WD-40 Co (WDFC) 2003 Q3 法說會逐字稿

Good day and welcome to the WD-40 Company third quarter Company earnings release conference call. At this time I would like to turn the call over to Director of Corporate and Investor Relations, Ms. Maria Mitchell.

Good afternoon. Thank you for joining us for third quarter earnings call for fiscal 2003. Today we are pleased to have Garry Ridge, President & CEO, and Michael Irwin, Executive Vice President & CFO.

This conference call contains forward-looking statement concerning WD-40's outlook for sales, earnings dividends and other financial results. These statements are based on a variety of factors, contingencies, and uncertainties considered relevant by WD-40 Company. Forward-looking Statements involve risks and uncertainties which may cause actual results to differ materially from forward-looking statements, including impacts of line extensions, impacts of promotional program, growth in international markets, the uncertainty of market conditions and Company's outlook for fiscal year. The Company's expectations, beliefs, and projections are expressed in good faith but there can be no assurance that the Company's expectations, believes or projections will be achieved or accomplished. The risks uncertainties are detailed from time to time in reports filed by W40 Company with the SEC. Readers are encouraged under to carefully review these and other documents and research and to stay up to date with most recent Company development provided in the in investor relations section of our website. The Company updates the website on a quarterly basis and readers are advised to review the most recent earnings calls and releases, to stay up to date on the companies performance. At this time I would like to turn the call over to Garry Ridge.

We are pleased to report that the fourth third quarter net income was $5.8m increase of 11.5% over the same three month period last year. Net income for first nine month was $18.5m compared to $16.1m, an increase of 14.1%. We are on track to meet our profit goal for the year, despite a difficult economy and turn turbulent retail environment. We expect this to be another record year in sales and earnings for W-D 40.

We have stayed flexible in uncertain times, and managed our business to achieve the earnings growth we had expected. We are staying with our guidance for the remainder of the year interest we expect annual earnings to range to $1.60 t0 $1.65 per share for fiscal year 2003. I am pleased to pass to Mike Irwin, who will share more details on the quarter.

We will begin with a review of sales and then go on to the rest of the financials. Starting off with sales, total third quarter were $55.1m, up 6.9% over the third quarter last year. Without Spot Shot, acquired May 31st, 2002, company sales for the quarter $46.6m, off (ph) 9.5% compared to same period last year, while sales through nine months $164.8m, up 9% over last year. Without Spot Shot our nine month sales were $144m off 4.6%. Lubricant sales, which include WD-40 and 3-IN-ONE, $32.4m, down 1% from Q3 last year. We had strong growth in Europe offset by a shortfall in the Americas. Lubricant sales for the nine months were $99.5m, up 4% over the same period last year. Hand cleaner sales, which are Lava and Solvol, were $1.6m in the quarter, off 57% from Q3 a year ago. In last year's third quarter we did major promotion with Lava which we didn't do again this year. Through nine months hand cleaner sales were $5.3m, down 31% versus a year ago.

Household products, which includes 2000 Flushes, Carpet Fresh, X-14 and Spot Shot third quarter sales $21.1m, up 39% compared to same quarter last year, while through nine months, household product sales $59.9m, up 26%. Without Spot Shot, household products Q3 sales $12.6m, off 17%, while nine month household product sales without Spot Shot were $39.1m, off 18%. .1 As previously discussed our household products business is primarily U.S. one. We believe weakness in U.S. economy has influenced the purchasing decisions of our customers, resulting in continued pressure to reduced inventories and reduce promotional buying.

Product categories continue to go through cycles of expansion and contraction with the introduction of new products in both related and unrelated categories. We have experienced the impact of this competitive pressure on several household product categories, resulting in reduced self-space allocation for these categories as a whole. In addition, the introduction of new direct competitors in hard surface cleaning category has eroded market share of X-14 brand. In spite of category in competitive pressure, store scan data continue to report market share for other household brands despite lower sales. We are aware of household market and competitive.

We are continuing to pursue ways to get product packaging promotion and distribution in order to address both the opportunities and threats. These are not short term tactics but rather take place over time. America’s Q3 sales were $40.9m, up 5% against last year. Sales of Spot Shot accounted for year on year difference, partially offset by decreased other household products and hand cleaner sales. We also had growth of the 3 in 1 brand, due largely to new specialty aerosol line extensions, which we previously announced. And through nine months, America’s sales $123.7m, up by 7% compared to same period last year. As we talked about the U.S. market before, there are challenges looking ahead, but we are excited about the plans in place for WD-40 Company's 50th Anniversary promotions, which begin later this year. .

Asia Pacific Q3 sales were $3.6m, up 8%. Through nine months, Asia Pacific sales were $10m, up 13%. Year-to-date we have had strong results in Australia and Asia proper compared to last year. Europe third quarter sales $10.6m, up 15% versus a year ago. Germany, Spain, and France all contributed to double-digit growth versus Q3 last year. Nine month Europe sales $31.1m, up 18%, compared to same period last year.

Germany, Italy, Spain, France, and distributor markets all contributed growth versus the past year. In the current year, we achieved a benefit from foreign exchange. In Europe, sales and local currency—that being sterling--were up 6% in Q3, and 6% year-to-date. Gross profit margin in the quarter 50.7% versus 48.5% a year ago. That change is attributable to product mix, and for 9 month gross margin was 51.1% compared to 49.5% through 3 quarters last year. (inaudible) the business with supply leverage and aerosol products we are able to take advantage of efficiency, with a higher proportion of sales in aerosols. An event that occurred this year with the addition of Spot Shot as well as the growth of lubricant business, which is primarily in aerosols. Selling general and administrative expense for the quarter was $13.1m versus $11.7m in the third quarter last year, an increase of 11.3%. Through nine months, SG&A expense increased 10.8%, to $38.6m. We had higher costs insurance legal and professional services. These are driven by market forces beyond our control. While we expect them to continue, however, we consistently pursue ways to minimize costs and increase efficiency in our operation.

Advertising and promotion expense was $4.6m in third quarter versus $4.2m a year ago. The increase attributable to support for household products. For the year A&P expense $12.5m against $10.9m a year earlier increase of 15%. During the quarter A&P expense 8.3% of sales, while year-to-date it was 7.6%. Even with the uncertainties presented by economic environment, we are continuing to invest for health of long-term brands.

We didn't have amortization-expense in the quarter but for the year it's $71,000 compared to $200,000 for last year. As previously discussed, during the second quarter we also incurred a loss of $879,000 of the write-off on a non-compete agreement with a former independent sales agent who passed away.

As a result of the previous items operating income for the quarter was $10.2m, compared to $9m in the third quarter last year. And through nine months, operating income was $32m versus $28.8m last year.

So on to other income and expense. Net interest expense for the quarter $1.7m versus $1.4m in Q3 last year. For the year net income expense $5.1m versus $4m last year. The higher interest costs reflect funds borrowed for the acquisition of Spot Shot. Also, the prior year period included a $1m write-off of unamortized accident issuance cost associated with the early extinguishment of long-term debt when we refinanced loanings.

Net income $5.8m compared to $5.2m, in the same quarter of last year, an increase of 11.5%. On a diluted per share basis, earnings were 35 cents compared to 32 cents last year. After three quarters net income was $18.4m versus $16.1m last year, increase of 14.1%. This equates to earnings per diluted share of $1.10 after nine months compared to $1.01 last year. Again, net income was reduced 3.5 cents per share for the current year to date period due to write-off of non compete agreement in second quarter. You will also notice our weighted average shares outstanding have increased to 16.7m shares at the end of third quarter compared to 16.2m shares a year ago. The rise reflects the shares issued for the acquisition of Spot Shot as well as employee exercises of stock options. Regarding the dividend, on June 24th, the Board of Directors WD-40 Company declared a regular quarterly dividend of 20 cents per share, payable on July 31st 2003, to shareholders of record on July 11th 2003.

A few words about our balance sheet at May 31st, 2003 Cash and cash equivalents $32.3m at the end of the quarter, up from $11.1m at the in beginning of the fiscal year. Accounts receivable declined due to timing in the volume of sales in the respective periods. Inventories grew about $1m since the end of the fiscal 2002 due to increase in sales and transit (ph) to customers. Once again inventories remain low relative to a business of this size. Accounts payable also declined due to the flow of the business. So that is it for the financial update. Thanks very much and I turn it back over to Garry Ridge

Thanks Mike. I have a few areas I would like to comment on. As Mike said we are really excited about our 50th anniversary, and should see benefit from the global promotions we are conducting to celebrate this mile stone in the coming quarters. We are also pleased with the results of the 3-IN-ONE professional line, its introduction into the U.S. and Australia, and have also gained distribution in a major retailer in the U.K. for this new range of products. Additional line extension across the company’s brands are currently under review.

Like many companies and household products, we have phased a number of challenges this year, though our sales are down in the grocery trade channel for household brands, most of these brands have maintained market share throughout the year. It is not our practice to share details on specific brands, but I think it gives indication of how Spot Shot has has been performing with the added investment in marketing. Spot Shot instant carpet stain remover appears to be responding well to our TV and markets investments. Advertising started the first week of January 2003. Nielsen reports that from January through May 31st 2003, dollar sales in the grocery trade channel have increased 21.7% versus the same period last year. During the 22 weeks prior to start of advertising, Spot Shot instant carpet stain remover had a leading 48.6 (ph) dollar of the aerosol carpet stain remover segment share of the rug cleaning categories. Over the 22 weeks ending May 31st 2003 Spot Shot instant carpet stain remover has increased its share of the segment by 7.1 share points to a leading 55.7% dollar share of the aerosol carpet spot stain remover category. Our goal is to continue to increase the household penetration of Spot Shot. We continue to support the brand with TV advertising and trade promotion through the fourth quarter.

Today we announced some changes to our Board of Directors. We have in increased the number of directors to 10 to 12, and added Giles Bateman and Rich Collato to the board of directors as of June 24.

Giles Bateman was one of the four founders of Price Club in 1976, and served as CFO and Director there until 1991. He also served as non-executive Chairman of CompUSA from 1994 to 2000. He currently serves as the director of four private companies and one public company. Giles holds MBA from Harvard University and a BA from Oxford University. Rich Collato is President and CEO of the YMCA of San Diego County. He has served on numerous product company boards and currently serves as a director of Sempra Energy, Project Design Consultants and Micro Vision Optical, and serves as a trustee and vice chair of the $4b YMCA retirement fund. We are very pleased with the extensive retail, financial, and international experience that Giles Bateman will bring to our board. Rich is also a very strong addition to our board, due to his extensive public company experience, his experience as the of audit chair of a Fortune 500 company, and leadership in the community.

Board members Dan Derbes and Jack Heckel announced their intention to retire on from the board, and we expect to keep the board at 10 members following their retirement. Dan Derbes, WD-40 Company board chair since 2002, announced his intention to retire from the board in March 2004. Jack Heckel announced he will retire from the board in December 2003. Both Dan and Jack have been long standing board members who have made a great contribution to WD-40 Company. We also announced that the company intends to appoint current board member Neale Schmale, as Dan Derbes successor as non-executive chairman of the board Neale is the Executive Vice-President and Chief Financial Officer of Sempra Energy. We look forward to benefiting from Neale’s extensive experience and leadership.

I think I mentioned Dan has been board chair since the year 2000. So, if I have made an error there I am sorry. That is an update from my side. We would be happy to answer any questions that you may have.

Thank you. The question and answer session will be conducted electronically. To ask a question press star one on telephone key pad. Again that is star one to ask a question. We remind you if you are using a speaker phone today to make sure your mute function is turned off to allow your signal to reach our equipment. From J.P. Morgan, Jeff Zekauskas.

Hi. Good afternoon.

Hi Jeff.

Maybe the place to start is-- the gross margin was up, I don't know, 200 basis points year-over-year, but sort of down 200 basis points sequentially. Can you talk about why that is the case?

I think as we had described at the end of the second quarter we had said that the second quarter gross margin was something that we thought was fairly unusual. Our product mix is going to flex and this particular time period we had the flex more toward aerosol products. So I think that we see the impact more of mix in both the quarter and the year-to-date basis.

Keep in mind, too, that marketing investment will have an impact on gross margin as well and we see that flowing in and flowing out quarter by quarter. So although right now where we stand in the quarter as well as now in the year-to-date basis, it's primarily a mix thing, in anyone particular quarter we can also see a shift in our gross margin, according to the marketing investments that we make, which you know are reclassified as a reduction in our sales.

Secondly, what is the sales growth or the volume growth for the quarter and for nine months in the lubricants area, excluding currency benefits. And was Europe up in the quarter excluding currency benefits?

Let me get the second one first. Europe was up in local currency by 6% in both the quarter as well as year-to-date basis. With respect to the impact of currency on lubricants on a year year-to-date basis, let me just reference my notes here -- we don't have that number available at this point. So I can't answer that one way or the other.

Can you give us a little more detail about the hard surface cleaner market and what is going on with X-14? And just some description of what is going on in the household products excluding Spot Shot? If you look at X-14, Carpet Fresh, 2000 Flushes, how are those individual product lines faring? Are they all faring the same or is there a variance in the way they are faring?

There is a variance in the way they are faring. X-14 liquid, hard surface cleaners are the area that are facing the most significant challenge. X-14 really established itself years ago as a mildew stain remover, and really is an outstanding performer as a mildew stain remover.

In recent years it had been extended from just a mildew stain remover, to a line that included a soap scum remover for the bathroom as well as daily shower cleaner. So it is those three products—mildew stain, shower and soap scum remover.

In recent time periods we have seen the introduction of directly competitive products in the mildew stain remover segment, namely, from Lysol, and and Scrubby Bubbles. Those two brands were pretty well-known to consumers prior to their being extended into mildew stain removers. So what X-14 is facing now is not just competition from Tilex, which is part of Clorox, but also Lysol, which is part of (inaudible) and Scrubby Bubbles which I think is part of FC Johnson.

So those two new additions to the category have suddenly made what was a thinner category fairly crowded with big brands. The X-14 though, however, remains as a very strong performing product. And our opportunity there is to identify where it can really distinguish itself from the standpoint of product packaging, promotion as well as distribution. And we are currently working on that. As we do with all of the rest of our products, we believe and understand that the household products category is not a stagnant one. Success and failure kind of rides on relevance of the brands that are in there as well as continued innovation, and that is why we have the business structure and people that are involved in innovation on a day-to-day basis.

With respect to the other products, aside from X-14 as we said, they have had stable market share throughout the years. So the rest of them don't face the directly competitive threat that committee X-14 does, but they certainly face the dynamics of the categories which have been shifting around as the entry of new but unrelated, as well as new related products, have changed shelf space allocation.

A last question before I get back in the queue. In terms of relative size how do you raining X 14RBGS Carpet Fresh and 2000 Flushes?

To this point we haven't broken out sales by be brand

I don't want to you break them out. Just give me the raining order.

In that case I believe that X-14 would be the smallest of the bunch.

Okay. Thanks very much.

Thanks Jeff.

Next question from Larry Tujons (ph) Provident Investment Counsel.

Yes, I was curious to the strategy being used in eliminating the promotional activity at least in Lava. If I remember, I was going through my notes a quarter or two ago, and if I remember correctly, there was another elimination of promotional strategy piece. I apologize, I don't have the brand, but how does that tie into the competitive environment today where you were saying earlier that retailers are reducing inventory and promotional buying expense? What should we expect in the next three or four quarters?

Let me address the Lava question. The Lava question is very specific. A year ago, we did a promotion with a large hardware big box retailer and that promotion was basically we bundled Lava and WD-40 together and it was kind of like by a bottle of Lava get a can of WD-40 free. The strategy, the purpose of that promotion, was to get store chain-wide distribution of the liquid. So it was a one time event that got us that distribution. So that is why the Lava number. looks funky.. We didn't do that promotion with that customer again this year because we rightly don't need to. We got the distribution of the liquid. As far as other promotional activities are concerned we do change the way we deliver our promotions over the year but bundled altogether at the end of the year our activity is reasonably comparative, as far as promotional activity year-on-year.

Garry, the second question that I wanted to ask you, with the recent change in tax law, has it driven you to rethink your dividend policy? And I guess the other side of that is maybe you can update us. You still have a lot of debt on the books. Anything going on that we should be thinking about for the acquisition strategy (inaudible)?.

Let me go back to the dividend. I stated dividend goal was to get our dividend down to 50% of earnings. We have done that. It's now down to 80 cents, and we are saying we think this year is going to be $1.60. Our yield is still, I believe, very attractive in the marketplace against other companies. And we look at the dividend on a quarter to quarter basis and make decisions based on our excess cash and how we can best invest that.

We have a high class problem right now. We are generating cash and that is a nice thing. And certainly we are very comfortable that as we start to pay down debt and, Mike, I believe the first part of the pay down is 2004, correct?

Uh-huh.

We have a structure to do that and on the acquisition side we look at things on a weekly basis. We stated earlier this year that acquisition wasn't our No. 1 priority. The priority really was to extract revenues out of the assets we have since acquired. And we are doing that with line extensions with things like 3-IN-ONE, with the development of Spot Shot, with the improvements that we are doing in our areas.

So, if there was something out there and we believed it was absolute value to shareholder and we could role it into the business and it made sense we would certainly look at it. But until then, we believe it's if ma nice to have some cash right now in certain times and puts is well to meet our debt obligations

The goal of 50% dividend of earnings per share, does that imply over the next 12 months that the dividend would grow as a function of earnings per share growth

No you should not make that assumption

What does that mean then?

It means when our dividend was 98%. I told the market our goal was to get it down to 50%

Right and you are there now.

Looks like we are getting close to that

What does that statement mean then as we move into next 18 months?

It means we have to rethink our next statement

Thank you.

Moving on to Ruth Ann Williams, RedChip Companies.

Hi good afternoon. I would like to better understand the causes in the weakness of the lubricants right now in the U.S. I understand U.S. economy is not strong and consumer confidence has not been good but it is not obvious to me that that should translate in households cutting back on amount of lubricant they could buy. That seems to me that people are cutting back on going out to dinner. Could you and late on that a little bit?

The beauty of our business is that there is still some inherent consumption that is going to take place of a product like WD-40 regardless of economic climate. Another effect in our business isn’t purely the economic state but it also has to do with the phasing of promotions and when we do things, when customers want to do things. We don't have the exact same thing happening every single year under the exact same timing. For that reason we see some effect of phasing over time about what is going on. So we don't run you are business on a quarter to quarter basis and we urge you not to look at it strictly on a quarter to quarter basis as well

Okay. But I am still not quite sure that I understand why lubricants are having a little bit of uphill battle at the moment.

It doesn't because on a year to year basis the lubricant business is up. So it's just on the quarter that it is down. That kind of speaks to the point I was trying to make, which is we don't have exact same things happening every single quarter and every single year. So one particular quarter to us doesn't necessarily represent a long-term trend

Lubricant sales for nine months are up 4% over the same period last year.

Okay.

Again, as Mike was saying, we do, do promotions. Activities of our 50th birthday. So you are going to see some new looking cans of WD-40 in the market, as are already out there with 50th anniversary cans.

Okay and second of all, this is a little bit off the wall but have you seen any impact at all yet from the new competition introduced by Dupont.

That is not a competitor to WD-40.

One moment. Ms. Williams please go ahead.

Because it's at such a different price point or --

Absolutely. Dupont’s price ability is because it's a lubricant. WD-40 is not a lubricant. It's a cleaner it's a lubricant, it is a rust preventative, it is a moisture remover. The consumer, I do not believe, will pay twice the price to stop a squeak because it has the Dupont name on it. Our product delivers above expectations performance at extremely good value. We have a room in San Diego that we call the mortuary, that has many products in it, that have come out and said to a consumer, ‘we want to make you pay twice as much as you do now to stop a squeak.’ And the consumer says, why should I do that. In fact, there are 3 old Dupont products in that room. Without being Arrogant, and I don't need to be, that whole issue was overblown. We know the business, we know the lubricant business and we know the consumer. We needn't be complacent place sent and we never will be. But WD-40 has a vice grip on mind (ph) share. And the only way we can lose that is if we let our consumer down. And we don’t do that.

Okay thank you very much.

As a reminder to ask a question it is star one on your telephone key pad. We take a follow-up question from Jeff Zekauskas.

Can you remind me when Spot Shot was acquired exactly?

The acquisition closed on May 31st, 2002. So impact on our which business from revenue standpoint affected us fourth quarter of last year for the first time.

So this one month of Spot Shot in last year's fourth quarter?

No, it closed at the end of the day May 31st. So, it had no revenue impact.

Oh, I'm sorry, no revenue impact. So we have clean comparisons in the fourth quarter.

Yes.

In general when you look over the household products results, you know, for the year and also the hand cleaner results, you know, plainly it's not what you had hoped. Does this mean that what you will do is reassess your product line or will you try new strategies? In the year ahead, you know sort of what is your outlook for the hand cleaners and households products

One of the benefits of WD-40 is we have healthy outlook with status quo. The household business is dynamic business. New products come in. New products come out. As I said before we are looking at line extensions across all our brands. We are looking at how can we change X-14. So I think that is really what we see as being a good business. You know it's different from the WD-40 business. It kind of chugs along.

We will be in the household product business, in the lubricant business in the hand cleaner business. All of the brands that we have are under scrutiny for ways to increase the revenues from them, either with new or new and improved products. So it's just a different game that we are playing today. We put out there on our plan on one page what we think, what we thought, we would be at in 2004 and at the moment we are steaming toward that. And in the fourth quarter we will give indication of what next year looks like. I’ll tell you next year will be a goal of record sales and earnings just like this year was a goal of record sales and earnings. So aware are we are happy with that

Can you talk a little about shelf space issue and how exactly that played out for WD-40? Sort of, what your expectations were and which channels did you get crimped a little bit?

You mean with the household brands?

Yeah.

It's really the grocery trade channel, Jeff. The grocery trade channel particularly in the cleaning aisle has become a very, very hot piece of real estate.

Retail and grocery churn a lot of products. When you have products like Swifter and Mop IT, and whatever come in that take up a big footprint, and when you have categories that have entrance of two or three products in a period of time, there is a shake out. And these products get on the shelf because manufacturers come in and pay slotting allowances and the retailers accept those slotting allowances. The product goes on the shelf and may the best man win.

This happened absolutely in the automatic toilet bowl cleaning category a couple of years ago when we had influx of toilet bowl cleaners. We were in there with 2000 Flushes. We maintained market share and maintained distribution and they killed off the weakest ones in the pack. And now that shelf space is coming back into line again. So, this is not going to be unique, it is something that is going to happen to us all the time. And our challenge needs to be that we are at the cutting edge of technology, of value to our consumers, and of development. And that is why we have Team Tomorrow in this company, which is something that we set up just last September. And everyday that they get up they are concerned is how do we generate better products with new benefits to the consumer that can help us get back that shelf space.

I guess that is as a last question can you remind me which products you actually manufacture now and sort of what your longer term manufacturing plans are?

We don't manufacture anything. We manufacture the secret source for WD 406789 everything is household manufacture

There is no canning capability at all that you have?

We do because we out source it.

Right that is the only out source because I thought in one of the acquisitions that there were some physical assets that you had. Did you divest those?

No, we have a 30% interest in VML which is an operation up in Memphis that manufactures some of our household products.

So, you have 30% passive interest. And they manufacture a majority of your products or what percent?

Garry Ridge They manufacture 2000 Flushes and lick liquids really. The other stuff is aerosol.

From Sidhoti & Company. Mimi Sokolowski (ph)

A couple of points of clarification. I want to make sure that the Spot Shot contribution was about $8.5m.

For sales in the quarter, yes

Also, Garry, you were talking a distribution agreement with a major retailer I missed what products that was?

Garry Ridge 3-IN-ONE professional in the UK.

Lubricant sales were more or less flat year-over-year. Can you go over geographic regions or particular be channels where you saw strength and weaknesses?

Garry Ridge Lubricant sales were actually up 4%. Is it year on year Mike?

Yeah

Okay my mistake. What was the revenue for this quarter?

The lubricant business had revenue in this quarter of $32.4m.

And last year was?

Garry Ridge Down 1% over all down. So for the quarter it was 1% down. Year-to-date it's 4% up

I was just speaking about the quarter. All right. I had the right numbers. Now were there particular geographic regions where you saw strength or trade channels?

We had growth in Europe and in Asia. And basically it was the Americas or the U.S. business that was off a little. And that's really timing issues as far as our promotional program. We are about to enter into the fourth quarter is a high promotional period because of 50th anniversary. We are confident we are going to have a good year with lubricant products

Turning to the hands cleaners I know you had a previous expectation on a dollar amount of how much sales would be off for the full year. It looks like that may or may not change a little bit. Do you have a forecast for the full year for hand cleaners?

No, we don't. But you are right we did expect that hand cleaners would be down this year.

Okay. Okay. Do you have any guidance to provide for 2004?

Not yet. We will do that in the next quarter

All right. I think I am tapped out. Thank you very much.

Next question from Dan Robertson.

Hi Guys. I was right at $8.5m for Spot Shot?

Yes, for Q3.

Was I correct in hearing that you think you have 50% of the aerosol carpet stain remover.

What I was quoting was Nielsen numbers. Over the 22 weeks ended May 31st the spot shot instant stain remover increased of the segment by 7.1 share points to 55.7% of the dollar share of the aerosol carpet stain remover segment. These are Nielsen numbers so they only measure grocery basically and do not include Wal-Mart. So it's a snapshot of a snapshot. But Nielsen is a number that is respected and good leading indicator for us.

I guess when you think about the market potential in that product, I mean do you think about it in terms of the aerosol carpet stain remover? Or do you think about it in larger terms? Do you have any numbers that you could talk about as far as what you see there?

When we acquired Spot Shot, 8% of households owned a can of Spot Shot. Spot Shot sales were about $30m. Our goal is to increase our in-house penetration. And very 1% of in-house penetration equates to $4m in sales. We refer to it as aerosol, but obviously any spot stain remover is a competitor and in all cases we perform better than the pump spray or liquid spray carpet stain removers

Okay great. That is helpful. Not to put you on the spot Garry, but is it correct that you sold recently?

Sold shares?

Yeah.

Yeah I did

I noticed there was exercising options.

Yeah I am buying a house. I need somewhere to sleep though. I sold WD-40 shares because I only owned WD-40 shares. It's the only stock I own. And I have nowhere else to go. So as much as I didn't want to, for personal reasons I needed to buy a house and that is the only place I could go. So every other penny I've got is in this business, believe me.

I have one more question for you. And thank you for being candid. On the A&P spend, especially sort of post EITF (ph). Previously for a small cap company in household products, it would have been something like 15% to 20% and post EITF you are looking like 15% for small caps. You all looks like are running over five managers or EA spend. Would you say mid-teens number is appropriate as far as what you are looking for in household products going forward?

Let me just clarify that a little bit. Year-to-date the A&P expense that shows up on income statement is 7.6% of sales.

Yes.

As you know that doesn't include the marketing investment that we make with customers which is reclassified. But it's not customer investments that is reclassified. It's things like coupon as well. Where we might look different from another small cap consumer products Company, of which will there are few, is that we also have a fair amount of our business in the lubricants with WD-40 and 3-IN-ONE which don’t require the same magnitude of investment that household products do.

So, if we were only household products our number might be a little different versus same. Conversely, in theory, merely lubricant our numbers might look a little different as well. So it's that blend that make the numbers difficult to assess.

Would you say that on household products mid-teens number is not inappropriate?

Yes and one way to look at it is on our website is EITF numbers when with we reclassified. You can get an reasonable assessment of where we were at the time.

Thanks a lot Mike.

Thank you you are welcome.

Our next questions is from Liam Burke, Ferris, Baker, Watts, Inc.

Hey Liam.

I just want to beat the advertising and promotion question to death here.. As you were talking you talked about, hello?

Yeah go ahead.

… X-14, 50th anniversary promotion and Spot Shot seemed to have the big marketing dollars behind it. Are there any other project or other things with dollars going forward?

We mentioned X-14 as an opportunity for us. What we try to do is try to put our marketing investment in the places where it's going to have the most impact.

Right.

As we said at the front end of this year we reinvest of course in Spot Shot, which we have done, and we have mixed things around a bit to try to make the most of what we have. So we consistently support our brands in ways that we think are appropriate at the time and we do that on a fairly opportunistic basis.

We are not robbing Peter to pay Paul

Right. You are looking at a limited amount of dollars. You can't promote everything every single quarter.

Right.

So, you have to let stuff continue to move along. Circling back to the hand cleaner Lava brand, is there anything you see in sort of re-energizing that brand?

We are not happy with how we have been working with Lava but as a product Spot Shot came along. Lava is still a profitable product in our Company and we are looking at ways of taking that equity and doing things with it.

Good thank you.

To ask a question star one on key pad. Follow-up question from Mimi Sokolowski..

I know you guys gave Nielsen comparisons for 12 week increments, that corresponds with commercials that are running?

Actually 22 weeks.

Okay 22. What was that figure year-over-year?

Let me go back to it. Hang on.

Sure, sorry.

Advertising started the first week of January 2003. Nielsen reports that January to May 31st 2,003-dollar sales in the grocery trade channel had increased 21.7% versus the same period a year ago.

During the two two-week period to the start of the advertising Spot Shot had a leading 48.6% dollar share of the aerosol spot carpet cleaner of the category. Of the weeks ending five, 31, which was the following 22 weeks that we have been marketing advertising our share increased by 7.1 share points and now is a leading 55.7% of the dollar share of the air aerosol spot stain remover segment. Again, remember, this Nielsen number is a indicator, a snapshot of the grocery trade channel.

And excludes Wal-Mart as you said before.

Yes.

Is there seasonality associated with household products or Spot Shot specifically. Is there any one quarter where the sales are more heavily weighted

Michael Irwin There would be seasonality in the business which is partially driven bite promotions driven by customers. It is not uncommon for grocery stores to run spring cleaning type promotions. So seasonality is influenced by that kind of promotion. Certainly people continue to clean their houses throughout the year but the spring I am if a sis on promotion and spring summer, early fall would be traditional time frames in which promotions would occur with customers.

We also don’t mix that well with Barbie dolls and barbecue sets .. In the Christmas period, the shelves was are full of those items, knick knacks and whatever.

On the Spot Shot numbers as you know it hasn't been our practice to share those and I don't want everyone to think that that is going to become a norm. I want to do give people an indication as we go forward.

Once the Spot Shot acquisition anniversaries…

July 31st

So no longer can we expect that Spot Shot will be broken out?

uh-huh.

Okay.

Thanks Mimi.

No further questions at this time. I turn the questions back over to Mr. Ridge for additional or closing comments.

Thank you very much. I wish you pleasant rest of the day and we will see you here at 90 days from now. Please go buy some Spot Shot and tell your friends. It's a good product. That concludes today's third quarter 2003 earnings conference call. We thank you for joining us.--- 0