We will be introducing the new 3 in 1 line which is called "professional". 3 in 1 line products will include a silicone, a grease and a penetrant and we expect to begin shipping in February.

The new products may generate as much as $4 million in sales in the first year.

Additional line extensions are currently under investigation.

Another thing we're very excited about is we're about to enter our 50th year.

WD40 as a brand turns 50 on September 23, 2003.

We have exciting plans, great events planned, and no doubt, the birthday of this great brand will generate a lot of interest.

We continue to be very excited about the opportunity Spot Shot shows us.

We are laser focused on increasing the in-house penetration of the brand.

When we acquired the brand, only 8 of 100 households in the U.S. had Spot Shot.

Every point increase in penetration brings about $4 million worth of revenue.

Thanks for joining us today and we wish you a safe and happy holiday period and a very Merry Christmas.

We would be happy to answer any questions.

Today's answer and question session will be conducted electronically.

If you would like to ask a question, please signal us by pressing the star key followed by the digit 1 on your touchtone telephone.

If you're using a speaker phone, please release your mute function so your signal will reach our equipment.

Once again, that's star 1 to ask a question.

We pause for a moment to assemble the roster.

Our first question is from Patrick Winton with Seidler Companies.

Hi guys, good quarter.

Can you talk about under the household products segment, excluding Spot Shot and how those sales were down for Carpet Fresh, X14 and 2000 flushes?

Can you give some information on that?.

Yes.

I think we in said earlier in our expectations that we had a certain expectation for sales in the quarter, which we kind of shared up front.

So we expect some phasing in the way our sales are going to run based on promotional impacts and a lot of other factors.

And can you talk a little bit about where we’re at on the TV advertising campaign.

The TV program for Spot Shot was to run in October.

For a various number of reasons, it didn't run.

We then delayed it.

It will now start in January.

December is not a good time because TV is pretty expensive and people are out there paying top dollar for gift product advertising.

So we will commence our TV in January.

And I think, Patrick, you may have seen the commercial.

You were at the meeting yesterday.

Sure did, looking forward to seeing it on TV.

Me too.

Thanks, guys.

As a reminder, if you have a question today, signal us by pressing star 1 on your touchtone telephone.

We do is a follow up from Patrick Winton.

Just one quick follow up.

On the Carpet Fresh line extension, the no vacuum auto freshener, can you talk about that, how sales are going there?

The selling really commenced only about six weeks ago.

And we are getting a new distribution on it day by day.

Again, the period of time that we have right now, the retailer is preoccupied with the Christmas season.

We expect to gain the most benefits from that in the second quarter after the barbecue sets and Barbie dolls are sold off the shelves and we get moved in.

But so far, we have had encouraging signals and the distribution is moving forward.

We should get some measures on that in the second quarter in the ACV figures, as far as Neilson is concerned.

So I think we're on track.

I think that the main point is, we are very comfortable with where we are at the end of the first quarter.

We certainly predicted the sales results fairly accurately that we had in our guidance.

And really this business is one that is affected by promotion and phasing and we we're -- we're sitting where we thought we would be.

Business out there is not easy but thank goodness we have great brands, so we're pretty comfortable.

Thank you.

Again, it's star 1 if you would like to ask a question today.

Our next question will come from William Pike with Pine Street Securities.

Hi, I'm new on this company.

And in looking at the first quarter comparison, I recollect there were some nonrecurring items in the first quarter a year ago.

Could you remind me what they were?.

Yeah.

Thanks for the question.

The thing I think you're referring to is we had refinanced our debt in Q1 of last year, so we wrote off the loan fees during that period.

And, you know, at this point, they now, with fall going forward, as we reclassify that as another expense item.

That's coming back to me now.

Thank you.

Again, if would you like to ask a question today, please signal us by pressing star 1 on your touch tone telephone.

There appear to be no further questions at this time.

I'll turn it back over to you for any additional or concluding remarks.

Thank you very much.

Again, we hope you have a really safe time over the holidays and look forward to talking to you in about 90 days from now.

And, again, thanks for your interest in our company, and let's go back to work.

Bye, now.

That does conclude today's teleconference.

We thank you for your participation and have a great day.