WD-40 Co (WDFC) 2009 Q4 法說會逐字稿

Good day and welcome to this WD-40 Company fourth 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.

Good afternoon and thank you for joining us for our fourth 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; impacts of new products and brands; and the uncertainty in 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 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, 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 at wd40company.com.

Our annual shareholder meeting will be held on December 8, 2009, at 2 PM at the University of San Diego.

A note to our shareholders, we will be using the notice and access method to deliver our proxy materials this year.

You'll be getting a notice in the mail to help you access your electronic materials and instructions on proxy voting.

Our first quarter fiscal 2010 earnings conference call is scheduled to take place on Monday, January 11, 2010, at 2 PM.

At this time I'd 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 has been a turbulent and rough year but one with many successes.

Unfavorable significant shifts in foreign currency exchange rates greatly impacted our results.

And, excluding that impact, both our sales and net income grew versus the prior year.

The global recession hit us hard particularly in Q2, but we did see the trend reverse in Q3 with further growth in the fourth quarter.

We experienced volatility in our raw material costs, yet managed the business to significantly improve the gross margin to exceed our goal of 50% in the back half of the year.

We took a $6.7 million in impairment charges related to our home care and cleaning brands, which was partially a result of our focus on multipurpose maintenance products.

However that shift in focus has positioned us well going forward, which I will expand on in a moment.

A rough year?

Absolutely.

Down and out?

Absolutely not.

Not only have we been surviving, but we have spent our fiscal year 2009 positioning ourselves for growth in the future.

First, we refined our strategy to focus on multipurpose maintenance products -- the sandbox, as we call it -- where we have the right to win.

The strategy alignment includes new product development, acquisition criteria, WD-40 brand exploration and strategic marketing initiatives.

Second, we developed the WD-40 DNA signature to use on selected products to further leverage the trust and credibility of the WD-40 brand.

Thirdly, we developed Blue Works, an entirely new brand and product line of superior industrial-grade multipurpose maintenance products.

Fourth, we increased our distribution of recent innovations, including two new products under the 3-IN-ONE brand, the 3-IN-ONE No-Rust Shield and the 3-IN-ONE Professional Garage Door Lube.

The bottom line is while there were many unfavorable forces out of our control, we rose to the challenge and managed the business to minimize the impact of those forces on our results.

We decided there was no reason to waste a good crisis.

Furthermore, our initiatives put our business on the path to growth despite a prolonged period of turmoil and uncertainty.

With that said, let's move on to our quarter and annual results.

We reported net sales of $77.8 million for the fourth quarter of fiscal 2009, an increase of 1% versus the fourth quarter last year.

And year-to-date net sales were $292 million, a decrease of 8% versus fiscal year 2008.

Net income for the fourth quarter was $7.6 million, up 64% compared to the fourth quarter last year.

Year-to-date net income was $26.3 million, down 5% versus fiscal year 2008.

Earnings per share for the fourth quarter were $0.46 compared to $0.28 for the same period last year.

Year-to-date earnings per share were $1.58, down from $1.64 last year.

Let's cover in more detail the significant impact on our business and Q4 results, starting with foreign currency exchange rates.

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

The stronger US dollar impacted us in three ways.

First, in converting sales and profits from our international segments; second, in causing price fluctuations on our products to customers and consumers in some international markets; and third, by impacting the cost of our US source products to our international segments.

Changes in foreign currency exchange rates were unfavorable to our results in both Q4 and year-to-date.

Current Q4 results translated at last year's fourth quarter exchange rates or what we term as constant currency basis would have produced net sales of $82.4 million and net income of $8.7 million.

Thus, on a constant currency basis, Q4 net sales would have increased 9% versus 1%, and net income would have been up 85% versus 64%.

Constant currency basis is the translation of our current period results from the functional currencies of our subsidiaries to US dollars, utilizing the exchange rates in effect for the prior fiscal year period.

Year-to-date, the impact of foreign currency fluctuations was significant.

Results on a constant currency basis would have produced net sales of $321.9 million and net income of $30.8 million.

Compared with year-to-date last year, net sales would have increased 2% versus a decline of 8% and net income would have increased 12% rather than a decline of 5%.

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

Exchange rates also impacted the cost of US source product to our international segments and negatively impacted our gross margin this fiscal year.

We are working on alternative strategies to minimize the impact of fluctuating currency exchange rates on the price of costs of products in local markets.

For instance, we recently began manufacturing Smart Straw in Europe which had been exclusively sourced in the US prior.

Another significant impact was the global economy.

In the first half of the year, we saw customers tighten up on inventory and consequently reduce volume in response to the economic uncertainty.

We saw the tide begin to turn in the third quarter with further improvement in sales and customer sentiment in the fourth quarter.

Sales increased 11% in Q3 over Q2, and Q4 sales increased 13% over Q3.

Fourth quarter net sales of $77.8 million represented a 26% increase over the second quarter sales of $61.8 million.

Changes in foreign currency exchange rates had little impact on sales over the last two quarters.

Another significant impact was the expected year-over-year decline in our home care and cleaning products.

Global sales of this product group declined 18% versus last fiscal year as a result of lost distribution, competitive factors and the challenges due to adverse economic conditions.

This product group has shown signs of stabilization with much smaller declines of 3% in the fourth quarter of fiscal 2009 versus the same period last year.

Home care and cleaning products also impacted our profitability in the short-term due to impairment charges of $3.9 million in Q4 relating to our Carpet Fresh and X-14 brands, with a total impairment charge of $6.7 million related to these brands for the fiscal year.

These noncash impairment charges were related to the change to definite lived assets for Carpet Fresh and X-14 brands, which were triggered by declines in profit margins and forecasted sales revenue of the brands.

The lower profit margins primarily stem from the significant can cost increases we have incurred, while the lower sales revenue forecasts were attributed to lost distribution in the US and our strategic decision to divert our research and development resources from our home care and cleaning products to our multipurpose maintenance products and adjacent categories.

We believe this shift in investment of time, talent, and treasure to our multipurpose maintenance products and adjacent categories will reward our shareholders in the long term.

We are currently launching a new line of industrial-grade multipurpose maintenance products under the new brand name of Blue Works.

I will give you more details on this fantastic product line later in the call when we discuss our fiscal 2010 outlook.

A positive impact on our results was the improvement in gross margin percentages.

Between fiscal years 2003 and 2007, our gross margin averaged 49.8% of net sales.

Then, volatility and sharp increases in raw material costs eroded our margin percentage down to 46.8% in fiscal 2008.

We addressed the challenge by implementing several strategies to combat these impacts which helped to improve our gross margin percentage to 51.6% in Q4 and 49.5% for fiscal 2009.

Price increases were needed to cover the sharp rise in raw material costs; yet, they were implemented carefully to respect the relationship with our customers and consumers.

We continue to look at our business and launch initiatives to improve the quality, service, price and value of our products to ultimately improve our gross margin.

These initiatives include supply-chain improvements and product conversions, many of which stem from the work of our cost reduction and containment team or as we call them the CRAC team.

Supply-chain improvements have included investments in capital equipment to reduce manufacturing costs and improve quality; restructure and consolidation of raw material sourcing; contracting with alternate manufacturers and service providers where necessary; improving warehouse and distribution operations and costs of repackaging and redesigning and displays to reduce the cost while maintaining quality.

Product conversions were done on all our three top brands -- WD-40, Spot Shot and 2000 Flushes.

The conversions involved some change in formulations and/or delivery systems that improved the product and added value to the consumer as well as enhancing our gross margin.

These initiatives required upfront investment and expenses that initially impacted the gross margin.

We began to see the changes pay off for us in Q3, adding 100 basis points to the gross margin percentage, and in Q4, which added 50 basis points for the fiscal year.

These figures exclude the lower petroleum base material costs in Q3 and Q4, stemming from both lower oil prices and sourcing changes.

The lower petroleum cost base materials helped us to offset the can increases we incurred earlier in calendar year.

We have been very pleased with the cost benefits we are seeing, with the consolidation, restructuring and other changes our team has implemented for petroleum-based materials.

I hope I've been able to give you an additional perspective on the Company's overall performance.

Now let's talk about sales.

Our sales results in fiscal 2009 versus 2008 by product lines were as follows.

Multipurpose maintenance product sales were up 3% globally in the fourth quarter and up 12% in constant currency.

Year-to-date sales were down 5%, yet up 6% in constant currency.

In the Americas, the product group was up 7% in the fourth quarter and up 3% year-to-date.

Europe, multipurpose maintenance products sales were up 1% in the fourth quarter and down 12% year-to-date.

Yet in constant currency, Europe's sales were up 23% in the fourth quarter and up 12% year-to-date.

Asia-Pacific multipurpose maintenance products sales declined 10% in the fourth quarter and 12% year-to-date due to the continued impact of weakening in economies and unfavorable currency exchange fluctuations in that area.

The home care and cleaning products sales were down 3% globally in the fourth quarter up and 18% year-to-date.

Spot Shot grew in the fourth quarter by 6% and was down 9% for the year.

Spot Shot was the strongest performing household brand in Q4 and year-to-date, attributed in part to the comprehensive campaign built around the Marley & Me film.

The campaign has included commercial advertising on TV and movie theaters, discounts and free-with-promotion promotions, and -- with the movie and the DVD release -- print ads in magazines and special in-store displays.

We expect the brand to further benefit from a similar program launched around the film Cloudy With a Chance of Meatballs, which was the number one film in the first two weeks of release.

Home care and cleaning products in the US were impacted by lost distribution, competitive activities and the overall economic slowdown.

Home care and cleaning products fared better in our international markets yet were negatively impacted from changes in foreign currency exchange rates.

Europe's results at actual exchange rates resulted in declines of 4% in Q4 and 12% year-to-date, yet in constant currency the product group was up 16% and 11%, respectively.

Australia's home care and cleaning products at actual exchange rates resulted in declines of 20% in Q4 and 16% year-to-date.

And in constant currency the product group was down 5% in Q4 and 5% year-to-date.

Now let's turn to our results by trading bloc.

The Americas trading bloc segment increased from 56% of global sales in Q4 of last fiscal year to 57% of global sales in the current fourth quarter.

Net sales in the Americas increased by 4% in Q4 and declined 5% year-to-date.

On a constant currency basis, sales increased by 5% in Q4 and decreased by 4% year-to-date.

Americas' multipurpose maintenance products were up 7% in Q4 and 3% year-to-date.

Home and cleaning products experienced declines of 2% in Q4 and year-to-date declined 19% due to many competitive and economic challenges that we shared earlier.

US sales were up 3% in Q4 and down 5% year-to-date.

Multipurpose maintenance products in the US were up 5% in Q4 and up 4% year-to-date.

And home care and cleaning products were flat in Q4 and down 18% year-to-date.

Our Latin American business, which is primarily multipurpose maintenance products, total sales were up 57% in Q4 and 6% year-to-date.

These sales increases were due to price increases, promotional activities and increased distribution to new customers.

Canada sells both multipurpose maintenance products and home care and cleaning products.

Canada net sales decreased 19% in Q4 and 16% year-to-date.

In constant currency, Canada's sales were down 10% in Q4 and down 3% year-to-date with the dips due to declines in the home care and cleaning products segment.

Now over to Europe, which accounted for 34% of global sales in the fourth quarter in both fiscal years 2009 and 2008.

Total European sales in US dollars were flat in Q4 and declined 12% year-to-date in actual exchange rates.

In constant currency rates, Europe's sales increased 22% in Q4 and 12% year-to-date.

The pound sterling is the functional currency of our European results and when we speak to the results in constant currency, they are based on holding steady the foreign exchange relationship of the pound sterling to the US dollar.

Performance varied across countries in their respective currencies.

The European trading bloc did benefit from the conversion of sales in local currencies to the pound sterling, yet ultimately were negatively impacted by the sharp decline in the exchange rate between the pound sterling and the US dollar.

Most European -- most of Europe experienced sales declines at actual Q4 exchange rates, yet showed positive growth on a constant currency basis.

The following are the results across our European market on a constant currency basis.

The UK increased 19% in Q4 and 11% year-to-date.

The direct markets -- which include France, Germany, Iberia, Italy -- grew 28% in Q4 and 13% year-to-date.

And the distributor markets -- which include Eastern Europe, Northern Europe, the Middle East -- grew 9% in Q4 and 8% year-to-date.

Now Asia Pacific which accounted for 9% of the total sales in both Q4 and year-to-date.

The Asia Pacific region which includes Asia and Australia experienced a sales decrease of 12% in both Q4 and year-to-date compared to last fiscal year.

On a constant currency basis, sales decreased 6% in Q4 and 5% year-to-date.

The declines in Asia Pacific are primarily due to China and the Asian marketing distributors.

China sales decreased 28% in Q4 and 17% year-to-date and the Asian distributors 8% in Q4 and 9% year-to-date.

These decreases were primarily due to the slow economic environment, which began to impact sales during the first quarter.

Sales in Australia decreased 5% in US dollars in Q4 and 14% year-to-date, yet on a constant currency basis grew 13% in Q4 and 7% year-to-date.

The growth in constant currency was the result of price increases implemented during Q1, increased promotional activity and new distribution across all trade channels.

That's it for the sales update.

I need to take a breather so I am going to pass it over to Jay Rembolt, our Chief Financial Officer, who will continue with the review of the financials.

Garry, thank you.

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

Our fourth quarter results, our gross margin increased to 51.6% of sales in the fourth quarter compared to the 44.8% of sales in the same period last year.

The increase in margin was primarily attributable to price increases, lower discounts, lower petroleum-based costs.

Gross margin also benefited from cost reductions resulting from sourcing changes and product conversions.

These positive impacts were offset by some higher costs from aerosol cans, foreign exchange impact and some sales mix changes.

Regarding the price increases, we implemented them in Q1 and Q2 of fiscal '09 and that added approximately 480 basis points to our gross margin percentage in the fourth quarter.

The price increase was primarily attributed -- primarily across our multipurpose maintenance product lines, although we did have some implementing of price increases for our home care and cleaning products in the UK.

Our promotional discounts, during the quarter we had a lower percentage of our sales were subject to trade promotional allowances than in the prior year.

As a result of these lower advertising and promotional discounts, our gross margin was positively impacted by 70 basis points in the fourth quarter.

Promotional discounts are certain A&P costs such as customer rebates, display allowances, slotting, coupons that are treated as a reduction in sales.

Cost of products, as we look at our input costs, we had lower costs for petroleum-based materials but that benefit was nearly offset by the higher cost per aerosol can.

Due to inventory cycles the cost of our petroleum-based products in our Q4 cost of goods continued to be relatively low and positively impacted our gross margin by 450 basis points.

This benefit was offset by the dramatic increase in the cost of our aerosol cans that took effect earlier in this calendar year, which in the US alone had an increase exceeding 40%.

These can increases negatively impacted our Q4 margin by about 340 basis points.

The pricing of our tin plate used in our cans is typically set annually and does not fluctuate with the movement in the price of steel in the spot market.

However with the downward pressure on prices over the last several months, we recently negotiated a small cost reduction on our US sourced aerosol cans.

We expect the lower can cost to start flowing into our cost of goods sold in the second quarter of our fiscal '10.

We anticipate this benefit will be offset by the flow-through of higher, more recent costs for petroleum-based products, however.

Other impacts to cost of goods include sourcing changes and product conversions, fluctuation in currency rates and sales mix.

The sourcing changes and product conversions that Garry discussed earlier positively impacted our gross margin by 110 basis points, and stemmed from new lower-cost formulations associated with product conversions, investments in equipment to improve efficiency and cost of manufacturing our product, as well as lower costs from new manufacturers.

In addition in this quarter, we did not have the upfront costs associated with these changes as we did in Q4 of last year.

These benefits were partially offset by unfavorable changes in foreign currency rates related to the cost of products.

In some of our international markets, a portion of the products that we sell are sourced in different currencies.

Changes in foreign currency exchange rates period to period can cause fluctuations in our gross margin with respect to these products.

In the fourth quarter these fluctuations had a negative impact on our margin by 50 basis points.

Smart Straw is an example of a product with foreign currency exchange impacts.

Smart Straw had previously been manufactured in the US and sold to various segments around the globe.

The strengthening of the US dollar from the prior year effectively increased the cost of Smart Straw to our international segments.

As Garry mentioned earlier, we have recently begun to manufacture and source Smart Straw in Europe which is the second-largest market for the Smart Straw.

Sales mix and other miscellaneous items combined to negatively impact our margin by 40 basis points.

On to operating expenses, beginning with selling, general, and administrative expenses.

For the fourth quarter these expenses remained flat versus the prior period at $20.3 million.

As a percentage of sales, SG&A slightly decreased from 26.4% in Q4 of fiscal '08 to 26.1% in the current quarter.

Favorable impacts to our SG&A would include the impacts of currency exchange rates in Q4 compared to the prior year which decreased the expense by $1.6 million.

We had savings on freight to customers decrease by another $0.6 million due to lower fuel costs, increased shipping efficiencies and as a result of some lower sales in the quarter.

We also had some savings in a variety of other miscellaneous costs that amounted to $0.3 million.

These favorable impacts were offset by higher employee-related costs which increased by $2 million, primarily due to annual compensation increases and staff increases.

Higher R&D costs for the quarter increased by $0.4 million, primarily due to the changes in the nature of and the timing of our new product development activity.

Advertising sales and promotion expense decreased from $4.6 million to $4.1 million in the fourth quarter and decreased as a percent of sales from 6% to 5.3%.

The lower level investment is due to the timing of advertising activities, as well as the favorable impact of foreign exchange rates.

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

Q4 results also include an impairment charge of $3.9 million related to the Carpet Fresh and the X-14 brand that Garry had mentioned earlier.

Operating income from the fourth quarter was $11.3 million, compared to $7.6 million in Q4 last year.

Net interest expense for Q4 was $0.5 million, up slightly from the same period last year.

Other income decreased by $0.2 million during the quarter and that was due to foreign currency exchange losses compared to the prior quarter that experienced some foreign currency exchange gains.

The provision for income taxes decreased from 36.8% in Q4 of last year to 29% in the fourth quarter, primarily due to the increase in percentage of foreign earnings taxed at lower rates as we ended the year.

Net income in Q4 was $7.6 million, an increase of 64% from the $4.7 million in Q4 last fiscal year.

Changes in foreign currency rates period-over-period had an unfavorable impact on net income of $1.1 million.

Q4 results on a constant currency basis would have produced net income of $8.7 million or 85% over Q4 last year.

On a diluted per share basis, earnings were $0.46 in the fourth quarter compared to $0.28 in the same period last year.

Diluted shares outstanding have increased slightly from 16.6 million shares in Q4 of last year to 16.7 million shares in the current quarter.

Now we will move on to our year-to-date results.

Our year-to-date gross margin percentage grew 270 basis points to 49.5% of sales.

The gross margin improvement is attributable to the same factors noted in our Q4 discussion.

Price increases added approximately 470 basis points to gross margin and positive impacts from product conversion, sourcing changes added an additional 80 basis points.

Higher cost of aerosol cans, however, impacted our gross margin negatively by 150 basis points and foreign currency exchange rate fluctuations had a negative impact on our margin by 60 basis points, most of which is related to our European segment.

A shift in sales mix from year-to-year had a negative impact on gross margin by another 40 basis points, along with some closeout transactions and other miscellaneous items which had another 40 basis point impact.

The cost of petroleum-based products had a neutral impact to gross margin year-over-year.

Whereas the cost of petroleum-based products increased in fiscal 2008 and peaked in our Q4, the opposite occurred in 2009 as petroleum products in our cost of goods peaked in Q1 and gradually decreased in Q2 through Q4.

As we look to our operating expenses, our SG&A year-to-date expenses decreased from $83.8 million to $78.1 million; as a percentage of sales increased slightly to 26.4% -- from 26.4% to 26.7%.

The decrease in SG&A stems primarily from the changes in foreign currency rates compared to last year, which had an impact of $7.8 million on the expense line, as well as freight cost, which decreased by $3.2 million due to lower sales, fuel, lower fuel costs and improved shipping efficiencies.

Partially offsetting some of these decreases were employee-related costs which includes salaries, profit sharing, fringe benefits which increased $4.1 million, primarily a result of compensation, annual compensation increase and additional staff being needed during the year.

Research and development costs increased $1.1 million, primarily due to the timing of the new product development activities.

Other miscellaneous expenses including stock-based compensation, professional service fees, bad debt expense had a slight increase in total of about $0.1 million.

Advertising, sales and promotional expenses decreased slightly to $19.5 million and increased as a percentage of sales from 6.3% in 2008 to 6.7% in the current year.

The slight decrease in the expenditure was due to the timing of investment activities as well as the favorable impact of foreign currency exchange rates which had a $1.7 million impact in the current year.

Amortization of our intangible assets for the year was $0.5 million related to the 1001 brand customer list.

Year-to-date results also had a second quarter and a fourth quarter non-cash impairment charge totaling $6.7 million related to the Carpet Fresh and X-14 brands.

Operating income for fiscal 2009 was $33.9 million or 13.6% of net sales, compared to $42.7 million or 13.5% of net sales in fiscal year 2008.

Net interest expense for the year was $2.1 million, up $0.4 million from fiscal 2008.

Although we had lower interest expense from our lower debt, we also had lower interest income due to the lower interest rates in the current year.

The lower interest income more than offset the benefit that we have achieved from our lower interest expense.

Other income decreased by $0.4 million.

The decrease versus the prior year was due to foreign currency exchange losses in the Europe segment in the current year.

The provision from income taxes decreased 34.2% down to 31.4% in the current year, primarily due to tax benefits from changes in the California tax law realized in the second quarter.

The lower tax rate was also attributable to a mix of -- a favorable mix of foreign income taxed at lower rates as well as the renewal of the federal R&D credit.

Year-to-date net income decreased 5% to $26.3 million compared to $27.6 million in the same period last year.

Changes in foreign currency exchange rates had a $4.5 million impact on net income.

Fiscal 2009 results translated to US dollars at the prior-year exchange rates or on our constant currency basis would have produced net income of $30.8 million or 12% above our 2008 figures.

On a diluted share basis, earnings were $1.58 in fiscal 2009, compared to $1.64 in fiscal 2008.

Our diluted shares outstanding have decreased to 16.7 million in the current year compared to the 16.8 million that we had throughout the full fiscal year of '08.

Regarding the dividend, on October 2 the Board of Directors declared a quarterly cash dividend of $0.25 a share payable on October 30, 2009, to shareholders of record on October 16, 2009.

And based on our closing price today of $31.80, the annualized dividend yield would be 3.1%.

About our balance sheet at August 31, 2009, cash at $46 million was up from the $42 million at the end of fiscal '08.

Cash provided by operating activities was $34.6 million.

We had issuance of some common stock upon the exercises of stock options which provided additional cash proceeds of $1.3 million.

These cash inflows were partially offset by our $10.7 million in annual principal payment as well as $16.5 million of dividends.

And we had approximately $3 million of cash used for capital expenditures during the period.

We continued to delever the Company with our annual $10.7 million principal payment.

As of August 31st, our outstanding balance on our original $75 million loan was $32.1 million.

Generating consistent cash flow and dividends to our shareholders as well as maintaining a strong balance sheet continued to be priorities for us.

We believe that our existing cash and the liquidity available for our undrawn $10 million line of credit and our anticipated cash flows from operations will be sufficient to meet the projected operating and capital requirements for our business in the near future.

Again, more information will be available in our 10-K.

Please take an opportunity to look at that next week.

Thanks so much and now I'll turn it back to Garry.

Thanks Jay.

Now let's discuss our outlook for guidance on fiscal 2010.

We see sales growth for ourselves in light of the improving economic conditions and the initiatives we have been working on as part of our strategic vision, including the launch of our Blue Works product.

We anticipate the growth to flow through to net income if raw material costs maintain at recent levels.

The following fiscal year 2009 guidance does not include any acquisition activities and assumes foreign currency exchange rates will remain close to fiscal year 2009 levels.

We expect our fiscal year net sales results to be in the range of $298 million to $318 million -- a growth of between 2.2% and 8.9% versus fiscal 2009.

We expect our global advertising and promotional investment to be in the range of 6.5% and 8% of net sales.

We expect net income to be between $30.2 million and $32.8 million which would achieve EPS or earnings per share of $1.80 to $1.95 assuming 16.8 million shares outstanding.

So before I leave you today, I would like to share a quote with you from our 16th US President, Abraham Lincoln.

"The dogmas of the quiet past are inadequate to the stormy present.

The occasion is piled high with difficulty and we must rise with the occasion.

As our case is new, so we must think anew and act anew."

Finally.

WD-40 Company has two significant assets, products and people.

To all our tribe members -- the folks in the United States, Spain, France, Germany, Italy, the UK, Scotland, The Netherlands, Denmark, Portugal, Canada, China, Australia and Malaysia -- a special thank you as you carried the day in this challenging year.

You never gave up.

You resisted panic for a belief that we all have something significant yet to do.

A really big "good on you, mates" to all of you.

Thank you very much for joining us today.

We'll be pleased to answer your questions at this time.

(Operator Instructions).

Liam Burke with Janney Montgomery Scott.

Good afternoon, Garry.

Good afternoon, Jay.

Garry, Southeast Asia or Asia-Pacific rather was down both in the quarter and the year.

If I took out -- how did China do within that -- within those results?

China had a tough year.

It started just before the Chinese new year last year when manufacturing went down.

I don't think it's in any way a long-term issue.

We have seen China start to come back again now.

So overall, we grew China, I think, the year before 65% or something thereabouts.

So it was a big comp to come round in this condition.

So I'm comfortable with where we are and I think we will start to see China circle around.

Okay.

And on Blue Works, is the performance or the sales, do you expect that to be more of a second-half event or would you see something sooner, earlier in 2010?

We don't start to ship until November, early December.

So there is virtually nothing in this first quarter.

Okay.

And Jay, I know with a lot of activities overseas the tax rate tends to jump around.

Is there any tax rate that we can sort of estimate for 2010?

As I look forward I think we are looking and projecting it around 34.5%.

Thank you very much.

Jeff Zekauskas with J.P.

Morgan Chase.

Good afternoon.

The impairment charge of $3.95 million pretax.

What was that after tax?

Did you pay any book taxes or were there book taxes allocated to that?

Yes.

We got a full tax benefit for that.

So that is the book number.

Or that is the book charge and net of our tax rate gets us to a net number less than that, which we didn't break out separately.

Right.

That's what I'm asking about.

What that number is?

We didn't break it out.

So we don't know the after-tax effect of the $3.95 million charge?

Well I mean we take the tax -- we hadn't specifically broken it out, but it's the easy math on our average tax rate.

(multiple speakers)

All right.

I have got a couple more small questions.

In your revenue projections for next year when you do your earnings guidance, what do you include for Blue Works?

There's not a lot.

We don't ship Blue Works until the late November, early December.

So we don't see a big inflow of Blue Works revenues until certainly the back half of the year.

So there's not a material amount of Blue Works, certainly, in the first half of the year.

We think it will be a slow buildup, but we will know more as we start to ship in the first quarter.

There's a little unknown there.

We are getting very favorable responses from our -- from the end-users and the customers.

But the real volume won't be known until we start to ship.

At this time the guidance doesn't have a lot of Blue Works in it.

So what is the goal for the fourth quarter of next year?

Do you want to be at -- I don't know -- a $2 million quarterly run rate or $3 million?

Is that the right order of magnitude or is the order of magnitude larger or smaller?

Jeff, I honestly would not be doing justice to try and predict that because I will be materially wrong whatever number I give you.

We know that Blue Works is a -- we've identified Blue Works as being a great opportunity going forward.

We won't know its run rate completely until we start to ship distribution and get our customers buying it.

And we intend to update the market every quarter on -- in a step-by-step basis on how Blue Works is being accepted and what its success is looking like.

Okay.

And then lastly, Jay went through a nice discussion of all the puts and takes on the gross margin.

And I think I probably muddled myself in listening to it.

As I understood what you were saying, Jay, it sounded like price increase was the largest single factor behind the year-over-year gross margin improvement.

And that raw materials year over year hadn't appreciably changed.

Is that true or have I muddled that?

In some ways the oil-based materials year over year were about equivalent so there was a minimal impact in an annual basis year over year of oil-based materials.

We did have a fairly significant increase in the cost of our cans which had an impact -- a negative impact.

But yes.

So our input costs on an annual basis were not favorable to us.

Right.

But so it was prices that really determined the gross margin leverage in the quarter?

We did have a significant impact from price increases in the fourth quarter.

Although in the fourth quarter which was different than the annual year we did get benefit from lower oil-based products.

We got nearly 450 basis points from that, I believe.

(multiple speakers)

The other impact, Jeff, was actually realizing the improvements that we've made in the supply chain, particularly capital equipment that we put in place at our packages that reduced our Smart Straw costs because of increased line speed.

We benefited from reformulations in products such as our 2000 Flushes product, Spot Shot.

So it's really there were -- the reductions or the savings came from -- some from that area.

I think to the magnitude of about -- it was 110 basis points, was it, Jay?

Yes.

So then lastly can you give me an idea of whether your volumes changed in the fourth quarter versus the fourth quarter last year?

Globally, if you took it in US dollars.

Well, you're talking volumes globally.

Volumes -- like the number of ounces you sold.

Did the number of ounces you sold change very much?

We never really discuss that, Jeff.

Okay.

All right.

Thanks very much.

Alan Robinson with Royal Bank of Canada.

Good afternoon, everybody.

I guess the first one is for Jay.

Jay, could you clarify the cost reductions you've negotiated on tin can costs?

So, I know normally you get a reset every January, I guess, in terms of your tin can input costs.

So is it the case this time around that you just pre-negotiated that price which will be in effect for 12 months?

Is that right?

We don't know that to be the case.

What happened is that, as we got near the middle of our year in late summer, there had been a continued gap between the underlying cost of steel and tin plate.

And there was a number of discussions and negotiations that suggested hey, that price should come down.

We had some acknowledgment from can manufacturers that they also felt that that price should come down.

So as we continued having those discussions they finally -- we were finally able to achieve a -- I think it was a 6% price reduction in the cost of cans.

That will be in effect throughout the remainder of our calendar year, and I am not sure what the temperature is for our January price reset.

(multiple speakers)

Okay so you'll have to revisit that.

Okay.

That will be revisited on our first quarter call.

Okay.

And then you mentioned that this will take effect in the second fiscal quarter of yours since, presumably, it takes a while for these cheaper goods to go through your inventory.

That's exactly right.

Yes.

Got you, okay.

And then, let me see.

Clearly you did very well on the gross margins this quarter in the fourth quarter.

I guess my question is, you discussed your view of gross margins for the fourth quarter back on your last call in July where you stated you expected the margins to be perhaps somewhere close to what you saw in the second quarter, just below 50%.

So I guess my question is what changed between your view in July and the actual -- what actually happened in the fourth quarter where you achieved these almost 52% gross margins?

Well, I think that when -- and it may be a misunderstanding of what we were saying in July, but when we were looking in July we saw the fourth quarter margin which had achieved 50% or -- excuse me, the third quarter margin which was up over 50%.

And we projected that forward as opposed to the year-to-date third quarter margin which was still down below 50%.

So we saw the margin at holding above 50% for the fourth quarter.

And we would have -- I will apologize for the lack of clarity in that communication.

But I think you will and the answer -- the next question that you probably have is and we see, given what we know today that we are going to be able to maintain the level of margin in that 50% range through the year as long as oil doesn't hit $140 a barrel and other things go south on us.

But certainly there are a lot of embedded cost reductions in our system now that we are comfortable with, particularly in some of the areas of production and our outsourcing program.

All right.

It sounds like your production improvements really were --- did perhaps a little bit better than you had expected.

Is that fair?

They didn't -- we didn't get the full benefit of them until later in the year.

And then that may be hit by mix of sales too.

We -- for example, the amount of Smart Straw, we put in the new high-speed lines for Smart Straw and certainly the more Smart Straw we sell there's a benefit there.

Got you, okay.

And then just looking at your home care line in Europe.

It looks like it is doing just fine on a constant currency basis.

Yes.

How do you view your competitive situation there in Europe in terms of home care over the next year or two?

Are you starting to see some of the larger multinational home care competitors increase their investments in promotion there?

Well, the answer is yes.

But I think in the category we are in over there which is a little different to what we are in here, we have a very strong brand in the 1001 that dominates in one particular segment over there which is basically the carpet care and cleaning segment.

And we are -- so we are a much stronger brand in that segment than we were in the US, where we had one or two products in a segment.

So I think we are reasonably comfortable that we've got a good robust brand in 1001 and should see that continue as long as we continue our level of investment and our product development for that brand in the UK, which we intend to do.

Okay.

Then last question -- are you shipping Blue Works globally next year or is it just domestically?

We will start in the US in November/December, and we believe that come the midyear, you'll start to see it move definitely into Europe and probably into Asia later in the year.

But we have some learning still to do.

But there is a lot of activity going on now in determining market opportunities in Europe and Asia, particularly given the formulations are all complete.

Okay.

Thank you.

[Henry Kaplan] with Oppenheimer.

Good afternoon.

Thanks for taking my questions.

I guess my first question is, I'm surprised to hear you say that there was a lower level of promotional activity in the quarter given that a number of companies have recently talked about becoming more promotional.

So I was just wondering how you -- why that was?

Is there something in particular in your categories or with your retail partners that's driving that?

It was primarily timing.

I think if we look at -- there might have been a couple of -- if I look at some of the larger promotions that we have at customer, I think that there might have -- what I had heard is there are a few that slipped into the beginning of fiscal '10.

So there was some of that.

Yes, there was no decisive move to change.

It was just the way that cards fell at the end of the year.

Got it, got it.

And then in terms of, in terms of the advertising.

Advertising expense was certainly lower than we had expected.

Just wanted to kind of figure out why that was.

Are you benefiting from lower advertising rates or is it just because you sort of cutback or something else?

Advertising comes in a lot of different shapes and forms.

We don't do a lot of what people would call the traditional advertising that comes from lower rates on TV and whatever.

But certainly we do use a number of different vehicles and it's a matter of timing and when we move them around and what we do at certain times that creates that.

So no, I don't think so.

It was still within our range.

Maybe a little bit at the lower end of the range.

Certainly it wasn't for any particular reason.

Got you.

But for next year, you are thinking about 6.5% to 8%?

Is that correct?

Yes.

Okay, just to be clear.

And then I just -- finally, just wanted to gauge your sense about -- talk about the acquisition M&A environment.

You are sitting on, roughly, $45 million of cash right now.

I know you talked about deleveraging the balance sheet, wanted to see if you -- where M&A came into play if at all?

We continue to, within our sandbox and where we have the right to win, look for the opportunities.

We have looked at opportunities in the past year and quarter.

Nothing has floated our boat yet.

But we do have resource.

We have talent and treasure that is assigned to that role particularly.

And we certainly have a very clear understanding of what we don't want.

And therefore we are busy trying to find what we do want at a price that we believe is value to our shareholders and something that we can return, get some good returns out of.

Got you.

Would that likely skew towards the multipurpose lubric maintenance products or the home care and cleaning?

No.

No.

We have stated that we will be reducing the impact of the home care and cleaning products on our business over time.

And you would not find us making acquisitions in that space.

If you had a chance to go online and look at our presentation you will see what we call our sandbox or our focus slide, and we will be looking at multipurpose maintenance products and adjacent categories to that.

Really focusing on our end users which are trades, do-ers, home enthusiasts, so it will be more in that area where we feel we have a lot more opportunity to maximize the value of those acquisitions.

Got it.

And we will be looking globally too.

It's not necessarily in the US.

We see those opportunities in other countries around the world.

Okay.

And then just the last question.

I think on the call you mentioned retailers maybe becoming a little more aggressive in terms of inventory levels.

Wanted to see to what extent that had been -- maybe a rebuild in inventory at retail had been built into your guidance for 2010?

I don't think there is a rebuild.

I think there's a stabilization.

I mean there may be a new level now, but you can't do business from an empty barrow.

So the retailers have to make sure they have got product on shelf.

But we have never really benefited from a great buildup in inventory.

Our product moves through fairly quickly.

But what we are seeing is a new level of certainty which is getting retailers to promote more and really work with us on some of those activities.

But I am not anticipating that our results are a huge inventory buildup.

I think they are more about promotional sell through and those sort of activities.

Great.

Thank you very much.

Frank Magdlen with the Robins Group.

Good afternoon.

That was a nice quarter.

I guess I'm trying to -- I'm looking and saying from your perspective, what went better than you thought?

You gave guidance and I know that you do a good due diligence on that.

But some favorable things happened.

And maybe you could highlight one or two things that (multiple speakers) --?

I think what went better than we thought is things didn't get any worse than they did.

And I know that's a funny sort of answer but you know, I think we live in times of uncertainty and certainly that uncertainty I think got a little less uncertain in the quarter.

Certainly our gross margin was a little better than we had anticipated.

And that was a pleasing offset to us.

We started a little bit to see the dollar come back a little bit.

That was good for us.

We loved the stabilization of our household products in the US.

We think we have got that stabilized.

The US had a good comeback in the fourth quarter.

So more promotional activities than usual.

And so, I think overall the business climate got a little less certain -- a little more certain, I'm sorry.

And we were able to control costs pretty well.

You know, we've done a pretty good job of keeping the lid on stuff through the years.

So I think that was also good.

Jay, do you --?

No, I think again the margin did improve a little bit more than we had expected.

We were anticipating a little over the 50%.

So to see it get to 51.6% was not what we clearly saw as we gave guidance in the third quarter.

Okay.

And then, Garry, when you are looking out and trying to -- as we are trying to figure out quarterly results is there anything other than the back end with Blue Works that's taking place that might change the strength of a quarter?

Really hard.

You know, we've always said please don't try and manage us quarter by quarter.

And I know that's tough because that's something you have to do.

But it will depend on when promotions ship and when they fall.

We feel okay about the year at this time and we are going to -- I'm describing this year as a perfect game of golf.

And why do I say that?

We have to play each month as if it was a new hole.

Not letting the past month or the hole in front of us influence our thinking that much as far as operational excellence is concerned.

So I think that the things that are good are that there is a little stability.

The doom and gloomers have probably gone away a little bit and that's opening up our opportunities.

So I wish I could give you better guidance.

We did guide quarterly last year because we saw such a big fluctuation in what happened before, but we don't necessarily know if that is going to happen this year.

All right.

And then the switch to manufacturing Smart Straw in Europe.

Was that in effect for all of the fourth quarter?

A large chunk of the fourth quarter.

Okay.

All right.

Thank you very much.

(Operator Instructions).

A follow-up from Jeff Zekauskas.

Just a short question of clarification.

When you were talking about your prices being up did you mean your prices were up or do you mean your mix was positive?

Well, no.

When we -- if we look at the impact of our margin -- and I'm hoping we are talking about the same thing, Jeff.

Sure.

We did have price increases in Q1 and Q2 of '09, of the current year, which had an impact as we got to the end of the year and when we have comparisons year-on-year.

So that's -- we saw for the year, the full year we saw nearly 470 basis points of impact because of the price increases.

Is that the question you were asking or did I miss it?

What I was trying to understand is, I mean you have done a nice job of penetrating your demand base with more Smart Straws, and I would imagine your Smart Straw can is more expensive than the non-Smart Straw can.

And you have had other improvements in your product line.

And so I was wondering how much came from selling these higher priced cans and how much came from a straight price increase with the same product year over year?

About 39% of our business globally is now Smart Straw.

The base.

So there is a big part of that is Smart Straw.

And there is no doubt that our revenue per ounce has increased because we had an increase in cost with Smart Straw and an increase in sale price with Smart Straw.

So yes there is a little bit of that going on.

But it is still about 39% of our total volume of our multipurpose maintenance products.

So there's still 60% that is in the classic can.

So by the end of next year what do you think the percentages will look like?

Probably reasonably similar because we are not -- the big change was the conversion in the US.

We are not planning to wholesale-ly convert any other markets.

Although we are increasing our volume in Smart Straw in the developed European markets through just over time, that we're more allowing the consumer there to make the choice.

And they are making Smart Straw choices.

So I don't know that that will change a lot from what I can see today.

Okay.

Just I guess a couple of more questions?

So in the first quarter of fiscal 2010, you are going to go up against a revenue comparison that really happened, I guess, before the financial crisis began.

So I would think that -- and you probably still have some tougher currency comparisons, all things being equal.

So all things being equal is it likely that your first quarter is your toughest earnings comparison of the year?

I would choose -- as I never do make those comparisons public -- not to make that comparison.

But you see the thrust, I mean, you are up against.

Right.

Yes.

But I'm not sure that the economic conditions had not already started to happen back then.

And also remember, the first quarter last year, we were selling in against a price rise as well.

So I think that the thing that we're looking at now is we are going to a new year.

Our margins are holding up.

We think volumes have stabilized.

We are going, we are getting a lesser impact on the US dollar.

I mean we won't get the full -- the biggest impact of the dollar was in the second quarter when we dipped down to $1.36 to $1.40.

So the comps are going to get better going forward.

But I don't know they're going to be -- they're that dramatic.

So do you think you can grow household products next year?

No.

Or is that too hard?

No.

We don't plan to grow household product.

It will grow outside of the United States.

We are now harvesting household and I think it's stabilized.

But because we made the decision not to increase investment, particularly in R&D, and put it into things like Blue Works and some other initiatives that we've got in the works for our multipurpose maintenance products and adjacent categories, no; we won't.

Good.

Thank you very much.

We have no further questions in the queue.

I will turn the conference back to our speakers for additional or closing remarks.

Okay, we're done.

Thanks very much and we will be with you come December time.

That does conclude today's conference.

We do appreciate your participation.