WD-40 Co (WDFC) 2009 Q2 法說會逐字稿

Good day, ladies and gentlemen and welcome to the WD-40 Company's second quarter 2009 earnings release conference call.

Today's call is being recorded.

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

Maria Mitchell.

Please go ahead, ma'am.

Good afternoon, and thank you for joining us for a second quarter earnings call for fiscal 2009.

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 commodity prices, changes in foreign currency exchange rates and the uncertainty and economic conditions both in the United States and internationally.

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

The risks and uncertainties are detailed from time to time in reports filed by WD-40 Company with the SEC including forms 8K, 10-Q, 10-K.

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

Our third quarter fiscal 2009 earnings conference call is scheduled to take place on Wednesday, July 8th, 2009 at 2:00 p.m.

At this time I'd like to turn the call over to Garry.

Thank you, good day and thanks for joining us on today's call.

This afternoon we reported net sales of $61.8 million for the second quarter of fiscal 2009, a decrease of 22% versus the second quarter last year.

Year-to-date net sales were $145.4 million, a decrease of 8% versus the same period last year.

Net income for the second quarter was $4.1 million, down 53% compared to the second quarter last year.

And year-to-date net income was $11.8 million, down 21% from the same period last year.

Earnings per share for the second quarter were $0.25 compared to $0.51 for the same period last year.

And year-to-date earnings per share were $0.71 down from $0.87 last year.

These net income results are within the guidance we provided to you last quarter and were achieved despite the impact of the brand valuation adjustment for the Carpet Fresh brand, which was not included in prior guidance.

The second quarter result -- quarter results reflect the issues we have discussed in the last few conference calls.

Primarily the volatility of foreign exchange rates, the uncertainty and weakness experienced in economies across the globe and the declining trends in some of our home care and cleaning products.

On a bright side we began to see a recovery on gross margin due to multi-purpose maintenance products, which began to benefit from low oil costs in the second quarter.

In these troubling times companies with a strong balance sheet, trusted brands with products that deliver above expectation performance, and employees that believe in themselves and never give up, will reap the rewards over time.

This is not the time for weak kneed leadership.

We must be leaders of hope.

It is amazing the brilliance that comes from crisis.

I believe three things about these times.

They are cleansing, they are not terminal, and they are certainly not fun.

All that said you can be assured that we're not in the bunkers, the WD-40 global tribe is taking the hill and we'll be better and a stronger Company when these days pass and they will.

So let's talk about three major impacts on our business in the second quarter results starting with foreign exchange rates.

We have seen local currencies fall in value relative to the US dollar across several markets.

The stronger US dollar impacts us in two ways.

First, in converting sales and profit results from the international segments of our business and second, in causing price fluctuations on our products to customers and consumers in international markets.

Local currencies in various markets have fallen by up to 20% to 30% against the US dollar compared to the same period last year.

Meaning that our results were reduced by the same magnitude.

Results from Europe, which were converted from pound sterling to US dollars, were particularly impacted in this way.

Last year in Q2 each pound sterling equated to approximately $2.00, whereas in the second quarter this fiscal year each pound sterling equated to $1.48.

Second quarter 2009 results translated at fiscal year's second quarter exchange rates or what we will term going forward as constant currency basis, would have produced net sales of $70.3 million and net income of $5.7 million.

Thus on a constant currency basis net sales would have decreased 11% versus 22% and net income would have increased 34% versus 53%.

The year-to-date impact of foreign currency fluctuations is even more significant.

Year-to-date results on a constant currency basis would have produced net sales of $159.4 million and net income of $14.2 million.

Compared with the year-to-date last year, net sales would have increased 1% instead of showing a decline of 8%, and net income would have decreased 5%, not 21%.

In these troubling and uncertain economic times being able to generate a level of net sales on a constant currency basis shows the resilience of our multi-purpose maintenance products, brands and our business.

In international markets where we sell our goods in US dollars, the change in foreign currency exchange rates effectively created price increases at the local level, in some cases in excess of 20% to 30%.

The fluctuating and higher price at the local level disrupts these markets and longer-term may impact our users.

We are working on alternative strategies to minimize the impact of fluctuating foreign exchange rates on pricing and end user consumption of our products in these local markets.

Our second major impact is the effect of the global economic conditions.

As for the economy and the uncertainty surrounding it, we did see customers tighten up on inventory and consequently reduce volume in some markets.

With our international segments which have been fueling our growth over the past decade were negatively impacted by both weakening local economies and foreign exchange fluctuations.

We have weathered tough economic times before and while this has been a recession unlike no other this Company has experienced, we continue to see a bright long-term future for our core multi-purpose maintenance products.

However, like everyone else we cannot foresee when this economic uncertainty will subside and confidence will resume.

What we want you to know is this; we have a strong core brand and products that consumers need and use.

Two, our global diversification has poised us for long-term growth as there continues to be ample opportunity to penetrate up and coming international markets.

Our Company has strong fundamentals and with a strong platform it's helping us weather this economic storm much better than many other companies.

We will only grow stronger from this.

We are also cleansing less profitable SKUs to strengthen our overall brand contribution.

X-14 is an example of this, where we are reducing the overall brand SKU offering, while strengthening the overall brand contribution.

This cleansing or portfolio management strategy aligns with our plan to reduce the impact of the grocery trade channel on our overall business in certain categories.

This also allows us to redeploy resources including time, talent and treasure to areas of our business where we see greater sales and profit opportunities.

Thirdly is the impact of the second quarter brand valuation adjustment and the declining trends in our home care and cleaning products.

Global sales of this product group declined 25% in Q2 and 22% year-to-date versus last fiscal year.

In addition to the declining sales second quarter results were significantly impacted by a non-cash impairment charge of $2.8 million relate to do the Carpet Fresh brand.

The impairment was triggered by a decline in future forecast sales levels for this product brand resulting from our strategic decision to divert future R&D investment from Carpet Fresh to our multi purpose maintenance products, the unexpected loss of a significant US mass retail customer, and as well as the negative impact of assumed foreign currency exchange rate fluctuations.

The impairment was further exacerbated by higher cost of product and declining margin particularly stemming from higher aerosol can costs which Jay, our CFO will discuss in more detail later in the call.

Although the brand valuation adjustment impacted results in the second quarter, we believe our strategic decision last year to harvest some of our home care and cleaning products and focus our efforts in our multi purpose maintenance products area and group will pay off long term.

Redirecting our product development efforts to our two global brands of WD-40 and 3-IN-ONE will result in new and exciting developments in our multi purpose maintenance products categories in the coming months.

On a positive note we realized an improvement in gross margin primarily due to price increases implemented in the first and second quarters to offset rising material and component costs including aerosol cans.

We also began to see some relief from lower oil costs versus the first quarter although our oil costs in the second quarter were higher than they were in the same period last fiscal year.

I hope I've been able to give you my perspective on the Company's overall performance for the second quarter.

Now let's talk about sales.

Our sales results by product line were as follows.

Multi purpose maintenance product sales were down 21% globally in the second quarter in US dollars.

Both WD-40 and 3-IN-ONE brands experienced sales declines in the second quarter across all three segments.

The Americas, Europe and Asia-Pacific.

In addition to weakening economies and foreign exchange impacts the sales decline is also attributed to price increases implemented in the first quarter and early second quarter which promoted -- or prompted customers to purchase more heavily in the first quarter versus the second quarter.

Year-to-date multi purpose maintenance product sales were down 3% globally and this includes -- this includes the negative impact from foreign currency fluctuations.

Home care and cleaning product sales were down 25% globally in the second quarter and 22% year-to-date.

All brands are down versus last year although the Spot Shot brand declined by 6% in the second quarter compared to the 21 to 24 -- sorry, 21% to 42% declines sustained by other home care and cleaning brands in the quarter.

We believe the Spot Shot brand is benefiting from the comprehensive consumer targeted campaign that coincided with the Christmas release of the Marley and Me film.

The year long campaign includes commercial advertising on TV and in movie theaters, discounts and free purchases with promotions with the movie and the DVD release.

Print ads in magazines and special in-store displays.

The other home care and cleaning products brand sales were down between 21% and 42% in the second quarter primarily due to lower sales volume in the US and foreign currency exchange impact.

Products in the US continue to be impacted by competitive activity and diminishing product categories as well as loss distribution and overall the economic slow down.

Home care and cleaning products fared better in Europe but were negatively impacted by changes in foreign currency exchange rates.

In local currency the product group was down 30% in the second quarter and is up 8% year-to-date.

Yet in dollars showed a decline of 36% and 14%, respectively.

Our strategy in home care and cleaning product sales in local currencies decreased slightly at 1% with a growth of 6% year-to-date.

Yet in US dollars showed a decline of 25% and 14% respectively.

Now on to our results by trading block.

Net sales in the Americas declined by 11% in the second quarter and declined 3% year-to-date primarily driven by declining results in our home care and cleaning products.

On a constant currency basis Americas sales declined by 9% in the second quarter and by 2% year-to-date.

Multi purpose maintenance products were down 4% in the second quarter yet are up 10% year-to-date due to the strong first quarter sales.

The first quarter was positively impacted by customer forward buys prior to price increases implemented.

Home care and cleaning products realized a decline of sales of 23% in the second quarter and 24% year-to-date due to the many competitive category and economic challenges discussed earlier.

Although sales in the Americas are down in the second quarter versus last year, the segment increased from 53% of global sales to 60% of global sales.

The shift is primarily a result of the fluctuating foreign currency exchange rates which negatively impacted results from international markets.

Looking at the US alone, US sales were down 10% in the second quarter and are down 3% year-to-date.

92% or $3.1 million of the total $3.4 million sales decline in the second quarter was due to lower home care and cleaning product sales.

Sales of multi purpose maintenance products decreased $300,000 in the second quarter versus last year, a net result of price increases and tighter customer volumes and inventories in that period.

Year-to-date US total sales are down by 2.6% due to strong Q1 sales.

The timing of price increases on our multi-purpose products led many customers to buy heavy in the first quarter and less in the second quarter.

Our Latin American business is primarily based on multi-purpose maintenance products.

Total sales were down 2% in the second quarter, yet up 4% year-to-date.

Canada sales both multi purpose maintenance products and home care and cleaning products.

Canada net sales decreased 28% in the second quarter or $1.2 million versus the same period last year, with a $700,000 -- of that decline due solely to change in foreign currency exchange rates.

Year-to-date Canada is down 15% in US dollars yet down 2% in local currency.

Now to Europe.

Total Europe sales in US dollars fell by 34% or $10.2 million in the second quarter and decreased from 38% of our global sales down to 32% of our sales globally.

The declining performance was primarily due to changes in foreign currency exchange rates.

On a constant currency basis total Europe sales in the second quarter decreased 11% or $3.2 million, but year-to-date on a constant currency basis increased 6% or $3.5 million.

Most of the countries throughout the European segment experienced sales declines as customers reduced inventory levels in response to the economic slow-down.

The direct markets had sales declines of 27% in US dollars in the second quarter.

The majority of the impact stemming our largest market the UK.

In US dollars sales in the UK decreased 39% in the second quarter and decreased 16% year-to-date.

The variability between the quarters is primarily due to the timing of price increases and promotional activity in the first quarter and reduced customer inventory in the second quarter.

Year-to-date on a constant currency basis, UK sales were up 5% versus the same period last year.

France was one of the few markets to grow sales in the second quarter in local currency.

Sales increased 13% in the second quarter and a 14% increased year-to-date in local currency.

This is driven by the continued growth of the WD-40 Smart Straw and the 3-IN-ONE Pro product line.

However the negative impact of exchange rates in foreign currencies more than offset the second quarter sales growth.

We sell through independent local distributors in eastern and North Europe, in the Middle East, and Africa.

We believe this market which realized second quarter sales declines of 52% in US dollars was impacted by both timing of promotional activities, tighter customer inventories and the foreign currency fluctuations.

Now to Asia-Pacific.

The Asia-Pacific region which includes Australia and Asia realized a sales decrease of 31% or $2.3 million in the second quarter compared to the same period last year and accounted for 8% of our total Company sales in the period versus 9% last year.

On a constant currency basis sales decreased -- sorry, $1.6 million or 22% in the second quarter.

Year-to-date sales decreased 10% in US dollars yet on a constant currency basis decreased by 4% or $600,000.

Second quarter sales in the Asian region decreased 35%, China sales decreased by 22% and other Asian markets combined decreased by 40%.

These decreases were primarily due to the slow economic environment.

We began to see -- to experience a slow down in certain Asian markets during the first quarter and we expect the overall economic uncertainty across the region to negatively impact sales for the remainder of fiscal 2009.

Year-to-date sales in the Asian region were down 9% -- sorry, down 8% to the same period last year.

Sales in Australia decreased 24% in US dollars in the second quarter, yet were flat to the second quarter last year on a constant currency basis.

Year-to-date sales decreased 14% in US dollars yet grew 5% for the period on a constant currency basis.

The 5% growth was a result of price increases, promotional activity and new distribution.

That is it for the sales and business update.

I'm going to hand over to Jay Rembolt, our CFO, who will continue the review of the financials.

Garry, thanks.

In addition to the information that we're presenting on this call we suggest that you review our 10-Q, which we'll file tomorrow.

First, our second quarter results we'll look at gross margin.

Our gross margin was 49.6% of sales in the second quarter compared to 48.3% last year.

The 1.3 percentage point increase in the gross margin was primarily attributed to price increases implemented world wide during Q1 and Q2 of this year.

Partially offset by increases in promotional discounts, component and raw material price increases, losses associated with our related party VML and costs associated with product conversions and sourcing changes.

Price increases added 5.4 percentage points to our gross margin in the second quarter of fiscal 2009.

The price increases were primarily across our multi purpose maintenance products although some price increases were also implemented on our home care and cleaning products throughout Europe.

Advertising, promotion and other discounts negatively impacted gross margin by 0.8 percentage points.

Certain A&P costs such as customer rebates, display allowances, slotting and coupon rebates are treated as a reduction in sales.

And during the quarter, a greater percentage of our sales was subject to promotional allowances due to a shift in a promotional activity in response to slowing economies.

Higher costs for components and raw materials have eroded our gross margin over the past few years as well as in the current quarter.

Higher costs of petroleum-based products and aerosol cans negatively impacted our margin by 1.6 percentage points in Q2.

Although the cost of oil declined during the first half of fiscal 2009, the benefit is just now making its way into our cost of goods.

We will not begin to realize the full benefit in our cost of goods until Q3.

This delay in the flow-through of lower costs is due to production and inventory life cycles.

We expect that higher aerosol can costs will offset much of the benefit from the lower oil-based costs, as costs of cans used in our products have increased significantly this calendar year.

In fact, we've seen cost increases for aerosol cans exceeding 40% in the US alone.

We also had experienced some other cost increases throughout some of our other materials used in our products.

Further impacting Q2 cost of goods were losses associated with VML Company and the remaining costs associated with product conversions and sourcing changes in the US.

Losses from VML, a related party contract manufacturer, negatively impacted gross margin by 0.2 percentage points during the second quarter compared to last fiscal year's quarter.

These losses were the result of manufacturing inefficiencies related to their acquisition of a significant customer during fiscal 2008.

Costs associated with product conversions and sourcing changes in the US also had a negative impact on gross margin by 0.4 percentage points during the second quarter.

During the past three quarters the US converted several WD-40 aerosol SKU's to Smart Straw.

And it also converted some of the automatic toilet bowl cleaners and Spot Shot products into new formulations and packaging.

All of which resulted in residual obsolete components and packaging materials that were expenses to cost of products during the quarter.

We expect that the future sales and margin improvement opportunities from these initiatives will far outweigh the short-term costs of these conversions.

Now onto operating expenses beginning with selling, general and administrative expenses.

Our SG&A for the second quarter decreased from $20.3 million to $17.8 million, yet as a percentage of sales was an increase from 25.8% to 28.8% versus the same period last year.

The decrease in SG&A expenditure stems primarily from changes in foreign currency rates compared to Q2 last year, which decreased our expense by $2.3 million for the three-month period.

Freight costs decreased by $0.4 million, primarily due to lower sales and lower fuel costs.

And sales commissions decreased by $200,000 as a result of lower sales in our current quarter.

Partially offsetting these decreases were increases in employee-related costs, R&D investment, and other miscellaneous expenses.

Employee-related costs which include salaries, profit-sharing and other fringe benefits increased by $200,000 due to annual compensation increases and higher staffing levels to support our growth in international markets.

Research and development costs increased by $100,000 due to the timing of new product development activity and other miscellaneous expenses which include stock-based compensation, professional services and bad debt expense combined to increase by $0.2 million.

Advertising and sales expense increased to $4.6 million in the second quarter from $4.2 million in the second quarter of last year, and as a percentage of sales increased to 7.4% from the 5.4% of a year ago.

The higher level investment is due to the timing of advertising activities, partially offset by the favorable impact of foreign currency exchange rates.

In the quarter, we increased our level of consumer print advertising in the US to promote the Spot Shot brand of home care and cleaning products.

Our amortization of intangible assets of $0.1 million is related to the customer lists acquired in the 1001 acquisition completed in fiscal 2004.

Q2 results also include another non-cash charge of $2.8 million related to the impairment of the Carpet Fresh brand that Garry discussed earlier.

Operating income for the quarter was $5.3 million compared to $13.4 million in Q2 of last year.

Net interest expense for the quarter was $0.5 million, $0.1 million higher than Q2 last year.

The increase in net interest expenses is the result of lower interest expense and even lower interest income.

Our interest expense was lower as we reduced our debt.

We made our annual $10.7 million principal payment in October.

And we had lower interest income primarily the result of decreased cash balances and lower interest rates compared to the prior period, as well.

Other income was $0.5 million in Q2 compared to $0.2 million in the prior fiscal year.

The increase was primarily due to an increase in foreign currency exchange gains for the period.

The provision from income taxes decreased from 34.6% in Q2 last year to 23% for the current quarter, primarily due to changes in the California tax law.

As a result we recorded a tax benefit in Q2 of approximately $500,000.

Net income in Q2 was $4.1 million, a decrease of 53% from Q2 last year.

Foreign currency exchange rates, period over period, had a negative impact on net income of $1.6 million, as Q2 2009 results on a constant currency basis would have produced net income of $5.7 million.

On a diluted per share basis earnings were $0.25 compared to $0.51 in Q2 of last year, and diluted shares outstanding have decreased to 16.6 million, compared to 17 million in the prior year quarter.

Now, for a review of the results for the first six months, many of the themes and the drivers of the year-to-date results are consistent with those we discussed just briefly in the second quarter.

Margin remained relatively flat at 47.7% of sales in the first six months compared to 47.8 in the prior year.

Price increases implemented during Q1 of fiscal 2009 were offset by increased promotional allowances, higher cost of products, losses associated with VML and cost of product conversions and sourcing changes.

Our price increases added approximately 4.2 percentage points to the gross margin in the first six months.

Most of this benefit was offset by higher cost of products.

As detailed in our Q2 discussion, we didn't realize the full benefit of the lower oil-based costs in the front half of the year.

Higher cost of petroleum based products and aerosol cans impacted our year-to-date margin by 3.7 percentage points.

We also experienced cost increases in some of our other raw material, as well.

Gross margin was further impacted by equity losses with respect to VML which reduced gross margin by 0.3 percentage points in the front half of the year.

As well as costs stemming from product conversions and sourcing changes, which reduced gross margin by another 0.3 percentage points.

One other factor in the year-to-date impact on margin was an increase in promotional and advertising discounts which had an impact of 0.7 percentage point impact on margin.

Now, on to the operating results beginning with selling, general and administrative expenses.

For the first six months these expenses decreased from $41.6 million to $39.0 million.

Yet as a percentage of sales they increased from 26.3% to 26.8%.

The decrease in the expenditures stems primarily again from foreign currency exchange rates compared to the last year and decreased the expense by $3.7 million in the first six months of this year.

Freight costs decreased $1.2 million, again due to lower sales and lower fuel costs.

Partially offsetting these decreases were employee-related costs, which increased $0.8 million, professional services increased $500,000 primarily as a result of increased legal expenses, research and development costs also increased $500,000 due to the timing of the new product development activity.

And we had other miscellaneous expenses including stock-based compensation and bad debt expense which combined to increase by $0.4 million.

Advertising and sales expenses decreased to $10 million in the first six months from $10.9 million.

As a percentage of sales advertising and sales, promotional expenses remained flat for the period.

The decrease was due to changes in foreign currency exchange rates.

Investment in global advertising and sales promotion expenses for the fiscal 2009 is expected to continue to be in the range of 6.5% to 8.5% of sales.

Amortization of intangibles of $0.2 million in the first six months is related to the 1001 brand customer lists.

And front half results also included the $2.8 million impairment charge related to the Carpet Fresh band that Garry discussed earlier.

Operating income for the first six months was $17.4 million compared to $22.9 million in the same period last year.

Our net interest expense for the front half was $1 million up $0.2 million from last year.

As in our Q2 discussion even though we had lower interest expense from our lower debt we had even lower interest income to offset it.

Other income was $0.7 million in the first six months compared to $0.5 million in the prior fiscal year period due to an increase in foreign currency exchange gains.

The provision from income taxes decreased from 34.1% in the front half of 2008 to 31.4% in the current year due to the changes in the California tax law.

Net income for the front half of the fiscal 2009 was $11.8 million, a decrease of 21% from the $14.9 million in the same period last year.

Foreign currency exchange rates had a $2.4 million negative impact on net income.

Front half fiscal 2009 results on a constant currency basis would have produced net income of $14.2 million.

On a diluted per share basis earnings were $0.71 compared to $0.87 in the front half of fiscal 2008.

Our year-to-date diluted shares outstanding have decreased to 16.7 million compared to the 17 million for the front half of fiscal year period of last year.

Regarding the dividend on March 24th, the directors, the Board of Directors declared a quarterly cash dividend of $0.25 per share payable on April 30th, 2009, to shareholders of record on April 16th, 2009.

Based on today's closing price of $26.20, the annualized dividend yield would be 3.8%.

Our balance sheet at February 28th cash was $28.5 million down from the 42.

-- the $42 million at the end of fiscal 2008 primarily due to our annual $10.7 million principal payment, dividends paid of $8.3 million, $2 million used for capital expenditures during the period, and a $5 million impact of foreign currency exchange rates on cash.

These cash outflows were offset by $11.7 million provided by operating activities as well as about $600,000 from the issuance of common stock on the exercise of options.

We continue to delever the Company with our $10.7 million October principal payments.

And as of February 28th our outstanding balance on our original $75 million term loan was $32.1 million.

Maintaining liquidity in these uncertain times continues to be a priority for us and we believe that our existing cash, the liquidity available from our undrawn $10 million line of credit, and our anticipated cash flows from operations will be sufficient to meet projected earnings -- projected operating and capital requirements for our business.

In this time of economic turmoil and uncertainty we are pleased that our Company has a strong balance sheet and a solid financial foundation.

Again, more information will be available on our 10-Q that we file tomorrow.

And now I'll turn it back to Garry.

Thanks, Jay.

Now, let's discuss our guidance and outlook for the rest of this year.

We strive to provide the transparency to you, our investors.

In that spirit we opted to temporarily supplement our annual guidance with quarterly guidance for the first and second quarter of fiscal year 2009.

We had a strong degree of certainty of what our first quarter results would be and given the variability between the fourth quarter of 2008 and the first quarter of 2009, we thought it would be prudent to share that knowledge with you.

Circumstances are different at this juncture.

In these turbulent times with global sentiment changing day-to-day we have widened our guidance for the sales range for the fiscal year.

Further, we will not -- we -- further we are not certain how much of those sales will occur in the third versus the fourth quarter.

Shifting sales from one month to another can make a significant difference in quarterly results as evidenced in the third and fourth quarter results of the prior fiscal years.

We manage our business on the long term versus quarterly basis, and given the current circumstances we felt it would be best to return to the annual guidance.

That said, our revised guidance for the full fiscal year of 2009 is as follows and this does not include any acquisition activity.

We expect our net sales to be significantly impacted by changes in foreign currency exchange rates which will result in sales in the range of $279 million to $292 million.

This forecast assumes foreign currency exchange rates will remain at recent levels.

Our forecasted sales on a constant currency basis to fiscal 2008 would have produced net sales of between $313 million and $326 million, or show between negative growth of 1% and positive growth of 3% over fiscal 2008.

We expect our global advertising and promotional investment to be in the range of 6.5% and 8.5% of net sales.

We expect net income of $22.5 million to $25.8 million, which would achieve an earnings per share of $1.35 to $1.55, assuming 16.7 million shares outstanding.

Two items drive the difference in net income and earnings per share versus 2008.

Negative foreign currency exchange rate impact of $5 million or $0.30 per share and a non-cash impairment of $1 million or $0.06 per share on after-tax basis.

If we excluded these two impacts, fiscal 2009 net income would range between $28.5 million and $31.8 million, compared to the fiscal 2008 actual of net income of $27.6 million.

Finally, if I may, I want to leave you the words of Franklin D.

Roosevelt, a President that was faced with leading this nation in times of deep crisis.

"The only limit to our realization of tomorrow, will be our doubts of today.

Let us move forward with strong and active faith." Thank you very much for joining us today and we'd be pleased to answer your questions at this time.

Thank you, sir.

(Operator Instructions).

And we'll take our first question that will come from Jeff Zekauskas with JPMorgan.

Hello, this is [Ben Richardson] sitting in for Jeff.

Hello, Ben.

Hello.

Can you speak to any tax effect on the impairment that you took in the quarter?

There -- the -- there was no adverse tax effect on the impairment.

Okay.

And as for your ongoing tax rate, what might we expect?

Well, that -- we would not expect the benefit of the $5 million or the $500,000 impact from the California tax law changes as we go forward.

So it would normalize without that.

Okay.

All right.

And can you speak to the sustainability of your gross margins?

You're seeing some benefit from -- from lower oil costs.

Do you expect most of that to be offset by higher template costs?

Ben, for the most we've said for a long time that we felt that we would get a slight improvement in our gross margin in the -- in this fiscal year.

We did see that happen in the second quarter.

We certainly feel that -- that we will continue to maintain gross margins or maybe slightly improve them through the balance of the year.

Okay.

Excellent.

I'll get back in the queue.

Thank you.

And we'll take our next question that will come from Joe Altobello with Oppenheimer.

Thanks, good afternoon, guys.

Hi, Joe.

Hi, Joe.

First question I guess obviously we're now five or six weeks into the quarter.

I was curious if you've seen any trends so far that have deviated significantly from what you saw in the February quarter?

Well, as you know Joe, we wouldn't normally and we won't comment on our activities within the quarter.

Obviously the guidance that we've given for the full year would be a reflection on how we feel today and what we see going forward.

Okay.

Okay.

Fair enough.

And then in terms of the, the home care and cleaning business, I mean obviously this has been sort of a drag on the top line for a while and it's probably going to continue to be that way.

What is the strategic end game for those businesses?

We made a decision last July or August, which we shared, that over time we want to reduce our dependency on the grocery trade channel in some categories as we go forward.

What the result of that strategic change means is that we've redirected a lot of our R&D and product development efforts into brands where we see a greater future.

We'll harvest the household products, even on their own they're still meaningful contributors to our business.

But the real change is that instead of having a mindset of where we may be able to grow these at some significant clip into the future, we'll be happy for them to stabilize.

And as we redevelop and redeploy that time, talent and treasure in areas of our two global brands particularly being WD-40 and 3-IN-ONE.

And you've started to see evidence of that with the release of our 3-IN-ONE No Rush Shield.

And we'll have other new developments in that category as we go forward over the next few months.

Okay.

When do you expect to see stabilization, though?

When do we expect the economy to stabilize?

Okay.

I mean it is rough water out there.

Certainly this ship is -- the home care products is a ship that is changing course but it is changing course on some pretty rough seas right now.

We've seen stabilization in the second quarter of our Spot Shot brand.

In fact, with the changes we've made as we said in our cleansing of and portfolio management of X-14, even though sales of X-14 may have declined we are seeing better brand contributions as we've changed our investment philosophy on those products.

I guess the Carpet Fresh one was a bit of a surprise to us.

We'd been given assurances from one of our major customers on a continuation and then actually geared up to continue a substantial part of that business with them.

And at a moment's notice virtually they decided because they wanted shelf space for home brand and other products, that us and other products were going to be taken off the shelf.

So that one caught us a little bit by surprise.

On the other side our home care and cleaning products are stable and strong in Europe.

The 1001 brand there continues to grow in local currency and also that would be the same fact in Australia, where our No- Vac product there continues to grow there in local currency.

Okay and then lastly, if I could, the multi-purpose maintenance business, down significantly this quarter, can you talk about what's going on there?

How much of that is category weakness, how much of that is maybe -- a market share loss potential?

How much of that is retailer inventory destocking?

And what is your business doing on a POS basis?

Okay.

There is a lot of questions all in one there.

Let's start at a high-level globally.

Our multi-purpose maintenance products business is being impacted in different ways in different countries.

Firstly on market share, I have no evidence, we have no evidence, that any of our losses are due to any change in market share.

Our brands remain the dominant brands and in most categories they are the category.

Certainly in different countries around the world, we're seeing a reduction in inventories, we've seen destocking, we've seen retail promotion at a lower level.

From a point of sale movement, the evidence that we have is at this time is that we have not seen a material, nor concerning decrease in point of sale movement.

So most of what we've seen has either been in reduced inventories in the supply chain or in the retail chains and changes in promotional activity.

Although we have a very -- a very good second half promotional plan where we are getting back shelf space as and floor space as a lot of the also rans that didn't sell or sold out of retail inventory and our customers are looking for good quality brands that drive foot traffic into retail stores.

So overall I think we're very -- we're very comfortable with our multi-purpose maintenance products activities given the environment in which they're -- they're needing to operate at the moment.

Got it.

Okay.

Thanks.

And next we'll hear from Liam Burke with Janney Montgomery Scott.

Hi, Garry, hi, Jay.

Hi.

Hi, Liam.

Garry, could you give us the status on the repositioning of the WD-40 Smart Straw as you roll it through the channel with the, the fewer can sizes?

It is primarily complete in the US.

All of the classic inventory has been through the system.

So that transition or that change to Smart Straw and the sizes that we identify we're changing is done now.

And, in fact, you are now starting to see an increased promotional program at point of sale with Smart Straw now that most of the classic product has got out of the system.

So the conversion for all is done.

Great.

And you touched on destocking in certain countries.

Is there any, I mean if I take a step back, is there any major trade area where you're seeing it as opposed to not seeing it in others?

I just got back from a 22-day around the world visit to all of our regions and I'm going to tell you, it is different in every market.

Interestingly enough some of the more under developed markets it is less, we're still seeing good growth in Russia.

We did have a fall-off in China prior to Chinese New Year.

China went kind of dead in December, January.

I was in China a week or two ago and we started to see the local economy in China drive local consumption again.

Certainly there's been shutdowns in some export factories but there is a lot of local activity going on.

In Europe, I was in France, they were [denying] anything at that time where I think that has changed a little bit as Spain, certainly were impacted early, but I think that they may be first to come out.

So it depends on the country and it depends on our development within those countries.

We've not seen a lot of softness in Australia, yet.

But who knows when that's to come.

If you listen to news reports, I think Australia is at the tail end of this wave.

So it's different, in different countries, but there is nothing that I can point to say that's traumatic or we just need to continue to push through and make sure that as we come out the other side of this we're stronger than we've ever been.

Sure.

And how about in North America?

It's in North America the retail channels that have been affected for closure, like the electronics areas, and so forth, aren't that strong with us.

Right.

We're seeing reasonable movement volume in DIY.

So the main area in North America where we've seen softness is in what we call the small rain drop accounts.

These would be small wholesalers that are in regional areas and particularly supplying some of the automotive manufacturing side, not the automotive DIY side.

Automotive DIY seems to be doing well.

There seems to be more repair and maintenance going on, so that plays into our area.

But certainly there is a lot of small business that are really hurting, and that means there is a lot of little people that are hurting.

Fortunately, we've been able to get around some of that, but that's how we saw it.

Canada is pretty stable at the moment.

Latin America we haven't seen that much turmoil, yet.

But again we've got growing markets there.

So overall Mexico has been a little softer than it was, particularly given the currency, the currency's moved about 40% there so we have to be aware of the impact of that on our pricing.

Okay.

And then, lastly, it looks like Spot Shot has got some potential.

And if I look at the, I still call them households and I apologize.

All brands are not the same there.

Some are ideal for harvest mode.

But is Spot Shot one that has the potential where you could put some R&D and some advertising and promotion behind it?

Well we've been putting advertising and promotion behind Spot Shot in this last year.

We've had a very heavy program around the movie Marley and Me.

Spot Shot is a great product with good margins.

Certainly, it meets our above expectation performance at extremely good value criteria and also is a brand that has broader distribution across more trade channels.

Grocery is not the big gorilla in the camp there.

We sell a lot of that -- Spot Shot in the club stores and through hardware and home improvement.

The other was also we launched the green trigger product in the last year, and also the product in the pet area of being a completely green pet product.

So yes, Spot Shot certainly does have a broader appeal to us than maybe X-14 does and we've really pared that back to the mildew product longer term.

2000 Flush just sort of sits out there on its own.

It is still a very big brand in this category and one that we think we can maintain.

So that's sort of the basis of it.

Thank you.

(Operator Instructions).

And next we'll hear from Frank Magdlen with The Robins Group.

Good afternoon.

Good afternoon.

Garry, when you look at the number of SKUs you've dropped in the last couple of years, can you give us an idea of how many that really is?

In the WD-40 brand it's a small number in total.

In X-14 we're going to pare it back probably to the mildew product, which would be three or four that we've dropped.

So it's not a huge number, Frank, being that we don't have a huge number of SKUs anyhow.

We've done more in configuring promotional packs and kind of dropping back from four or five different twin or triple packs to two standard packs in triples or twin packs, nor the promotional side.

All right.

And Jay just back to the tax rate, if we added another $0.5 million for California, you still 32.5% tax rate which is lower than historically.

And you can range between 33% and, say, 37% in any given year quarter to quarter maybe.

So is there anything else out there, or can you give us a central tendency to expect for the balance of the year?

Yes, it will go up.

And I think that we were looking at the remainder of the year tax rate to be upwards around the 35% range.

All right.

Thank you.

Okay.

And next we'll hear from Loran Braverman with Standard & Poor's.

Hi, I don't want to beat a dead horse but I'm confused about the after tax effect of the impairment charge.

Could you just be explicit as to if there are any taxes applied to it?

And if so, what they are?

Oh, sorry yes.

For example, with respect to the impairment charge, on an after-tax basis it's really about $0.11.

So, we were at 2.7 as the -- as the impairment charge, and we do get a tax benefit for that.

All right.

So it's like a normalized tax rate applied to it, then?

Yes.

Okay.

All right, thanks very much.

And we do have a follow-up question from Joe Altobello with Oppenheimer.

Hi, guys.

Just quickly and I apologize if I missed this.

You mentioned the FX impact to the bottom line of $0.30 or so this year.

What is the anticipated impact on the top line?

We got it in sales, I think it's about $30 million in sales overall or $34 million, is it Jay?

Yes.

About $34 million in sales.

Okay.

And again that is primarily due to the conversion from pounds into dollars.

The question that you really wanted to ask us was how do we feel about the impact of exchange rate?

And it's obvious that this has been a catastrophic impact on our business in a year to think that if this was out of the way, we would be about flat in these troubled times at the moment.

So we're paying the price for the great job we've done in developing our business outside of the US.

The good thing about it is it will come back one day and it will normalize at some time.

But it's very sad to be having to convert to US dollars and explain US dollars sales drops when the real reason is because the currency has fallen when the US dollar has strengthened so much.

Okay and then lastly in terms of the guidance on the bottom line the $0.30 impact from FX, I don't think you gave that number after 1Q, so what was the change in your thinking on the FX drag from 1Q to 2Q?

Well, we didn't know where it would be.

If -- in the first quarter we saw a dramatic drop in the exchange rate over a very short period of time.

It went from 2 to 1.4 within 90 days.

So the major impact of the exchange rate hit started to hit us in the second quarter, and now what we've done is normalized it out for the full year assuming it would stay at 1.48 because we think the free-fall has kind of ended.

So we have got a minimal impact -- or sorry, a lesser impact in Q1, a bigger impact in Q2 and you get it all for the rest of the year.

Okay.

So all the change in guidance from the 160 to 175 range to the 135 to 155, is FX and charges essentially?

It is FX, it's the impact of the impairment and then there is a small amount in there of uncertainty, if you will, that is -- if you took our operating before it was 175, it's now 155 or whatever.

Right.

So there's -- certainly we have got a wider range because we're a little uncertain of where things will fall out.

But the majority of it is exchange rate impairment and a little uncertainty.

Perfect.

Thank you.

And the next we'll hear a follow-up from Frank Magdlen with The Robins Group.

Garry, could you just summarize on the pricing side then?

You had some price increases in the first quarter and the second.

Could you just give us an idea of what the average price increase might be, might look like?

It depends on what country and in what product.

But if we talk about in the US, we had an increase on the WD-40 brand in November, it averaged about 10% -- around 10% to 11%.

We didn't have any movement on our home care products.

There were others at other times around the world particularly in the multi-purpose maintenance products to pick up the increased from then oil and now steel cans.

But that is about the only the pricing that is of any significance.

I think Jay said it added about 4 percentage points to the gross margin which was offset by nearly the same percentage increase in cost of goods.

Okay.

And you say 4 percentage points.

You mean 400 basis points?

Yes.

Okay, so we're on the same.

Thank you.

Okay.

And at this time we have no additional questions.

Mr.

Ridge, I'd like to turn it back to you for any additional or closing remarks.

Okay.

Thank you very much.

We look forward to chatting to you again in another 90 days.

And wherever you are in the world, have a good Easter and keep smiling.

Bye for now.

Once again, ladies and gentlemen, this does conclude today's conference.

We would like to thank you for your participation, and have a wonderful day.