WD-40 Co (WDFC) 2010 Q4 法說會逐字稿

Good day and welcome to this WD-40 Company fourth quarter 2010 earnings release conference call.

Today's call is being recorded.

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

Maria Mitchell.

Please go ahead.

Good afternoon and thank you for joining us for our fourth quarter earnings call for fiscal 2010.

Today we're 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 raw materials, impact of new products, changes in foreign currency exchange rates 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, and 10-K, and readers are urged to carefully review these and other documents and to stay up-to-date with our most recent Company developments provided in the Investor Relations section of our website at WD40Company.com.

Our first quarter earnings conference call is scheduled to take place on January 10, 2011.

A special thank you goes out to each and every tribe member.

In the Americas we thank our Canadian, Latin American and our US teams including our team in San Diego.

In Europe, a special thanks to our teams in France, Germany, Italy, Spain and the United Kingdom.

In Asia Pacific we thank our Australian, Chinese and Malaysia teams.

A big thanks to all of our partners around the world who worked closely with the Company all year long to help deliver this past year's results.

We thank our Board of Directors for their support and guidance all year.

We thank our shareholders for their support and confidence in us.

A very big thank you to all our end-users around the world for buying our products.

Thank you, Maria.

Good day, and thanks for joining us on this little overcast Friday afternoon in San Diego.

Today, we reported net sales of $80.7 million for the fourth quarter of fiscal year 2010, an increase of 4% over Q4 of last fiscal year.

Year-to-date net sales were $321.5 million, an increase of 10% versus the same period last fiscal year.

Net income for the fourth quarter was $6.9 million, compared to $7.6 million in Q4 last fiscal year.

Diluted earnings per share for the fourth quarter were $0.41 compared to $0.46 for the same period last fiscal year.

Year-to-date, net income was $36.1 million compared to $26.3 million in the same period last fiscal year, and year-to-date diluted earnings per share were $2.15, up from $1.58 for the same period last fiscal year.

Before we cover the details on our results, I'd like to give you some perspective on this year's performance and give you an update on our Fantastic Four core strategic drivers.

First off, fiscal year 2010 was WD-40 Company's best year yet, in terms of sales, earnings and execution.

While the gradual global economic stabilization contributed to our results, we're also -- we also executed on our two strategic initiatives, geographic expansion and maximizing our position in the multi-purpose maintenance products category.

We also made solid progress on our other two strategic initiatives, acquisitions and joint ventures and the licensing and the exploration of the future of the WD-40 brand.

First on global expansion, our first initiative, it continues to be a major driver for our sales and profit growth.

We shared back with you as early as 1999 where we said we were going to grow our business by brand, by border, and business channel.

Some examples of that are our European business today is $110 million compared to $37 million in 1999.

Our American business today is $180 million compared to $97 million in 1999, and our Asia Pacific business today is $31 million compared to $12 million in 1999.

As for fiscal year 2010, all three trading blocs experienced sales growth period over period for both Q4 and year-to-date with the greatest percentage increases in our markets outside the US.

The growth was due to real volume growth in real economies, with minimal price increases.

Period over period, total sales outside the US grew by 7% in the fourth quarter and 14% year-to-date, as compared to the same period last fiscal year.

As a percentage of total revenues, sales outside the US were 54% of global sales in fiscal 2010, compared to 52% in fiscal 2009.

Maximizing our position in the multi-purpose maintenance products, our second initiative, resulted in the launch of Blue Works and several new products under our 3-IN-ONE brand in fiscal 2010.

We launched our Blue Works product line in December 2009 in the US industrial market.

While our first year was focused on sampling programs and learning the maintenance, repair and overhaul channel or what we call MRO, we were pleased with the reorders we are getting and starting to see in the US market.

As we discussed before, we know the MRO channel is smaller and one that experiences slower build with a different sales cycle.

Our goal is to build one customer at a time for life, just as we did with WD-40.

We have confirmed that we are able to leverage our competencies here, and as such, we intend to launch Blue Works in selected European markets in fiscal 2011.

Blue Works will become a meaningful part of our business over the long term.

In addition to Blue Works we continue to grow our 3-IN-ONE brand in markets outside the US, particularly with the launch of new products in France, Australia, China, Spain, and Germany.

Innovation under the brand includes products geared to such channels as the auto channel with products such as cleaners and conditioners, window -- and protection and lubrication products for locks and windows.

These new products were a significant driver of the sales growth of the 3-IN-ONE brand in the Asia Pacific region, which grew 72% in fiscal 2010 against the prior fiscal year.

For our third initiative, developing our business through acquisitions, joint ventures, licensing, and partnerships, we invested considerable time, talent and treasure in looking for opportunities in the past year; however, we were not yet to find something that fits our strategic and financial criteria.

As always, product price, timing, strategic fit, and return on investment are the key drivers for us.

Our fourth strategic initiative, leveraging the trust we have established with end-users through the WD-40 brand, continues to take shape.

This initiative includes using the WD-40 signature of endorsement on other brands, what we call the DNA, and developing potential line extensions for the WD-40 brand.

This initiative is officially termed BEEP, or Brand Exploration and Extension Project.

We see BEEP as a top priority and one which will provide us with an avenue for growth for our mature markets.

In addition to the work we've been conducting in the US market, we're extending our BEEP research to the UK in fiscal 2011.

That completes the update on our strategic initiatives, so let's move on to the details of our fiscal 2010 year sales results starting with sales.

Our multi-purpose maintenance products were up 7% in Q4 and are up 15% year-to-date.

While most of the growth was driven by our core brand WD-40, we've also seen positive growth from our 3-IN-ONE line and the launch of Blue Works.

Furthermore, we realized the growth across all three trading blocs in the fourth quarter and year-to-date in multi-purpose maintenance products.

Global WD-40 brand sales grew by 8% in Q4, compared to the prior fiscal year, while 3-IN-ONE sales decreased by 5%.

Year-to-date, global WD-40 sales grew 15%, while the 3-IN-ONE sales grew by 10%.

In addition to the improved economy, growth of the WD-40 brand was driven by new and increased distribution as well as promotional activities whereas sales of 3-IN-ONE benefited from our new innovation and distribution.

Blue Works was launched during the second quarter in the US and accounted for less than 1% of our global sales for Q4 and year-to-date.

By trade bloc, sales of our multi-purpose maintenance products grew in Q4, and were up 7% in the Americas, 8% in Europe and up 7% in Asia Pacific.

Home care and cleaning product sales continued to represent a smaller but important part of our business, per our strategic road map, and accounted for 20% of our global net sales in fiscal 2010, compared to 23% in prior fiscal year.

These products include Spot Shot, 2000 Flushes, Carpet Fresh and No Vac, 1001, X-14, Lava, and the Solvol brands.

These products have been impacted by lost distribution, the discontinuation of certain products and the effect of competitive factors and our strategic decision to focus on the multi-purpose maintenance products.

We have exited from some of our low margin product configurations and reduced our presence in the grocery trade channel, where shelf space is expensive and returns are low.

While sales are lower, the sales have been more profitable.

Total homecare and cleaning products were down 7% globally in Q4 and down 5% year-to-date, reflecting some stabilization compared to the double digit decreases we were seeing in the past two fiscal years.

In fact, Spot Shot, which is our largest brand in homecare and cleaning products, was up 6% for the fiscal year, with a growth attributed to some great targeted promotions, particularly in movie premium promotions, which helped increase sales in the US.

By trading bloc, our homecare and cleaning products for the fiscal year were down 6% in the Americas, down 13% in Europe, but they were up 23% in Asia Pacific.

Now on to our segment results.

As mentioned earlier, we experienced healthy growth across all of our three trading blocs for Q4 and year-to-date.

The growth was driven primarily by higher volume and increased distribution as price increases were minimal.

Impact from changes in foreign currency rates were also minimal compared to the impact we realized in the prior fiscal year.

In our Q4, fiscal year 2010 results translated at fiscal year fourth quarter's exchange rates, or as we term, constant currency basis, we would have produced net sales of $82.5 million versus the actual $80.7 million.

Year-to-date net sales in constant currency would have been $318.4 million versus the actual $321.5 million.

Sales in the Americas segment increased by 2% in the fourth quarter driven by increased volume through existing channels and timing of promotional activities.

Sales in Europe increased 5% in the fourth quarter, primarily due to improved economic conditions and the continued growth of Smart Straw as well as increased volume and promotional activities.

Sales in the Asia Pacific region increased 9%, due to improved economic conditions, significant promotional activities, and the favorable impact of exchange in foreign currency exchange rates.

Now for a little more detail.

Let's talk about the Americas first.

Sales in the Americas increased to $45.5 million in Q4, up $1 million or 2% versus Q4 last year.

Year-to-date sales in the Americas were up 7%, the segment accounted for 56% of global sales in the fourth quarter and versus 57% in the prior year.

In the US, sales were flat in the fourth quarter and up 6% year-to-date.

The higher sales were driven by the WD-40 brand, which offset declines in household and cleaning products.

Multi-purpose maintenance product sales were up 5% in Q4, and are up 13% year-to-date.

The sales growth was attributed to improved economic conditions, with distribution and timing of promotional activities.

Homecare and cleaning products sales were down 10% in Q4, and down 7% year-to-date.

Sales in Latin America decreased 5% in the fourth quarter but were up 8% year-to-date with most of the growth in the WD-40 brand.

Sales in Canada increased by 45% in the fourth quarter and 17% year-to-date compared to the prior year period.

Canada's growth was driven by favorable impact from the change in foreign currency exchange rates, as well as volume growth in the WD-40 brand.

On a constant currency basis, sales in Canada grew 36% in the fourth quarter and were up 5% year-to-date.

Now let's go over the pond to Europe.

Sales in Europe increased to $27.5 million in Q4, up 5% versus Q4 last fiscal year.

Year-to-date sales in Europe were up 13%.

The segment continued to account for 34% of the global sales in Q4, as it did in Q4 of last fiscal year.

Europe sales on a constant currency basis would have been $29.7 million in the fourth quarter, reflecting a 14% growth and year-to-date impact from changes in foreign currency exchange rates was minimal, at less than $400,000.

We sell into Europe through a combination of direct operations in certain countries, as well as through exclusive marketing distributors in others.

We have our direct sales force operations in the UK, Italy, France and Iberia, which includes Spain and Portugal, and the markets we term as the Germanics region, which include Germany, Austria, Denmark, Holland and Switzerland.

Sales in our European direct markets were down 4% in Q4, primarily due to an unfavorable impact of changes in foreign currency exchange rates.

Sales in the direct markets were up 10% year-to-date.

The sales growth in the direct markets was primarily due to improved economic conditions, the continued growth of WD-40 and the WD-40 Smart Straw product and increased volume and promotional activities.

We sell through exclusive independent marketing distributors in the Eastern and Northern Europe and the Middle East and Africa with virtually all sales consisting of the WD-40 brand.

All three distributor markets grew versus the prior fiscal year, and in total were up 13% in Q4 and were up 21% year-to-date.

And now down to Asia Pacific, sales in the region increased to $7.7 million in Q4, up 9% versus last fiscal year.

Year-to-date sales in Asia Pacific were up 20%.

The segment accounted for 10% of global sales in Q4 versus 9% in the prior fiscal year period.

A portion of the sales increases was due to changes in foreign currency exchange rates, versus the period over period.

Asia Pacific sales on a constant currency basis would have been $7.5 million in the fourth quarter reflecting a 6% growth.

Year-to-date sales in constant currency would have been $29.1 million, reflecting a 12% growth.

Sales in Australia increased 6% in Q4 and 29% year-to-date compared to the prior fiscal year periods, primarily due to the favorable impact of changes in foreign currency exchange rates.

On a constant currency basis, sales decreased 2% in Q4 but were up 6% year-to-date.

The sales growth was attributed to the increase in marketing and promotional activities.

China and many of the markets throughout the Asian region continued to experience sales growth in the fourth quarter.

Sales in China increased 52% or $800,000 due to significant promotional activities.

Sales through the rest of Asia decreased $300,000 or 10% in Q4.

Year-to-date, China sales were up 28%, and the rest of Asia was up 10%.

I'm going to take a breather for now with the sales update; I'll hand it over to Jay who will continue with the review of the financials.

Garry, thank you.

In addition to the information that we are presenting on this call we suggest that you review our 10-K which we will file on Monday the 18th.

First, we'll look at our fourth quarter results starting with our gross margin.

Our gross margin continues to remain above our threshold of 50%, despite some cost pressures on raw materials.

The gross margin in the fourth quarter was 50.7% compared to the 51.6% in Q4 last year.

The decrease of 90 basis points in gross margin was primarily attributed to the higher cost of petroleum-based materials compared to the prior fiscal year.

Partially offsetting this increase in costs was some positive impact from lower promotional trade discounts.

Looking at the cost of goods sold and the shifts in input costs we experienced a net unfavorable impact of 90 basis points from our major input costs.

This is primarily due to the higher cost of petroleum-based materials, which negatively impacted our gross margin by 110 basis points period to period.

This was slightly offset by lower costs for aerosol cans which had a positive impact of 20 basis points on the gross margin.

Favorable changes in promotional discounts also contributed.

This year's lower level of trade discounts compared to the prior year increased our gross margin by 20 basis points.

Promotional trade discounts, which are treated as a reduction to sales, include coupon redemptions, allowances to retailers for shelf space, cooperative advertising and promotional activity, volume discounts and other one-time or ongoing promotional incentives.

In addition to this, all other miscellaneous items combined for a slight negative impact on our gross margin of 20 basis points.

Now on to operating expenses, beginning with SG&A, or selling, general and administrative expenses.

In Q4, they were $24.1 million versus the $20.7 million in the prior year.

As a percentage of net sales, it was 29.9% in Q4 versus 26.6% in the prior year quarter.

The increase in SG&A expenditure was primarily due to higher employee-related costs.

Employee-related costs increased by $3 million, primarily due to higher bonus expense.

Most of our regions met or exceeded sales and profit targets this fiscal year, compared to the prior year.

We had higher travel and entertainment expenses of $400,000; additional freight costs this year of $400,000 also contributed to the increase in SG&A expenses.

There were some other miscellaneous expenses that combined to increase SG&A by another $400,000.

We had favorable impacts to SG&A.

We received a benefit from changes in foreign currency exchange rates which had a $0.5 million impact in Q4, lower professional service costs of $100,000 due to lower legal fees, and lower R&D expenses in the quarter of $0.2 million.

Advertising and sales promotional expense in Q4 was $5.8 million versus the $4.1 million in the prior year quarter.

Advertising and sales promotion expense increased as a percentage of sales to 7.2% from the 5.3% we experienced in Q4 last year.

The increase was primarily due to the timing of sales promotions as well as the increased level of investment in advertising activities across all segments.

Amortization of intangible assets was $0.2 million in Q4 compared to $0.1 million in the prior fiscal year quarter.

The current quarter includes amortization related to Carpet Fresh and the X-14 trade names, which were changed to definite-lived intangible assets at August 31, 2009.

Both quarters include $0.1 million of amortization related to customer lists acquired in the 1001 acquisition in the fiscal year 2004.

Total operating expenses in the quarter were $30.1 million versus $28.9 million in Q4 last year, with operating income at $10.8 million compared to the $11.3 million in the prior year quarter.

Interest income for both quarters was under $0.1 million.

Interest expense in Q4 was $0.4 million, down $0.2 million versus the same period last year, due to lower principal balance on our long term borrowings.

Other expense in Q4 was $0.2 million and resulted primarily from foreign currency exchange losses.

There were minimal impact of foreign exchange losses in the prior fiscal year quarter.

The provision from income taxes in Q4 was 32.8% versus 29% in the prior fiscal year quarter.

The lower tax rate in the prior year quarter was due to the timing and the mix of income from foreign jurisdictions with tax rates lower than the US.

Net income in Q4 was $6.9 million versus the $7.6 million in the prior year quarter.

Changes in foreign currency exchange rates had an unfavorable impact on net income of $0.2 million.

Q4 fiscal 2010 results on a constant currency basis would have produced the net income of $7.1 million.

Diluted earnings per share were $0.41 in Q4 compared to the $0.46 in the prior fiscal year quarter.

Diluted shares outstanding increased slightly from 16.7 million to 16.8 million shares.

Now on to our fiscal year 2010 results.

As Garry noted, fiscal year 2010 has been our best year ever, and we have been able to grow sales, manage our margin and our operating expenses to produce record earnings.

First, our gross margin, our fiscal year 2010 gross margin of 51.4%, is 190 basis points higher than the 49.5% achieved in the prior fiscal year.

The increase in margin was driven by both pricing and cost factors.

The worldwide price increases that we implemented during the first quarter of fiscal 2009 added 40 basis points to our gross margin in the fiscal year 2010.

Lower promotional trade discounts benefited our gross margin by 80 basis points.

On average, we experienced lower cost of petroleum-based materials in our cost of goods compared to the prior year, which benefited gross margin by 50 basis points.

This was more than offset by the higher cost of petroleum cans throughout the year which had a negative impact on our gross margin of 110 basis points.

Sourcing changes favorably impacted gross margin by 60 basis points while sales mix impacted gross margin by another 60 basis points.

All other miscellaneous items combined to favorably impact our gross margin by another 10 basis points.

Selling, general and administrative expenses increased from $78.1 million to $87.3 million.

SG&A as a percentage of sales increased from the 26.7 million (sic) in the prior year to 27.2% in the current year.

The increase in SG&A expenditure was driven by employee-related costs, primarily higher bonus accruals.

Employee-related costs which include salaries, bonuses, profit-sharing and other fringe benefits, increased $8.3 million for the current fiscal year.

As noted in the Q4 highlights, most regions met or exceeded higher sales and profits targets this year compared to the prior year.

In fiscal 2009, the achievement of these measures by many of our regions was unreasonably low.

Other drivers of our higher SG&A expense for the year include the impact of foreign currency exchange rates, which increased SG&A expenses for the year by $0.7 million, higher travel and entertainment expenses which increased by $0.9 million, and we also had an increase of $0.2 million in our other miscellaneous expenses.

Items partially offsetting these higher costs were lower professional service fees, which decreased by $0.5 million, again due to lower legal costs and a decrease in bad debt expense which was $0.4 million lower than the prior fiscal year.

Advertising and sales promotion expenses increased to $22.1 million in fiscal 2010 compared to the $19.5 million in 2009.

The increase in advertising and sales promotional expenses was primarily attributed to the timing of sales, the sales promotions themselves, the increased level of investment in advertising activities across all of our segments.

As a percentage to net sales, advertising and sales promotion expenses increased slightly to 6.9% of net sales from the 6.7% in the prior fiscal year.

Investment in global advertising and sales promotional expense for fiscal 2011 is expected to be in the range of 6.5% to 8% of sales.

Amortization of intangible assets of $0.7 million in fiscal year 2010 is related to the amortization of the 1001 brand customer lists and the Carpet Fresh and X-14 trade names.

Last fiscal year's results also included $6.7 million impairment charge related to the Carpet Fresh and the X-14 trade names.

No such impairments were recorded in the current fiscal year.

Total operating expenses for fiscal 2010 were $110.1 million compared to the $104.7 million in fiscal 2009.

Operating income was $55.2 million in fiscal 2010, versus the $39.8 million last year.

Higher sales levels combined with improved gross margin contributed to the $15.4 million increase in operating income year-over-year.

Interest income in the current fiscal year was $0.2 million, down from the $0.4 million in fiscal 2009 primarily due to lower interest rates as well as lower borrowings.

Interest expense was $1.7 million for fiscal 2010 compared to the $2.5 million in the fiscal year period.

This was due to our annual principal payment that we made on our long term borrowings in October 2009, that resulted in a lower principal balance.

As for other income and expense, we had net expense of $0.1 million in the current fiscal year versus $0.5 million of net other income in the prior year.

The change was primarily driven by lower foreign currency exchange gains in the current fiscal year.

The provision for income taxes increased from 31.4% in fiscal year 2009 to 32.6% in fiscal 2010.

The tax rate for both fiscal years was lower than normal.

Fiscal 2010 reflects non-recurring adjustments associated with the expiration of certain statutes; and fiscal 2009 reflects the one-time California tax law changes.

Fiscal 2010 net income was $36.1 million compared to $26.3 million in fiscal 2009.

Changes in foreign currency exchange rates had a $0.5 million favorable net impact on net income.

Fiscal 2010 results on a constant currency basis would have produced net income of $35.6 million.

Diluted earnings per share for fiscal year 2010 were $2.15 compared to the $1.58 in fiscal 2009.

Diluted shares outstanding remained constant at $16.7 million for both fiscal years.

Regarding the dividend, on October 1, the Board of Directors declared an 8% increase in the quarterly cash dividend, increasing the dividend from $0.25 per share to $0.27 per share.

The dividend will be payable on October 29, 2010, to shareholders of record on October 14.

Based on today's closing price of $39.48, the annualized dividend yield would be at 2.7%.

The increase of the dividend to $0.27 per share reflects an annualized dividend payout of approximately 50% of this year's earnings.

This dividend payout ratio enables the Company to both retain cash for an acquisition and other investment opportunity and share the growth in net income with our shareholders.

About our balance sheet, at August 31.

Cash and cash equivalents were $75.9 million, up from the $46 million at the end of fiscal 2009.

Net cash provided by operating activities of $56.4 million in fiscal 2010, issuance of Common Stock upon exercises of stock options provided an additional $3.5 million; and these cash inflows however, were partially offset by our annual dividend payment of $10.7 million, excuse me, our annual principal payment of $10.7 million, and our annualized dividends total paid throughout the year, totaling $16.7 million.

$1.8 million of capital expenditures and $1.3 million impact due to unfavorable foreign exchange rates.

We continue to delever the Company with our October principal payment.

As of August 31, our outstanding balance on our original $75 million term loan was $21.4 million.

The final principal payment of $10.7 million will be due in October of 2011.

The Company is authorized to acquire up to $15 million worth of its outstanding shares through December 8, 2010.

To date, we have not made any purchases under the share buyback plan.

This completes the financial review.

We're pleased with our current year results and are optimistic about the growth and future of the WD-40 economy.

Along with a fortress of brands we have a fortress of financial strength and stability that supports our long term growth and the execution of our core strategic initiatives.

More information will be available on the 10-K, which will be filed on Monday, and thanks so much and now back to Garry.

Thanks, Jay.

As Jay said, we are very pleased with our fiscal 2010 results and while fiscal 2010 was our best year ever, we're going to be working hard to top that again in fiscal year 2011.

As we stated earlier, we expected our geographic expansion and initiatives to maximize our multi-purpose maintenance products to deliver revenue growth in the next 12 months.

Volume growth and cost containment are sufficient drivers of our profit targets and we focus on both of these drivers.

If stabilization of steel, tinplate prices, petroleum-based materials and foreign currency rates continue, we expect our sales growth to positively impact our net income.

The following fiscal year 2011 guidance does not include any acquisition activity and assumes foreign currency exchange rates will remain close to the fiscal year 2010 levels.

With that, we expect our fiscal year net sales results to be in the range of $340 million to $355 million or a growth of between 5.7% and 10.4% versus fiscal year 2010.

We expect our global advertising and promotion investment to be in the range of 6.8% and 8% of net sales, and we expect net income of between $37.8 million and $40.3 million, which would achieve an earnings per share of $2.25 to $2.40, assuming 16.8 million weighted average shares outstanding.

I want to thank each and every tribe member for their contributions that they made this year.

It's been such an amazing one, and for being engaged and doing such meaningful work.

You should be proud of what you've helped us all achieve.

We thank our shareholders for their confidence and support this past year.

We hope you're as pleased as we are with this year's performance and we look forward to a productive and successful 2011.

Now as I do in closing I'd like to share a quote with you from Franklin D.

Roosevelt and it is, It isn't sufficient just to want, you have to ask yourself what you're going to do to get the things you want.

Thank you to the WD-40 tribe for doing just that.

Thanks for joining us today.

We would be pleased to now open the conference call for your questions.

Thank you.

(Operator Instructions).

We'll take the first question from Joe Altobello with Oppenheimer & Company.

Please go ahead.

Thanks.

Good afternoon, guys.

Hi, Joe.

First question, on your balance sheet, obviously with over $3 a share of net cash right now, and that's probably going to go up again this year, you guys did allude to some M&A activity or at least attempted M&A activity.

First, what are you looking for on the M&A side in terms of size, in terms of product and geography, and second, what's the largest impediment to keep you guys from doing a deal?

Is it price?

Is it just finding the right fit?

Well firstly as far as what are we looking for, Joe, you are familiar, and I hope other callers are with our continue of end-user metrics that we use which shows you where we have the right to win.

So we're looking for products that are in the repair, maintenance and overhaul area, or in trades, or in the door area, particularly with distribution where we have strength through hardware, home improvements, automotive.

And geographically, we don't mind where they are, but particularly they would be where we have strength to be able to execute.

We've got a very, very substantial global reach, so we have a number of targets that we've been looking at.

The impediment to buy is we took a look at a number of things this year at reasonable depth, and we weren't prepared in most cases to pay the prices that were being paid.

We didn't see the opportunity to create extra value with those, so we just continue to look.

Got it.

Okay.

Size wise, you know that we've never been ones to put the financial stability and the strength of our operation at risk.

We don't want to have a balance sheet that causes us to make business decisions that are not the right ones for the business.

So we've said that if we were to make an acquisition, apart from the cash we might have on hand, we might lever up to 3 to 3.5 maybe, maximum 4 times EBITDA.

So given that we're at about $50 million-some and whatever this other thing brings in, I guess you could say anything in the range from $100 million to $250 million, maybe something around that might be the high end.

But that would be about where we would see.

Got it, okay.

And then in terms of gross margin for next year, I guess it's probably more for Jay.

How should we think about things like pricing and raw materials and promotion levels?

I imagine you guys are not going to benefit from pricing again in 2011 like you did in 2010 and I imagine you probably get a little bit more of a headwind from raw materials and promotions versus what you saw this year.

With respect to pricing, it's a market by market decision, and we'll continue to make that and evaluate that throughout the year.

The pricing impact that we had, while large, was really from the very beginning of fiscal 2009, so it's been, it will be quite a while since we have had any price increase into the market.

So that is I think an opportunity for us.

We certainly have seen some stabilization of our input costs, we saw over the course of our fiscal year, we've seen kind of an increase in the price of oil, but that has remained in a kind of -- it modulates in a range that we're comfortable with.

We are always, I think, concerned as we look forward about the impact of potentially increases in our input costs.

But again, we have, we talked about meeting and exceeding the threshold of 50%.

That is a threshold that below that, we will do a lot to avoid, so I would be thinking of our margin in the 50% as the minimum.

Got it.

Okay and just one last one.

You guys alluded to stabilization in your household product segment.

Are you optimistic you could see some growth in that segment this year?

Joe, it's Garry.

It's not a segment that we have targeted for growth.

If we can keep it stabilized, we did see growth in Spot Shot last year of about 6%.

We're still seeing growth of our household products business down in Asia Pacific region, particularly Australia.

It's reasonably stable in the US.

We were off a little bit in the UK, that may come back a little bit.

But the major growth engine of the Company, there's two things here.

Stabilization and really maximizing the profitability of our homecare products, and then growing particularly the WD-40 brand and the multi-purpose maintenance products brands, both in and outside of the United States, but emphasized on the sort of growth we've been continuing to get outside the United States, which has been good double digit growth over a number of years and we don't see any reason why that should change.

Great.

Perfect.

Thanks guys.

Thanks, Joe.

The next question will be from Liam Burke with Janney Capital Markets.

Good afternoon Garry, good afternoon Jay.

Hello.

Garry?

You mentioned that Blue Works is less than 1% of, I believe, the multi-purpose maintenance segment.

But you also mentioned that you're comfortable, I assume you're comfortable enough to launch the product in certain markets in Europe.

Yes.

Understanding the revenue levels are still pretty small, what do you see in the market penetration with Blue Works in the US to make you feel that it would be a good move to enter Europe?

Well, firstly, we have identified that there is a need in these trade channels for products of the quality that we have.

We've seen that, even though we have a much extended sales cycle, because as you know, Liam, these products aren't found in the hardware home improvement channel.

They are sold through a traditional distribution to an end-user, so you don't get any sell-in, if you will.

The first part of the cycle is to sample, and then if you get acceptance, then you get reorder.

And as we've been tracking our reorders in the United States, we're seeing quite a happy reorder level, so we think that we've got it right.

We also identified that the research that we did in the UK, there is a supplementary benefit for Blue Works in that it does strengthen our position with WD-40 in that trade channel.

So as an overall strategic move, it just makes us a much stronger, much better player in the repair, maintenance and overhaul area.

And that's why we're moving forward with some selective launches in the UK and we'll continue now to build with new customers in the US.

Okay.

And you did talk about extending, I mean there were two discussions in terms of extending the brand.

One is the WD-40 DNA.

Yes.

And then you mentioned actually extending the WD-40 brand itself?

Yes.

Where do you see opportunity there without sort of diluting the core WD-40 brand?

I'm really not at liberty for a number of reasons to talk about where we see the opportunity, but I will tell you that we've spent much of the last 18 months researching where the WD-40 brand could go, and not either dilute the WD-40 brand, in fact, we believe some of the learning tells us that it will actually strengthen the WD-40 brand.

We are now taking that research to another market to retest it in the UK, and we'll be getting into that research next year.

And I'd say about a year from now, we should have a very very good idea of where we can have the WD-40 travel, the WD-40 brand travel, without harming the core product, and what sort of business case there is for that and what the size of the prize might be.

But this is probably a three year research project that we've already invested multi million dollars in out of our R&D budgets, and have probably got another 18 months to go yet before we've got anything exciting.

But it's kind of like one of the strategic drivers that's coming behind the first two.

All of our growth at the moment is in strategic driver one and two, and that's fueling the immediacy of our growth.

Strategic drivers three and four, which is the acquisitions and the development of the WD-40 brand, are what's going to come up behind that.

So we feel we've got a good space now of initiatives to give us not only geographic growth, but also overall Company growth as we go forward.

Great, and Jay, you squeezed a lot of cash out of the working capital line.

Is there anything in particular that was different than last year?

Well, the one big noticeable number was the change in bonuses, which were accrued at the end of this year, which were quite different than the number last year.

We talked about the employee-related costs were up nearly -- or over $8 million, so there's a big jump there.

Right, but there was your receivables were down on a year-over-year basis, your inventories?

We have had -- one of our many initiatives around operational efficiency has been to find ways to reduce our inventory, so that was a project, so we continued to see benefits of that.

Do we see that us driving it down or wringing out more?

No, that's not likely.

It's already at a very low level.

But we are, we've got -- a lot of it has to do more with timing; but that inventory initiative will still continue.

Great.

Thank you.

Yes.

Thanks for staying up, Liam.

All right, I'm on my way now to the bars.

We'll move along to Eric Hollowaty with Stephens, Inc.

Please go ahead.

Hi guys.

Thanks for taking my call.

Most of my questions have been answered but a couple of follow-ups.

In the press release, you reference initiatives to launch additional multi-purpose maintenance products over the next two years, and my question is on the heels of your answer to the last one.

Should we maybe think about that more as more in the second year than the first year, or how do you anticipate the timing perhaps on some of those initiatives that you have under development, potentially hitting the P&L over the next 24 months?

The guidance that we've given you today does not have any material reflection of any new product launches in the next fiscal year.

Okay.

There may however be some, sometime during the year.

There are -- we do have a few things on the table now that we're working on, particularly in the area of 3-IN-ONE, which may be more tactical than anything else.

But anything of other than geographic growth, anything of big growth, won't probably come 'til the year after.

Okay.

All right, great, and anything in the quarter you just reported that you had control over or potentially had control over that you were particularly disappointed with, that didn't go as well as you hoped?

No.

I think we came out pretty quick after the end of the year, and we let everybody know that we expected our earnings to be at or above our top end.

We were $0.01 over our top end, so I think it sort of worked out the way we wanted, the way we thought it would.

And at this time, we've given some guidance that we think is pretty solid for next year.

Great.

And I agree, and if I could just clarify the comment that you made in your prepared remarks about what your guide incorporates in terms of expectations for raw materials costs.

I think I may have missed that explanation.

Could you just reiterate what sort of the general underlying assumption is there?

Well I think that I said that we were -- our guidance was assuming there wouldn't be any radically unexpected movements.

Okay.

So if oil kind of stays in the $75 to $85 range and if steel kind of has some normal things happen -- they are the big two costs.

But certainly if we see oil spike to $150 again, well then we've got another issue.

Right, of course, and remind me, the tinplate negotiations or the rates for this year basically get set in January, is it?

That's historically been our pattern and we're seeing that still, that's where we are anticipating it as well in January.

Okay, great.

Thanks very much guys and good luck.

Thank you.

Thanks, Eric.

We'll move along to Jeffrey Zekauskas with JPMorgan.

Hello, this is Ben Richardson sitting in for Jeff today.

Hi, Ben.

Hello, Ben.

Hello.

Just wondered if you might speak to some of the trends in the offshore markets, what you might be seeing in Europe and Asia, just kind of on a macro level.

Revenue-wise?

Revenue-wise, and general trends.

I mean, we've heard of possibly a slowing China, yet you've posted 28% growth, so just wondering what you're seeing.

Well, let's take a little trip around the world.

If we start in China, we've seen it fluctuate from low teens to high 50% growth as we've been starting to develop there.

One of the things about China for us too, is there is a lot of new markets for us.

So even if the economy slows somewhat, we still have a lot of new market to capture.

So I think we've got a long term bet on China and so far, we've been more than happy with where we've come.

We're nowhere near what China will be into the future, so this is just rolling out the old WD-40 platform if you will.

The rest of Asia, we've seen good business growth in places like Indonesia.

We've just turned up the volume in some of our stuff in India.

We still see opportunities for growth in countries like Thailand, Taiwan, South Korea.

So overall, we think we can continue our revenue, and with that will come profit growth in that region.

We've got a good footprint there with good reach.

We've got about 35 people I think in China and then Australia, we continue to do well in Australia, with development of new product and new launches there, so we're okay there.

In Europe, we continue to see good growth in Russia and the Eastern bloc countries which are again countries that still have a lot of market upside for us.

The UK is our most mature market in Europe and that's been low growth.

In fact it's like the US, it's single digit.

We still see great opportunities in market development in Germany, France, Spain, Italy, all of which have been producing double digit growth year-over-year, and even through the recession time.

So we said a long time ago that we had a lot of work to do outside the United States, and we're doing that.

Down in Latin America, Mexico still continues to grow.

We still see growth there.

We're doing good work in Brazil.

We were certainly excited the other day when we saw that the capsule that was bringing those poor miners out of the ground in Chile was actually being sprayed with WD-40, which kind of made us tingle a little bit, it made it worthwhile work.

But so we're pretty happy with A, the reach; B, the infrastructure and the people we've got, and the market opportunities.

So we've got a lot of bets on our growth outside the US.

All right, and are you able to bracket the currency expectation at all, in percentage terms, what your expectation might be for 2011?

Well, as we look forward in our guidance, we really assumed rates that were consistent with where we're at today.

We typically do not look forward and have any expectation of currency.

We've seen it move both ways no matter which way we expected it.

So we will continue to update our guidance, reflecting the most current currency rates that we see.

I don't know if that helps, but when we give you Q1 guidance, or when we update our guidance in Q1, it would reflect the impact of the currency rates then in effect.

Okay.

That's reasonable.

All right, I'll step back in the queue.

Great quarter.

Thank you.

Thank you.

We do have one more question in the queue.

This is a follow-up from Joe Altobello with Oppenheimer & Company.

Hi guys.

On the last call, you mentioned that there could have been as much as about $6 million of sales that may shift from 4Q to 1Q due to the timing of retailer promotion.

Did that happen and if so, how much got shifted?

Into Q1?

Yes.

Yes, we didn't see that much happening into Q1.

We were -- I think as we shared when we were giving our guidance in Q3, we saw that as a possibility, given that some of our promotions spanned August and September and we just didn't know where they would hit.

They've fallen fairly close to our expectations.

Okay, got it.

Thank you.

At this time we have no further questions in the queue.

I'll turn things back over to Garry Ridge for any additional or closing remarks.

Okay, thank you very much, and we wish you all a happy weekend, and we'll talk to you again in January.

We've got work to do.

Good afternoon.

Again this does conclude today's conference call.

Thank you for your participation.