WD-40 Co (WDFC) 2008 Q4 法說會逐字稿

Good day, and welcome to the WD-40 Company fourth quarter 2008 earnings release conference call.

Today's call is being recorded.

At this time, I would like to turn the call over to Vice President of Corporate Investor Relations for WD-40 Company, Ms.

Maria Mitchell.

Please go ahead.

Good afternoon, and thank you for joining us for our fourth quarter earnings call for fiscal 2008.

Today we are pleased to have Garry Ridge, President and CEO and Jay Rembolt, Vice President and Chief Financial Officer.

This conference call contains forward-looking statements concerning WD-40 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 WD-40 Company.

forward-looking statements involve risks and uncertainties which may cause actual results to differ materially from forward-looking statements including the impact of cost of goods, the impact of new products innovation and renovation, the timing of advertising and sales promotion activities, and the uncertainty in economic conditions both in the United States and Internationally.

The Company's expectations, belief's 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 WD-40 Company with the SEC, including Forms 8-K, 10-Q and 10-K.

And readers are urged to carefully review theses and other documents and to stay up-to-date with our most recent company developments provided in the investor relations section of our website at WD-40 Company.com.

Our first quarter fiscal 2008 earnings conference call is scheduled to take place on Wednesday, January 7, 2009 at 2:00 p.m.

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

Thank you, Maria.

Good day and thanks for joining us for today's conference call.

This afternoon, we reported net sales of $76.9 million for the fourth quarter of fiscal 2008, a decrease of 3% versus the fourth quarter of last year.

Total fiscal 2008 net sales were $317.1 million, an increase of 3% over fiscal 2007.

Net income for the fourth quarter was $4.7 million, down 50% compared to the fourth quarter last year.

Fiscal 2008 net income was $27.6 million down 12% versus fiscal 2007.

Earnings per share for the fourth quarter were $0.28 per share compared to $0.54 per share for the same period last year.

Fiscal 2008 earnings per share were $1.64 down from $1.83.

These results are below the guidance we provided last quarter and there are many reasons for that.

Before Jay covers the sales and financials in more detail, I would like to highlight some of the challenges and wins of this year.

Fiscal 2008 can certainly be characterized as the best of times and worst of times for WD-40.

We experienced the best of times with increased international growth from our WD-40 3-IN-ONE brands, executing on it's strategy established back in 1998 of diversification and growth by brands, borders and trade channels.

We face the worst of times with continued rising costs of components and raw materials.

Sale challenges with our household cleaning brands and deteriorating economic conditions in the US and in some other parts of the world.

Our people worked hard to meet the growing challenges of these dynamic and economic times and we refined our diversification strategy to meet the realities of today's market and into the future.

Rising costs of components and raw materials is nothing new; however, the volatility in sharp increases we experienced this year, particularly in the fourth quarter were unexpected and unprecedented.

We started the year with crude oil at around $83 a barrel, oil prices peaked at $141 or above in July and finished the fiscal year at about $115.

As you know, oil prices have an effect on our oil-based products, specialty components and the cost of diesel fuel we used to transport our goods to our customers.

Steel prices also increased dramatically with a strong demand in China, India, Russia and the emerging markets.

WD-40 cans are manufactured from tin plate, which increased 20% over the last two years.

We have continuously monitored the markets and prepared our teams to respond and adjust to the shifts during these uncertain economic times.

While we were able to implement cost containment and margin enhancement strategy, we cannot shield the Company completely from the volatility and commodity pricing this past year, particularly in the fourth quarter.

We have experienced margin erosion as a result.

We also experienced higher SG&A expenses, which increased 7% during the fiscal year compared to 2008 prior fiscal year.

Our freight was up; however, it is important to note that freight cost could have been much higher if the Company had not implemented and integrated freight management solution.

Changes in foreign currency also continued towards higher--- contributed toward higher SG&A costs.

We hired staff to support our growing international operations, our legal expenses went up due to increased activity in litigation, case load, and increased intellectual property protection.

Also, impacting Q4 results was an impairment cost of $1.3 million or $0.05 per share of an after-tax basis related to the indefinite lift intangible asset of the X-14 brand.

The impairment charge, a non-cash charge was triggered by a decline in future forecast sale levels of the X-14 brand due to managements strategic decision to withdrawal a number of products from the grocery trade channel.

That decision resulted from the Company's new diversification strategy developed during the year--- of the fiscal year of 2008.

This is the first step in transitioning the brand from its high dependence on the grocery trade channel.

In light of these events it could be seen to be the worst of times; however, we do have wins to celebrate, particularly our growth in the international markets.

As we commemorated our 55th birthday for the first time in WD-40's Company history over half or 53% in fact of the Company's total revenues were generated outside the United States.

International product sales of WD-40 alone grew from 57% in fiscal 2007 to 62% in 2008.

Jay will cover the regional and product sales in more detail, but I would like to highlight that we experienced 15% growth in fiscal-- in Europe in fiscal 2008 due to the new Smart Straw technology, expansion in developing markets and the growth of the 3-IN-ONE professional range of products.

China sales increased 66% in fiscal 2008 compared to the prior fiscal year.

Our international markets experienced growth this year and helped offset the weakness in the United States.

Another win for us this year was the US conversion of our traditional WD-40 product to our new Smart Straw technology.

A successful innovation that has a dual spray and permanent straw attached.

This new technology has allowed us to enhance our margins and our customers margins while resolving the number one consumer complaint, losing the straw.

We would like to think our customers will never lose that straw again.

Following the conversion in April, the market demand for the product out paced supply and we worked hard to insure adequate stock.

While still in early stages, we believe the technologies meeting the consumer needs and the future certainly looks promising.

We also launched several new products this year.

In the US, we were the first to launch a nontoxic and bio degradable carpet stain remover called, "Spot Shot Pet Clean".

We also launched a product called 3-IN-ONE No-Rust Shield, a product that prevents rust and corrosion when placed in small enclosed areas to protect tools and valuable's against rust.

We also launched 3-IN-ONE Professional Garage Door Lube incorporated the WD-40 Smart Straw technology.

We launched the 3-IN-ONE Professional range of products in Germany, introducing this brand in that country for the first time.

We continue to tighten up our new product development process to launch product that is will meet our core consumer needs and the Company's strategic direction.

Beginning with this fiscal year's 10-K the Company will start reporting its product offerings in one of two product categories, Multipurpose Maintenance products and Home Care and Cleaning products.

The WD-40 and 3-IN-ONE brand revenues will report under Multipurpose Maintenance products and all other brand revenues will report under the Home Care and Cleaning products category.

Now, over to you, Jay, and he will cover the sales and financial results in more detail.

Garry, thank you.

In addition to the information presented on this call, we suggest that you review our 10-K, which will be filed next week.

Now that Garry has touched on many of the themes of the year, let's cover the details regarding our sales and financial for the fourth quarter and the financial in the fiscal year in total.

Net sales were $76.9 million in Q4, a decrease of 3% versus the fourth quarter last year.

Fiscal year 2008 net sales were $317.1 million, an increase of 3% over fiscal 2007.

Our results by product line were as follows - - Our Multipurpose Maintenance products in Q4 had sales of 58.1 million, an increase of 7% and year-to-date sales of 235.9 million, an increase of 9% over the prior year.

Looking to our Home Care and Cleaning products, Q4 sales were 18.8 million, down 24% from the prior fourth quarter and the year-to-date sales were 81.2 million off 11% from the prior year.

Our Multipurpose Maintenance product sales were up in all trade blocks for the fourth quarter and the fiscal year, driven by continued geographic expansion and growth of the WD-40 Smart Straw in Europe.

In April of this year, the US also converted many of the WD-40 can sizes exclusively to the Smart Straw.

Our core Multipurpose Maintenance product continues to be a growth opportunity, and in fact it has been generating a compound annual growth rate of 10% between the years fiscal-- between the years fiscal 2002 and fiscal 2008.

Decreased sales of Home Care and Cleaning products in Q4, in the fiscal year, were primarily due to sales declines in the US and Europe, resulting from some decreases in distribution, some competitive activity and category declines.

The Home Care and Cleaning brands compete in highly competitive markets and are currently facing shifting product categories.

While there were--- while there were pockets of growth in certain countries, such as the Carpet Fresh No-Vacuum in Australia, we recognize that Home Care and Cleaning products continue to be a challenge for the Company.

Spot Shot sales declined 20% in Q4 and 12% for the fiscal year due to reduced sales to some key customers and overall declines in the Spot Shot, in the Aerosol Spot and Stain category.

We are currently transitioning to newer, nontoxic and bio degradable product offerings to replace the Spot Shot trigger, where it is currently in distribution and also help us gain additional new distribution.

2000 flushes and X-14 Automatic Toilet Bowl cleaning sales declined 36% in Q4, and 15% for the fiscal year due to decreased distribution with key customers and competitive innovation and temporary manufacturing disruptions earlier in the fiscal year.

Sales in the entire toilet bowl cleaning category declined in the grocery chain channel where we continue to face increased competition for shelf space.

To combat these challenges, we are focusing on developing enhancing distribution channels outside the grocery trade channel as a result of consumer shifts toward the manual cleaning devices we have discontinued our in-bowl products.

Our focus is now towards the drop-in category, in which we introduced new SKUs and some product improvements in the fourth quarter.

X-14 Hard Surface cleaner sales declined 43% in Q4 and 38% for the fiscal year, primarily due to loss distribution as a result of some competitive activity and again some temporary manufacturing disruptions that resulted in lost sales.

In an effort to sustain the brand we are realigning our product portfolio, to focus investment in distribution on our more competitive items.

Carpet Fresh sales declined 12% in Q4 and were virtually flat to the fiscal year.

While the brand thrived in Australia it experienced reduced distribution and category declines in the mass and grocery trade channels in the US.

The category decline is attributed to the reallocation of shelf space from traditional rug and room deodorizer to other air care products.

We continue to refine our marketing and promotional, and pricing strategies to create new opportunities for the Carpet Fresh brand.

Heavy duty hand cleaners, which is are categorized under our Home Care and Cleaning products made up 2% of gross sales in Q4 and for the fiscal year.

Total sales of Lava and SolVol dipped a bit in the fourth quarter primarily due to soft Lava sales in the US.

Now on to our results by region.

The Americas, in Q4, had sales of $42.8 million, up 9% from the prior period and for the year, the sales were $176.9 million, which represents a 5.5% decrease on the prior year.

Europe had sales of $26.1 million up 5% in the fourth quarter and sales of $110.5 million, up 14.5% on the year.

Asia Pacific had sales of $8 million in the quarter which were down 14% from the prior year.

But on the year, Asia Pacific sales were $29.7 million, up 22.9% from a year ago.

The Americas region is our largest segment covering 56% of total sales in fiscal 2008 versus 61% in the prior fiscal year.

Changes in foreign currency rates period to period positively impacted sales by 200,000 or about 0.5% in Q4, and 1.5 million or 0.9% in the fiscal year.

Most of the regions short fall was due to the US, which experienced sales declines of 10% in Q4 and 8% for the year.

Driven by declines in the Home Care and Cleaning brands and softness in WD-40 sales.

The US sales of Home Care and Cleaning brands fell 28% in Q4 and 15% for the year as a result of some reduced distribution, continued competitive pressures, as well as the manufacturing disruption noted earlier.

WD-40 sales in the US were up in Q4 by 5%, yet declined by 3% for the fiscal year as customers reduced inventory levels and in-store promotional activities in response to the slowing US economy.

The brand was also impacted by supply constraints for the WD-40 Smart Straw, which prompted the Company to delay some key promotional activities related to the Smart Straw conversion until fiscal year 2009.

Latin America experienced some softness in Q4 but continued to do well for the year growing at 19%.

Canada sales grew modestly at 6% in Q4 and 4% for the fiscal year.

Growth of our Multipurpose Maintenance product sales in Latin America and Canada partially offset the decline in the US.

Now, on to Europe which accounted for 35% of global sales in fiscal 2008 versus 31% in the prior fiscal year.

Europe sales increased 5% in Q4 and 15% for the year driven with by the distributor markets and the WD-40 and 3-IN-ONE brands.

Changes in foreign exchange rates period to period positively impacted sales by about 300,000 or 1% in Q4 and 2.4 million or 2% for the fiscal year.

We sell into Europe through a combination of direct operations in certain countries and other countries we use marketing distributors.

We have direct sales force in the UK, Italy, France, Portugal, Spain, Germany, Austria, Denmark and the Netherlands.

The UK was the only direct market to experience a sales decline in Q4 and it declined 22%, which caused total sales for the year to fall short by 3% versus the fiscal 2007.

The softness in Q4 sales resulted from changes in customer specific promotional activities and from some increased competition surrounding the 1001 brand products.

The other direct markets experienced sales growth as follows - - France grew 30% in Q4, 35% for the fiscal year; Italy 15% growth in Q4 and 25% for 2008; Germany, Austria, Denmark and the Netherlands combined grew 29% in Q4 and 19% for the fiscal 2008 period; and Spain and Portugal grew 2% in Q4 and had a 9% growth for fiscal 2008.

We sell through independent marketing distributors in eastern and northern Europe, in the Middle East and Africa.

These distributor markets combined increase 19% in Q4 and 22% in fiscal 2008, driven by growth in distribution and usage resulting from increased market penetration and increased brand awareness.

Now, on to Asia Pacific which grew to account for 9% of the global sales in fiscal 2008 up from 8% in the prior year.

Asia Pacific sales increased 14% in Q4 and grew 23% for the year.

All three regions, the Asia distributor markets, the direct market of China, and the direct market of Australia experienced double-digit growth for the fiscal year.

Changes in foreign currency rates period to period positively impacted sales by 0.4 million in Q4 and 1.6 million in fiscal, for the fiscal year.

The Asia Pacific region continues to represent long-term growth potential for the Company.

We began direct operations in China during fiscal 2007 and we are pleased that our sales in China grew by 66% in fiscal 2008.

Sales in the Asia distributor markets were essentially flat in Q4 but grew 12% for the year with growth seen in Indonesia, Korea, Taiwan, Malaysia, Philippines, Japan, India, Thailand.

Sales growth resulted from both increased promotional activity and continued growth in the awareness and the further penetration of the WD-40 brand into those markets.

Sales in Australia increased 8% in Q4, primarily due to the No Vac brand and 21% for the year, which was driven by both the WD-40 and the No Vac brand.

WD-40 benefited from continued broad distribution across all trade channels and the No Vac gained market share in Australia as growing aerosol, rug and room deodorizer category.

That's it for the sales update.

Now let's review the rest of the financials starting in Q4 and then our fiscal 2008 results.

Gross margin was 44.8% of sales in the fourth quarter compared to 48.7% of sales in Q4 last year.

The 3.9% decrease in the margin percentage was due to several factors including increases in costs of raw materials and components, some short-term costs associated with product conversions and sourcing changes that were being made in the US, losses sustained on our investment in the related party VML and an increase in advertising and promotional discounts that is are treated as a reduction to sales.

Let's talk about each of these points.

As Garry mentioned earlier, the rising cost of products that we have seen in the current period is due to some unprecedented cost increases that we have been experiencing for a number of components and raw materials, primarily the aerosol cans and petroleum based products and have had an impact in the fourth quarter.

Also negatively impacting fourth quarter margins were short-term costs associated with product conversions and sourcing changes.

Product conversions are related to the automatic toilet bowl cleaners and the WD-40 aerosol products resulted in obsolete packaging and other components that were written off and expensed in cost of goods in the period.

The manufacturing disruptions also led the Company to obtain additional partners to manufacture and warehouse our goods, which resulted in higher short-term costs for some of our Home Care and Cleaning products.

We expect the additional sales and margin opportunities arising from the conversions and sourcing changes to far outweigh the short-term costs of the conversions.

Losses associated with VML, a related party contract manufacturer also negatively impacted our gross margin in the fourth quarter by $0.6 million.

These losses were the result of manufacturing inefficiencies at VML that were recorded as a component of cost of products sold.

The decrease in gross margin percentage was also the result of an increase in our advertising and promotional discounts, which negatively impact gross margin by 1.3%, a greater percentage of sales were subject to promotional allowances this quarter due to the overall increase in promotional activity in this quarter versus last year.

We also shifted some investment from broad media advertising to more targeted customer specific promotions and programs, which are recorded as a reduction to sales.

Certain A&P costs, as coupons, customer rebates, display programs and slotting are treated as a reduction in sales and the timing of these promotional activities as well as the shifts in product and customer mix cause fluctuations in our gross margin from period to period.

Price increases were implemented on certain of our products world wide earlier in the fiscal year and this added 1.2 percentage points to our gross margin in Q4, but did not fully offset the cost increases we sustained.

We will implement additional price increases in fiscal 2009 to mitigate the gap and will continue to focus on margin enhancement strategies through our innovation efforts.

Those are the highlights of gross margin for Q4.

Let's continue on with the rest of the income statement.

Selling, general and administrative expenses for the fourth quarter increased from 1-- from 19.5 million to 20.8 million growing as a percentage of sales from 24.7% to 27%.

The increase in SG&A expenditures stemmed in part from freight costs, which increased by $1 million in the quarter due to higher sales as well as higher fuel costs.

Advertising and sales promotion expenses decreased slightly in Q4 versus the fourth quarter last year.

A&P expenses decreased from 4.9 million to 4.6 million as a percentage of sales decreased from 6.2 to 6%.

The lower level of investment is due to the timing of promotional activities, as a portion of our investment was pushed into fiscal '09 due to supply constraints with the WD-40 Smart Straw.

Including the promotional allowances of $4.8 million versus $4.1 million in the same period last year, the Company's total investment in A&P activities totaled 9.4 million in Q4 versus 8.9 million in Q4 last year.

Amortization expense of 100,000 in the fourth quarter result-- is the result of the 1001 acquisition and was equal to last year's fourth quarter.

Fourth quarter results also include a 1.3 million impairment charge related to the X-14 brand that Garry discussed earlier.

Operating income for the quarter was 7.6 million compared to 14 million in Q4 last year.

Net interest expense for the quarter was 0.5 million and that was 0.1 million higher than Q4 last year.

The increase is really due to lower interest expense offset by even lower interest income.

Our interest expense was lower due to the continued reduction in our debt as we made our annual 10.7 million principal payment in October of 2007.

But we had lower interest income as a result of lower cash balances and lower interest rates in the current year compared to last year.

Other income was, was 2-- was 0.2 million higher in Q4 as a result of the fiscal year versus Q4 last year.

Most of this income was due to foreign currency exchange gains.

The provision from income taxes was 36.8% for the fourth quarter an increase from 32.2% in Q4 last year.

The increase in rate is primarily due to higher benefits recognized in fiscal '07 fourth quarter and those were related to municipal bond interests.

Net income in Q4 was 4.7 million,a decrease of 50% from Q4 last year.

On a diluted per share basis, earnings were $0.28 compared to $0.54 in Q4 last year.

Diluted shares outstanding in the fourth quarter of fiscal '08 decreased to 16.6 million shares compared to 17.3 million for the fourth quarter in the prior year.

Now let's review our financial results for the fiscal year.

Many of the themes and drivers for the fiscal year results are consistent with those we have just discussed.

The gross margin was 46.8% of sales in fiscal 2008 compared to 48.4% of sales in fiscal 2007.

The decrease in gross margin percentage was primarily attributable to cost increases in raw materials and components, costs associated with product conversions and sourcing changes that were noted in our Q4 discussion and again increases in our discounts to net sales.

As Garry noted, many of our oil-based raw material components experienced double-digit cost increases during the fiscal year that put significant pressures in the Company's margin.

Losses associated with VML and short-term costs associated with product conversions and sourcing changes also negatively impacted gross profit for fiscal 2008.

We expect the sales and margin opportunities arising from these conversions and sourcing changes to far out weigh the short-term costs of the conversion.

Also contributing to the decrease in gross margin percentage was the increase in advertising and promotional and other discounts, which negatively impact gross margin by 0.8%.

Price increases implemented on certain products world wide only partially offset these cost pressures and added 1.1% to the gross margin percentage in 2008 compared to 2007.

Additional price increases are planned for fiscal 2009, and we believe these price increases along with innovation and other margin enhancement strategies will help us to increase our gross margin to historical levels.

Selling, general and administrative expenses for the fiscal year increased to 6.7-- increased 6.7% to 83.8 million.

Increasing SG&A to 26.4% for fiscal 2008 compared to 25.5% in fiscal '07.

The increase in SG&A costs stem in part from freight expenses, which increased by 1.5 million, resulting, as a result of higher sales and fuel costs.

Changes to foreign currency exchange rates contributed an additional 1.3 million to the SG&A expense for the fiscal year.

Employee-related expenses which increased-- which increased 2 million due to salary increases, additional investment in our sales efforts, higher fringe benefit expense offset by a lower bonus accrual of 1.2 million and our professional service costs which increased 600,000 primarily as a result of increased legal and information technology costs.

And then we also had an increase of $500,000 in the current year, in the current year due to higher stock-based compensation costs.

Advertising and sales promotion expense decreased 19.8 million in fiscal 2008.

Let me repeat that.

Advertising and sales promotion expenses decreased to 19.8 million in fiscal 2008 from 20.7 million in 2007.

As a percent of sales, advertising and sales promotional expense decreased to 6.3% from 6.7% in the prior year.

A portion of advertising and promotional expense was pushed into 2009 due to the supply constraints associated with the Smart Straw.

We expect to increase our media investment in 2009, as we align our advertising and sales promotion activities with the distribution of our new existing products.

Including the promotional allowances, the Company's total A&P investment for the year totaled 38.7 million for fiscal 2008, up from the 37.4 million in 2007.

Amortization expense was 600,000 in both 2008 and 2007.

As we noted in the Q4 discussion, the Company recorded an impairment charge of 1.3 million for the X-14 brand.

Operating income for 2008 was 42.7 million compared to 49 million in 2007.

Net interest expense for fiscal 2008 was 1.7 million compared to the 2 million in the prior year.

And other income was 1 million in fiscal 2008, compared to 0.2 million in fiscal 2007.

Primarily driven by foreign exchange-- foreign currency exchange gains.

The provision from income taxes was 34.2% for fiscal 2008, an increase from 33.2% in the prior fiscal year.

The change in tax rate is due primarily to one-time benefits from favorable rulings on tax matters as well as and along with significantly higher municipal income interests in fiscal 2007.

The loss of these benefits in fiscal 2008 was partially offset by increased benefits related to qualified production activities for the current year.

Net income in 2008 was 27.6 million compared to 31.5 million in fiscal 2007.

On a diluted per share basis, earnings were $1.64 versus $1.83 in 2007.

Diluted outstanding shares decreased to 16.8 million for the year compared to 17.3 million for the prior year.

Regarding the dividend, on October 6, 2008, the Board of Directors declared a quarterly cash dividend of $0.25 per share, payable on October 31, 2008 to shareholders of record on October 17, 2008.

Based on today's closing sales-- closing price of 28.10, the annualized dividend yield would be 3.6%.

About our balance sheet at August 31, cash and cash equivalents were 42 million, down from the 61.1 million at the end of the fiscal year.

In addition to the 10 million principal payment on our debt and the 16.7 million of dividend payments, we acquired 17.7 million of common stock during the year.

Accounts receivable increased to 49.3 million, up 2.1 million from the end of the last fiscal year, primarily as a result of timing.

Inventories increased to 18.3 million up by 5.1 million from the end of last year.

The increase in inventory is due to new product introductions in sourcing with alternative manufacturers in the US, as well as the acquisition of some of the, much of the manufactured inventory from VML.

Certain finished goods were owned in warehouse by VML under the Company's historical contract packagers model, as the Company transitioned its direct management of these finished goods it acquired inventory from VML to supply its distribution centers.

The purchase of the VML manufactured goods will continue as we go forward.

Current liabilities were 54.6 million up from the 53.9 million at the end of fiscal '07.

Our accounts payable and accrued liabilities increased by 0.5 million due to timing of payments, accrued payroll and related expenses were down 0.8 million, primarily due to decreased bonus accruals.

Income taxes payable increased $1 million in the current year due to the timing of payments for income taxes.

That's the financial update for fiscal 2008.

More information will be available on our 10-K that will be filed this week.

Before Garry moves into his closing remarks I would like to briefly address the outlook for our gross margin.

The impact of our relationship with VML and the sales challenges in our Home Care and Cleaning brands.

Our gross margin eroded with the double-digit increases in cost of raw materials related to our Multipurpose Maintenance product business, particularly in the back half of the fiscal year.

While we instituted selling price increases, the timing and amount of those price increases only partially offset the higher costs of our products.

We do expect our gross margin on our Multipurpose Maintenance product business to improve with additional price increases planned for 2008, as well as manufacturing efficiencies to be gained with the Smart Straw production scale.

We are also expect margin improvement on our Home Care and Cleaning products, as we transition to alternative manufacturers and bring innovation to the segment.

That brings me to the second point, the impact of our relationship with VML.

VML has been our primary partner for Sourcing, Home Care and Cleaning products and for Warehousing and Distribution.

While the relationship has served the Company well, VML began to have manufacturing and efficiency issues this past year, that resulted in lost sales and margin.

These events led the Company to employee alternative and secondary manufacturers and partners.

The Company incurred some initial start up costs as a result of the sourcing transition as well as a loss on the investment in VML.

We may incur some additional short-term expense but we believe these changes will result in margin and product quality improvements in the long-term.

The last item I would like to address is our Home Care and Cleaning brands, which have had sales and margin challenges.

All of our brands under this segment compete in highly competitive categories.

Maintaining and growing sales has been difficult from some of our brands due to the very large competitors in this space that have greater resources to support heavy media and other advertising.

The competitive nature of these categories have also made selling price increases difficult to implement and as a result we have not been able to cover all rising costs of material and have experienced margin erosion over time.

We will continue to support innovation as it is critical to maintaining sales and margins for these brands.

We recently rolled out several new products in the Spot Shot and 2000 Flushes brand and have significant advertising and promotion resources slated to support them in fiscal 2009.

We do believe innovation along with cost reductions achieved through new sourcing will help our performance in the Home Care and Cleaning products in 2009.

Well that completes the sales and financial updates.

Now back to Garry.

Thank you, Jay.

We consider WD-40 Company a long-term investment in your diversified portfolio.

And as such we would like to share with you why it is fundamentally strong and stable.

First, we pay close attention to our credit exposure.

The Company has strong credit relationships with large and trusted financial organizations, and will continue to manage these relationships closely.

We monitor the health of our supply and major customers as well as our financial vendors to insure we minimize the exposure to third-party relationships.

To minimize our credit risks, we use credit insurance within our International distributor markets, we also monitor our direct sales markets very closely and the Company has historically had bad debt levels that have been low as a result of these efforts.

Second, we have a strong balance sheet, our level of debt is low and we continue to delever the Company.

We have $42 million remaining on our original $75 million fixed-rate term loan, which will be reduced at $32.2 million with our principle payment in just a few days.

The company remains in compliance with all of its debt covenants.

We have also access to an additional borrowing, if needed, with a $10 million credit facility available.

Third, we implement best practices with our working capital and cash management strategies.

The Company has strong free cash flow, we have cash available for investments and cash to fund the regular quarterly dividends and operating activities.

Over the past 55 years our Company has fared well in difficult times and we will continue managing the business to insure long-term sustainability.

Our objective for fiscal year 2009 is to continue to deliver value to our shareholders despite the adverse economic conditions.

Ultimately, we will deliver value by providing products of choice for consumers.

We want to give consumers the ability to choose by developing and acquiring products that consumers buy in our global distribution channels of demonstrated strength where we have the right to win.

We want products that create the same positive lasting memories as our hero product WD-40.

That said, we invested time and resources this past year in reviewing our strategy with the objective of answering the following questions - - Where do we now have the right to play and win?

All the work we have done this past year has now confirmed a shift in our belief and that is, we must now focus on adjacent business opportunities by leveraging the WD-40 and 3-IN-ONE brands.

We belive this focus will provide us with the best global opportunities.

This means that we will look to develop and/or acquire more products under our core Multipurpose Maintenance products business and leverage the distribution channels where we have this high level of competency.

It also means we will continue to diversify through global development and expansion.

The new direction is also led us to revise-- revise our corporate logo, to reflect the likeness of and to maximize the power of the association of the WD-40 brand.

We feel this will help address the Company's need to leverage our famous brand while preserving the unique position the brand has in the hearts of many consumers around the world.

While the following guidance for fiscal 2009 does not include an acquisition, we believe that the turbulent times are creating greater number of attractively value acquisition opportunities than in the past few years.

Our strong balance sheet and good business model will enable us to execute on an acquisition opportunities that are the right fit.

Our guidance for th fiscal year is as follows - - We expect our sales to grow between 2 and 8% to 223 to 2 -- sorry to 323 to 343 million driven by continued geographic expansion and market penetration in those markets and new products.

We expect our investment in global advertising and promotion expenses to range between 6.5 and 8.5% and we expect net income of 27.4 to 30.7 million which will achieve an EPS range of somewhere between $1.60(Sic-see press release) and $1.85 assuming 16.6 million shares outstanding.

While we do not run our business on the short-term quarterly basis, nor generally guide on a quarterly basis, we would like to share our Q1 outlook as well.

Q4, was a tough period negatively impacted by short-term events and transitions.

It is absolutely no more like business as usual.

We belive our results in Q4 were an aberration and we are seeing a recovery in sales and the bottom line in Q1.

With that, we will share our guidance for Q1.

We expect sales to grow too between 81.5 and 84.7 million in Q1.

We expect our investment in global advertising and promotional expense to range between 6.5 and 9.5% and we expect net income of between 6.6 and $7.4 million(Sic-see press release), which will achieve EPS of between $0.40 and $0.45 per share, assuming 16.6 million shares outstanding.

Thank you very much for joining us today.

We would be pleased to answer any of your questions from what seems to be a marathon call.

Thank you.

(OPERATOR INSTRUCTIONS).

We will take our first question from Jeff Zekauskas from JPMorgan.

Hello.

This is Ben Richardson sitting in for Jeff Zekauskas.

Hi, Ben.

Hello.

Just wanted to discuss business conditions in Europe for a moment.

We noticed you had about 5% sales growth.

We considered that you probably had a currency benefit of possibly 10% in the quarter, and just wondered if you might speak to price and volume trends in Europe as you see them.

The currency benefit was relatively small in the quarter.

If we look at the end of the year in Europe, we had really a number of markets that had phenomenal growth through the first three quarters and in some ways it was really just phasing as some of those markets really adjusted to that higher level of volumes that they had seen.

So, we don't see the, what may be a lower level of fourth quarter revenues in Europe as being indicative of what the future is going to bring.

And in fact, the guidance that we have given for the first quarter would anticipate that you would see a reasonable growth in Europe in the first quarter.

Okay.

All right.

And I guess speaking to those factors impacting gross margin, firstly, the product conversion costs and sourcing changes, can you go into a bit of detail concerning those factors?

Well, we've had a number of new product introductions and conversions of old products which as you move out of the new and or move into the new from the old, depending on if you have a soft cut off or a hard cut off you have some additional packaging component material that's left over.

Some of those conversion cost were associated with that as we had a number of new products being introduced and changes, some of the costs were associated with changing and, changes in our manufacturing partnerships and those were costs associated with, new or inefficiencies associated with new runs on new lines and kind of getting a new production facility up to speed.

So, some of that is, a number of those costs are not expected to repeat as we go forward.

We also had increased freight costs as part of our cost of goods as we were shipping product from a new manufacturer to other warehouses and those costs should also normalize as we go forward.

So, again, there was a number of activities that caused that.

Okay.

And I guess lastly, on in the topic of raw materials, given the decline in oil prices, even steel has backed off a bit, how many quarters, in how many quarters do you expect to see raw materials turn positive?

Is that possible?

Let's break it into two.

Let's talk about oil first.

Oil is down to around 75 today.

We have got a fair tail on that and that's why we had such an upswing in Q4.

So certainly if oil stays down where it is, we are going to get a positive advantage.

The, the flip side of that is one of the may -- well both of the major tin plate can manufacturers released to their, to the market a number of months ago that they expected steel tin plated cans to increase in price anywhere up to 90% in January.

The latest indications we have got is that percentage increase could be anywhere between 45 and 60%.

So although we will see some offset son oil, we had not anticipated that rising, that level of price rise on our tin plate can purchases.

And this is, this is been widely announced and discussed.

So certainly we would have hoped to have seen some back off, it doesn't seem to be happening.

Our tin can suppliers have been reluctant to confirm what they think the number is because I don't think they know either but these going to interest somewhere in the vicinity of the range that I shared.

All right.

Next we will move on to Alan Robinson from Royal Bank of Canada.

Hi, good afternoon.

Hey.

Garry, thanks for your discussion of your credit procedures there.

That was very helpful.

Certainly.

Just to, I would like like to clarify my understanding of your expectations regarding the factors impact your gross margins.

You have discussed oil.

You have discussed tin plate.

It seems the other factors the product conversions, sourcing changes losses of VML increases in discount costs for A&P, they're kind, they look like kind of one-time items that shouldn't impact so much for the, for next year.

Is that a fair, fair appraisal?

Yes.

I would think that would be exactly the case with the exception of the discounts.

Those move around period to period, depending on the mix of marketing activities.

So depending on the activities they're focused in specific customer trade type promotions, we will see more of discount related activities if we broad consumer-based advertising activities within these, those costs are reduced.

So it is really, it really varies quarter by quarter.

Okay.

Did you discuss at all any progress on your cost containment and efficiencies program that you talked about during the last call?

That continues on an ongoing 24/7 basis.

Certainly, one of the reasons we changed manufactures of our automatic toilet bowl cleaner was to get a margin enhancement.

Certainly, we will get a lift in our maintenance Smart Straw as we enter next year, at all of the high speed automation comes on to line.

So, those are some of the things that we have been working on.

All right.

So, what you are saying really is that things are looking fairly positive your margins apart from this potential increase in tin plate cans we might expect in January?

The thing that we have been able to do Alan is another price increase that took effect in the US on October 1 of 10%.

We have accelerated our price increases.

We think we have a handle on most things except for volatility and uncertainty in steel and oil.

But we have been able to offset that with some pricing.

We would hope that we are going to see an expense of our gross margin as we go forward unless something doesn't happen or happens that we don't know and today that could probably happen.

I would there are questions we ask ourselves today we would never have bothered to ask ourselves two weeks ago.

We will see where it goes.

Okay.

And then your guidance that you mentioned for the year and for the first quarter, that kind of seems to imply to me that you are going to have much flatter seasonality than we have interned the last couple of years, is that fair and if so what is causing that.

No, what it should indicate to you is we are really uncertain further out.

That is what it should tell you.

We know what this, we feel comfortable with our guidance for this quarter but we are not in a position to, and we feel okay about the year, but we need to get through the, the can increase and we need to get through what happened to our bumpy Q4.

What we are happy about is we are seeing Q1 coming out strong for us with sales growth.

I think if we weather the storm we will give you more information at the end of Q2.

Thank you.

Next we will hear from Joe Altobello from Oppenheimer.

Hi, good afternoon.

Just a quick question on the top line.

In terms of the guidance, it looks like it is wide for '09.

Where are the unknow?

the Biggest unknow, if you will?

Is it the US or Europe or both?

Do you think I can answer that question, Joe?

I don't I don't know what I am unsure of these days.

What we know is there are indicators that tell us we have growth going forward.

I don't know where things are going to go.

We know what's going on in our business but not in the world around us.

We have been a little less wide in our because we have a better feel for that.

So to us it is a little like how far do the down the road.

Well, it depends how far do the headlights of a car see down a road, while it depends how far the car is traveling down the road.

Okay.

So it is again this is either these are not times of business as usual and you probably know that much better than I do.

Sure.

Absolutely.

So in terms of the first quarter you said that you are seeing sales growth thus far in the quarter.

Is that in both of those regions or is one region doing better than the other.

We are seeing growth across the world.

If the US because of Smart Straw and other brands.

Good geographic growth.

We are seeing growth in all of that, all of our geographic locations.

Got it.

Okay.

And then in terms of the accounting with the foreign exchange, if Europe is greater than a third of your sales and the Euro has been weak relative to the dollar, in the quarter, actually probably since like July, why are you not seeing a greater FX impact?

Well, our FX impact we have got a couple of FX impacts.

We have got we really have our European business is really driven out of Sterling.

And so in Europe, our sales are, are recorded and booked in Sterling and so when they get t converted to the US because of those changes in the quarter year-over-year the impact was smaller than it has been in the past.

Okay.

But the sterling has been -- hasn't it?

Not only got weak into the end of the first quarter.

It has been in the last, five or six weeks.

Okay.

And we get the gain from the foreign exchange when the Sterling is strengthening.

Converted at.

2 to 1 instead of 1.7.

Okay.

That's another thing our guidance reflected for next year is the impact of for a full year, the Sterling going from 2 to what is actually 1.7.

We are actually losing sales growth in our consolidation from Europe.

Right.

In these numbers next year.

In the vicinity.

And then lastly on the supply disruptions and the transition from VML, do guys see any additional chance of further disruptions going forward or do you think that's behind you at this point?

I think that we are comfortable with the move we made and I think that we see that most of the hiccups have been, have gone through the system.

So I think with we are fairly positive on the outlook.

Okay.

Great.

Thank you.

Again, with respect to that, that situation, I think that you know as we talked as Gary talked earlier this isn't business as usual.

Right.

Some of our concerns and some of our focus is really on the health of all of our supplier base.

Is that's an area that we watch very closely as well.

And are you seeing any other weakness in your suppliers thus far in terms of credit and things like that.

Nothing we have identified at this time.

Okay.

Great.

Thank you.

Next we will hear from Robert Felice from Gabelli & Company.

A couple of quick questions.

Hi.

First I wanted to piggy back on a previous question relating to variance around the guidance.

I was hoping you would highlight some of the underlying assumption you are baking into the high-end and low-end of the range.

As you mentioned it is pretty unprecedented times and perhaps that would give us greater clarity around the sensitivity of the guidance.

The guidance, if you look at it the swing is in your sales number and what is the, what is the economic condition of our customers going to be like, and how are they going to react.

So I think the biggest variance is to the overall economic conditions that are, that are in front of us now.

Jay, what would you.

Yes, in addition to that we also are aware of the potential impact of the steel and potential additional volatility in the oil as well.

Somewhat conservative in our expectations with respect to commodities in general.

So you are not anticipating raw material costs being a significant head wind or tail wind either way?

Well, I think one, there is one head wind, one tail wind.

There's a tail wind a probable tail wind of oil and probable head wind of steel.

But on a net basis.

There's probably a little head wind there now.

We don't know because we haven't had the final confirmation of the steel can price increase yet.

So it is only an assumption.

Okay.

Then what was the magnitude of the delta during the fourth quarter between raw material costs increases and pricing?

I don't know.

I don't.

I am just trying to get a sense as to what the gap was and what is left to be made up.

Well, I don't know that we have that number.

Okay.

I will follow up off line then.

Thank you.

Next we will hear from Liam Burke from Janney Montgomery Scott.

Thank you.

Gary, Jay, how are you.

Good thank you.

Good afternoon, Liam.

Garry, X-14, you have written down trademark value and reposition in the distribution channel.

Are you going to completely take it out of grocery or is it more specialized product through hardware chain or, how is that going to be repositioned?

What we have looked at fairly seriously is the whole concept of where we have the right to win, and in that bath room area, with the expansion of products like the new green products from Clorox and others, we have not got the power to win with that product in that category.

So we decided that we are not going to throw our investment behind that.

So I think what will happen is we will still maintain the position we have with our X-14 high-end mildew product and then we are going to look at where else the brand might be able to travel and more so align to the other trade channels that we have but we basically are out of, out of the, those general purpose bath room cleaners where competition is hard and we really just didn't have the right to win.

So essentially you will be in the grocery channel with just one product and that's the mildew remover.

Yes.

Okay.

1001 in UK, how did that do this quarter?

It had weakness in the quarter and was off.

Okay.

And Garry, on the Spot Shot on the nonaerosol and the green product, how did that do, I know the aerosol was sort of being de-emphasized.

Not aerosol is not being de-emphasized we just were in the stages of launch and transferring the original pump product into the new environmentally friendly product.

So, we are our promotional activity on that is commencing within the next couple of weeks in line with a movie that's being launched and still building distribution.

So we will have a better picture on that in the next, 60 to 90 days but we are progressing okay.

Okay.

Thank you.

Thank you.

Next we will hear from Frank Magdlen from The Robins Group.

Good Afternoon.

Hi, frank.

You said the goal was to get back to historic levels.

Is that the recent historic levels, is that the recent historic level of say the 48 percentage.

I don't know.

I keep saying and I have to continue to say it despite business model was built on an assumption of a gross margin north of 50%.

We need to get back there and we have been struggling with that for four years now.

I think what are you are going to see from what we know today in fiscal year, the fiscal year coming, 2009, we had to see a start to go in the right direction towards that.

How fast, how much will depend on what our, what the steel prices are, how our price rises fall in and anything else I don't know about.

Okay.

Two other questions.

One did you have any stock, did you lose sales in significant sales because of the conversions product conversions and change in sourcing?

We, the biggest area well not the biggest but a main area was in our Smart Straw.

Demand out paced our capacity production in the last five weeks of the year.

And that really was a flow on from if you will remember when we converted to Smart Straw back in April we had an anticipation that our customers would buy out the classic product because of the increase in the price.

And they didn't.

The outcome of that was we had a poor Q2 in WD-40 and our, we had hoped that as the transition happened, we could build inventory of Smart Straw to be able to support the demand as we got through to the end of the year.

In fact we were living hand to mouth on Smart Straw right through to the end of the year as it was only until in the last weeks of August that we got full production on line of the second supplier about the actual Smart Straw unit itself.

That's why we then ended up with a major part of the Smart Straw promotion pushing into the first quarter of the year.

So, and we had some classic product leftover that we then cleared out.

It was a consequence of that whole effect that we never got a chance to wild inventory, so we weren't maximizing our opportunity with Smart Straw.

I believe we are through that now and we have got the full production on line.

I believe that our production capacity will increase over the next month as we finished installing high speed, new high speed equipment that actually put the Smart Straw on the can.

Right now it is done by hand and these new machines are going in to play, that will increase our production ability.

We are through that.

On the household products area, we did have some disruption as we transitioned our manufacturing of our automatic toilet bowl cleaners from one production site to another, not material but more of a cost issue really on gross margin because we were paying either inflated freight rates because we were moving product from one warehouse to another to meet orders instead of being able to source product directly we were manufacturing stock a little more, a lot more extra costs just to keep in supply as we balance stock around the warehouses that had inventory but not necessarily in the place we wanted it.

All right.

So I take that to mean you lost some sales?

Yes, I wouldn't, yes, we would have lost some but I think in the household areas it wasn't significant.

Certainly, there was a reasonable loss in the Smart Straw.

All right.

And then.

That's in the quarter.

Now in the year-to-date, in the first part of the year we did lose a $1 million of sales in the Household products category..

When I look at the long-term goals that you put ut on your web page and presentations are you inclined to change that at this time.

We will update that in December.

In December.

All right.

Just on the X-14, is there anything left to write off as an asset impairment.

Did you take it all or just part?

Part.

From there is a little left.

All right.

Thank you very much.

Thank you.

I would like to make a final reminder, (OPERATOR INSTRUCTIONS).

We will get I follow up question from Rober Felice with Gabelli & Company.

Hey, guys, just one last one.

You have talked about the fourth quarter here being somewhat of an in terms of performance and you have given us guidance on the first quarter and it seems relative to the fiscal year '09 guidance that the back half of next year will be, will be pretty weak or baked into the possibility of substantial weakness.

So, why is that, especially in light of the fourth quarter?

We don't know.

That's why, we are not comfortable.

We have given a guidance range into the full year but we are unsure of what the economic conditions are going to be three or six months from now and I think not having that, that comfort zone then it would be irresponsible of us to say that we felt that we could swim against the tide.

So, it is really, it is because we are, we don't know the impact of, of the current economic turmoil.

It is not business as usual.

So we can see closer in and we feel we understand where the year may end up and that's why the range is as wide as it is because we just don't know.

We know our business but we don't know what's happening in the broader market.

And if you find anybody that does can you give them my number because I could really use it.

I haven't found anyone yet.

I don't feel so bad now.

Thanks for taking my question.

You're welcome.

We do have a follow up question from Alan Robinson from Royal Bank of Canada.

Can you just discuss how attractive with the acquisition opportunities out there?

Are they attractive enough for your board to think about sacrificing the dividend if need be?

We look at the dividend on a quarter to quarter basis.

We understand that the dividend is an important part of the investment consideration of a shareholders.

So at this stage, we haven't had any discussions around that.

Okay.

But are you more predisposed for smaller tuck in acquisitions or is everything on the table?

Well I think it is a matter of looking at, we are certainly conservative, Alan and I think you know that.

We are not going to make dumb business decisions and put ourselves at risk for a big prize that's maybe not there.

We would like to think that we can pull tuck in acquisitions in pretty easily.

So we are, we are very actively looking around.

We are looking at, we would like to see private companies that need help particularly in this current circumstance.

So we are looking and but I don't think you are going to find us doing something that would have you say oh my God, why did they do that.

Okay.

Presumably this discussion over the use of cash will include the potential of share buy backs down here?

We have done share buy backs, dividend increases, paid down debt and again, the management and finance committee, every quarter look at our balance sheet, look at our cash needs, think about what it is we want, where do we want to go and we make decisions based around that.

So, we put $50 million plus worth of our stock back in the last couple of years while paying down 40 million or $30 million of debt and paying out 50 or $60 million worth of dividends and still retaining $46 million worth of cash.

I think I would best explain it as a balanced, responsible fiscal approach.

All right.

Very good.

Thank you.

It appears we have no further questions.

I'd like to turn it back to Mr.

Ridge for concluding remarks.

Well, that's a marathon.

That's for sure but it is always nice to talk to you and we hope that whatever is going on out there today you and your families are not being impacted adversely and we will certainly get on and do the best we can to deliver the best results we can over the next period of time.

As I said it is not business as usual but we are not people as usual.

So thanks very much.

That does conclude today's WD-40 2008 teleconference.

Thank you for your participation, and enjoy the remainder I of your day.