WD-40 Co (WDFC) 2013 Q4 法說會逐字稿

Good day, and welcome to the WD-40 Company fourth-quarter 2013 earnings release.

Today's call is being recorded.

I would now like to turn the call over to the CEO, Mr. Garry Ridge.

You may begin.

Good afternoon, and thank you for joining us for our fourth-quarter fiscal year 2013 earnings call.

Joining me today on the call is Jay Rembolt, our Vice President of Finance and Chief Financial Officer.

This call contains forward-looking statements concerning WD-40'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, the impact of the introduction of new product lines, and the fluctuation of global market conditions, both in the United States and internationally.

The Company's expectations, beliefs, and projections are expressed in good faith and are 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 8-K, 10-Q, 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 fiscal year 2014 earnings call is scheduled for Wednesday, January 8, 2014.

Moving on to the report on our results.

Today, we reported net sales of $93.5 million for the fourth quarter of fiscal year 2013.

An increase of 10% over Q4 last fiscal year.

Year-to-date net sales were $368.5 million, an increase of 8% over the prior-year period.

Net income for the third quarter -- fourth quarter was $8.1 million, compared to $9 million in Q4 last year.

Diluted earnings per share for the fourth quarter were $0.53, compared to $0.56 for the same period last year.

Year-to-date net income was $39.8 million, an increase of 12% over the prior-year period, and year-to-date diluted earnings per share were $2.54, up 15% from $2.20 in the prior fiscal year.

Before we focus on the sales results, let me review the progress we've made towards our strategic initiatives.

Our first strategic initiative in 2013 was to maximize the WD-40 brand.

Fiscal year 2013 marks the Company's 60th anniversary.

And while WD-40 multi-use product has been a household staple for decades, we see ourselves as a growth Company, and performance this year supports that perspective.

Sales of the WD-40 brand increased by 16% in the fourth quarter and 13% year to date, compared to fiscal 2012.

The growth was driven by increased distribution and promotional activities on our multi-use product in Europe and China, as well as new distribution of the specialist product line in the US and Europe.

We are excited that all the product lines under the WD-40 brand experience growth year over year.

The second strategic initiative was to be the global leader in the Company's product categories within our prioritized platforms.

We experienced distribution and -- of our -- sorry, we expanded distribution of our existing WD-40 specialist product line to 22 additional countries in fiscal year 2013 and introduced WD-40 Bike in the US as well as WD-40 Specialist Motor Bike in the UK.

We've learned from these launches and are developing new programs and market expansion for both of these products lines in fiscal 2014.

Our third strategic initiative is strategic business relationships.

This encompasses acquisitions, partnerships, and strategic alternatives for our brands and products.

The Company has been disciplined in evaluating acquisitions and has not yet found the right opportunity.

We continued to evaluate strategic alternatives for our Company's home care and cleaning products during the fourth quarter, but no decision has been made to date relative to the future strategic plans for these brands.

Our next strategic initiative is about -- around global innovation efforts.

The Think Big reorganization completed during the third quarter resulted in us creating three innovation teams to better serve regional needs.

During the fourth quarter, we moved existing innovation closer to testing and launch, and new innovation teams identified new products to add to our pipeline.

We look forward to additional uses and users and markets for these new products that will come to us in the coming periods.

And the fifth strategic initiative is the development of our people.

Last but not least, of course, under our fifth strategic initiative, we continue to attract, develop, and retain tribe members to execute our vision.

We offered our tribe members three development opportunities in fiscal 2013.

First, we continued our [Leadership Left] project, where tribe members developed talents and skills for both their professional growth and the Company's performance.

Secondly, we launched Tribology University, a program on technical product knowledge that enables our tribe to better converse about the attributes and features of our current and many new products.

Third, we provided and created new career opportunities with the Think Big reorganization.

Some of our employees were able to transition to positions focused on new product development, while others that were focused on home care and cleaning products were given opportunities to support customers' initiatives -- an initiative under our multi-purpose maintenance products.

That completes the update on the strategic initiatives, so let's move on to the details of our fourth-quarter and year-to-date results, starting with sales.

Sales in the multi-purpose maintenance product category accounted for 87% of global sales in the fourth quarter with the category sales up 16% in Q4 and up 12% year to date, compared to the prior fiscal year periods.

Products under this category include WD-40 and 3-IN-ONE brands as well as immaterial sales from Blue Works brand and the WD-40 bike product line.

By trading block, sales of multi-purpose maintenance products in Q4 were up 6% in the Americas, up 28% in EMEA, and up 15% in Asia-Pacific compared to the prior-year period.

Year to date, sales of multi-purpose maintenance products were up 8% in the Americas, 18% in EMEA, and up 9% in Asia-Pacific compared to the prior fiscal year period.

Home care and cleaning products category accounted for 13% of global net sales in Q4; sales down 16% in Q4 and down 15% for the year.

Brands under this category include Spot Shot, 2000 Flushes, Carpet Fresh, and No Vac, the 1001 brand, X-14, Lava, and Solvol.

By trading block, sales of our home care and cleaning products in the fourth quarter were down 19% in the Americas, down 10% in Europe, and down 11% in Asia-Pacific.

Year-to-date sales of home care and cleaning products were down 20% in the Americas, down 7% in EMEA, and relatively flat in Asia-Pacific compared to the prior fiscal year.

Now onto the results by segment starting with the Americas.

Sales in the Americas segment increased 1% in the fourth quarter and were up 2% year to date versus the prior-year period.

The segment accounted for 51% of global sales in Q4, as compared to 55% in the prior-year period.

Total sales -- total US sales were flat in Q4 and up 1% year to date.

Multi-purpose maintenance products increased 6% in the fourth quarter, primarily due to new and increased distribution of the WD-40 Specialist product line.

Home care and cleaning product sales decreased 22% in the fourth quarter, driven by Carpet Fresh, Spot Shot, and automatic toilet bowl cleaners, which declined 39%, 35%, and 4% respectively.

Home care and cleaning products continue to generate positive cash flow despite sales decline, with a portion of the decline stemming from our decision to reduce business in low-margin products and programs which require significant trade discounting.

Sales in the category also declined due to decreased promotional programs, competition, and category declines as well as volatility of orders within the warehouse club and mass retail channel.

Sales in Latin America were up 8% in Q4 and up 9% year to date, driven by higher WD-40 sales throughout the region.

Sales in Canada increased 5% in Q4 and by 1% year to date due to higher sales in the WD-40 and 2000 Flushes brands.

Changes in foreign currency exchange rates did not have a material impact on Q4 or year-to-date sales in Canada.

Now let's move across the pond to EMEA, the segment which includes Europe, the Middle East, and Africa.

Sales in EMEA segment were up 25% in Q4 and up 16% year to date as compared to the prior fiscal-year period.

Changes in foreign currency rates had an unfavorable impact on sales in the fourth quarter and year to date.

On a constant-currency basis, sales in the EMEA segment would have increased 28% in Q4 and 18% year to date.

The segment accounted for 38% of global sales in Q4 compared to 34% in the prior-year period.

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

Sales in our EMEA direct market were up 40% in Q4 and are up 18% year to date.

The sales growth in the fourth quarter is primarily due to new distribution, continuing growth of the brakes business, and positive impacts of sales price increases.

In addition, as sales in the prior-year period were relatively low having been negatively impacted by adverse economic conditions which existed in Europe during fiscal year 2012.

The direct markets accounted for 68% of EMEA's total sales in Q4, compared to 61% in the prior fiscal-year period.

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

Our distributor markets in total were up 2% in Q4 and were up 14% year to date.

The distributor markets accounted for 32% of Europe's total sales in Q4, compared to 39% in the prior fiscal-year period.

We experienced double-digit sales growth in Eastern and Northern Europe due to higher multi-purpose sales as well as WD-40 distribution that began early in fiscal 2013.

That growth was partially offset by lower sales in the Middle East, which was impacted by the political uncertainty in the region as well as lower sales in Eastern Europe, which was impacted by counterfeit products in the marketplace.

Now let's drop-down to the Asia-Pacific segment.

Sales in the Asia-Pacific segment were up 10% in Q4 and 7% year to date.

Changes in foreign currency exchange rates had an unfavorable impact on sales in the fourth quarter and year to date.

On a constant-currency basis, sales in the Asia-Pacific segment were up 13% and are up 8% year to date.

The segment accounted for 11% of global sales in Q4 and 14% year to date.

Sales in Australia decreased 15% in Q4 and were flat year to date, compared to the prior fiscal-year period.

The sales decrease in the fourth quarter was primarily due to a lower level of promotional activity with key customers and the unfavorable impact of changes in foreign currency exchange rates period to period.

Sales in China increased 77% in the fourth quarter and were up 9% year to date.

The sales increase in the fourth quarter was primarily due to the timing of promotional activity.

Promotional activity in the prior-year fourth quarter was relatively low, whereas promotional activity was relatively high in the fourth quarter of fiscal year 2013.

While sales in China grew 9% year to date, we believe our sales have been impacted by lower overall growth in the region.

We continue to focus on the long-term opportunity in China, but there will continue to be a lot of volatility along the way due to the timing of promotional programs, the building of distribution, shifting economic patterns, and varying industrial activities.

Sales throughout the rest of Asia increased 7% in Q4 and 13% year to date.

The increase in the fourth quarter was due to the continued growth of our multi-purpose maintenance products primarily in Malaysia and Thailand.

That's it for the strategy and sales update.

Now I'll pass it over to Jay, who will continue the review of the financials.

Thanks, Garry.

In addition to the information that we're discussing here today on the call, we also remind you to review our 10-K, which will be filed next Tuesday, October 22.

First, we always like to look at our 50/30/20 rule, which is what we use to guide our business.

And, as you might recall, the 50 represents our gross margin, which we target to be at or above 50% of net sales.

The 30 represents our cost of doing business, which is our total operating expenses without depreciation and amortization.

Our target for that is 30% or less.

And then, finally, the 20% represents EBITDA.

If our gross margin is at or above the 50% while keeping our cost of business 30% or less, our EBITDA will be at or above that 20% target.

EBITDA is earnings before interest, taxes, depreciation, and amortization.

The descriptions and reconciliations of these non-GAAP measures are available in the 10K and in our investor presentations.

Now let's take a quick look first at the 50% in our 50/20/30 rule.

Gross margin in the fourth quarter was 53%, compared to the 49.4% in the prior-year period.

The increase of 360 basis points in gross margin was primarily driven by price increases, the impact of changes in sales mix, as well as foreign currency exchange rates, along with lower input and manufacturing costs, which stem from our gross margin improvement opportunities.

Let's first start with input costs.

We experienced a net favorable impact of 50 basis points from changes in input costs.

Changes in the cost of petroleum-based materials and aerosol cans combined favorably impacted our gross margin by 50 basis points in the period.

This included lower aerosol can costs in China stemming from local sourcing initiatives as well as lower petroleum-based materials in our European segment.

Changes in other input costs had a slight unfavorable impact of 10 basis points, and this includes raw materials related to our home care and cleaning products as well as valves and other components for our multi-purpose maintenance products.

Sales price increases are considered and implemented periodically on a country-by-country basis.

We use price increases to offset the impacts from our input cost increases.

Period versus period, our gross margin showed an improvement of 110 basis points as a result of price increases implemented over the past 12 months.

Advertising and promotional discounts were slightly higher in the quarter and had a negative impact on gross margin of 10 basis points.

This is primarily the result of higher sales discounts in the Asia-Pacific trade block.

The cost of promotional activities such as sales incentives, trade promotions, coupon offers, and cash discounts the we give to our customers are recorded as a reduction in sales.

The timing and magnitude of these may cause fluctuations in gross margin period to period.

A look at the impact of our major initiatives on cost of goods are -- we achieved lower manufacturing costs stemming from the North American supply chain restructure project, which favorably impacted our gross margin by 30 basis points.

In addition to the manufacturing costs, other areas within cost of goods which have been impacted by the project include transfer freight along with warehousing and distribution costs.

Excluding the impact of higher diesel and linehaul rates, transfer freight for a product between our third-party warehouses and manufacturing sites decreased period to period and positively impacted our margin by 20 basis points.

However, higher warehousing and distribution expense had a negative impact on our gross margin of 30 basis points.

The higher costs were primarily driven by higher inventory levels.

But the cost and timing of transfer, freight, warehousing distribution will vary with inventory levels, promotional activity, new product launches, and other initiatives, as well as customer requirements.

We've experienced a higher level of transition costs and a longer transition period than we'd additionally expected.

But we now have the supply chain structure in place, and our efforts are focused on maximizing the efficiencies available from the new structure.

As for the China project, we've benefited from the higher proportion of goods manufactured in China in the fourth quarter, compared to the prior-year period.

This project for local manufacturing in China began halfway through fiscal 2012, and we have been increasing local production ever since.

The lower cost period versus period had a positive impact on gross margin of 10 basis points.

Other impacts of gross margin include foreign currency exchange rates within our Europe segment, which positively impacted gross margin by 70 basis points.

Cost of goods are sourced in pound sterling, while revenues are generated in euros, pounds sterling, and the US dollar.

The value of the euro increased period to period, causing revenues from euro-based countries to be more in pound sterling, thus improving the gross margin.

Sales mix and all other miscellaneous items also had a positive impact on gross margins of 110 basis points in the fourth quarter.

This includes the higher sales mix in our direct markets, which have a higher margin than our distributor markets.

The themes discussed for the quarter for gross margin also apply year to date.

Our gross margin for the year was 51.3%, compared to 49.2% in the prior fiscal year.

The increase of the 210 basis points in gross margin was primarily driven by a combination of price increases, lower promotional discounts, and benefits from our supply-chain related initiatives.

Well, that completes gross margin.

Now onto the 30, or our cost of doing business.

In the fourth quarter, the cost of doing business was 38% of net sales, compared to 32% in Q4 in the prior fiscal year.

Our goal is to have that cost of doing business at or below 30%.

Period versus period, our sales increased by 10% in Q4, while our operating expenses increased by 35%, causing some increase in our cost-of-doing-business percentage.

For the year, the cost of doing business was 35% of net sales, compared to 33% in the prior fiscal year.

And approximately 78% of the cost of doing business comes from three main areas.

46% is related to people costs, the investments that we make in our tribe.

20% is related to our marketing and advertising and promotional investments.

And 12% is in freight, the cost that we pay to get our products to our customers.

Now more details on our SG&A expenses.

SG&A in the Q4 was $29.4 million versus $21.6 million in the prior fiscal-year quarter.

As a percentage of net sales, it was 31.5% in the current quarter versus 25.5% in the prior-year period.

The increase was driven by higher employee costs, which increased $7.3 million period versus period primarily due to higher bonus expense accruals.

Most of our regions met or exceeded profit targets required to trigger payout of bonuses this fiscal year, compared to very few in the prior fiscal year.

Employee costs were also impacted by higher compensation costs associated with annual merit increases and higher staffing levels.

We also -- our SG&A was also impacted by increased professional services and travel and meeting expenses, which was partially offset by the favorable impact of foreign currency exchange rates.

For the year, SG&A expense was $104.4 million versus $88.9 million in prior fiscal-year period; and as a percentage of net sales was 28.3% versus 25.9% in the prior year.

Advertising and sales promotion expense in Q4 was $6.8 million, compared to $6.2 million in the prior-year period.

As a percentage of sales, A&P investment was 7.3% in Q4, compared to 7.4% in the prior year.

The higher level of investment period versus period was primarily due to the WD-40 Specialist line, which is now being sold in all three of our trading blocks.

Year-to-date advertising sales promotion expense was $24.8 million, compared to the $25.7 million last year.

Advertising and sales promotion expense as a percentage of sales decreased to 6.7% for the year from the 7.5% achieved last year.

The decrease in advertising and sales promotion expense was primarily due to lower sales in investment in our home care and cleaning products in the Americas.

Amortization of intangible assets in the current quarter was $0.8 million compared to $0.5 million in the prior fiscal period.

Year to date, amortization remains relatively constant at $2.3 million, compared to $2.1 million in the prior period.

During the quarter, we recorded an impairment charge of $1.1 million related to our 2000 Flushes brand, which was triggered by the forecasted decline in future revenue and profit for this brand.

The lower forecast was attributed to lost distribution in the US and our strategic decision to reduce business in certain channels and investment in certain programs.

Total operating expenses in the current quarter were $38.2 million versus $28.3 million in Q4 of last fiscal year.

Operating income in Q4 was $11.4 million, compared to the $13.6 million in the prior-year quarter.

For the fiscal year, total operating expenses were $132.6 million versus $116.8 million in the prior year.

Operating income year to date was $56.6 million, compared to the $51.7 million in the prior year.

EBITDA, the last of our 50/30/20 measures, was 14% of net sales in Q4, compared to 17% in the prior-year period.

For the year, EBITDA was 17% of net sales, compared to 16% in the prior year.

We target our EBITDA to be 20% of net sales but do expect variations from time to time as sales -- our advertising and promotional investments and other expenses fluctuate with the timing of our activities.

Our EBITDA percentage is also affected by investments we make for future growth.

The provision for income taxes in Q4 was 27.6% versus the 33.1% in the prior fiscal-year quarter.

The lower tax rate was primarily due to a higher level of foreign earnings generated in lower tax jurisdictions, compared to the prior-year period.

And, year to date, the provision for income taxes was 30% versus 30.3% in the prior year.

Net income in Q4 was $8.1 million versus $9 million in the prior-year quarter.

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

Diluted earnings per share were $0.53 in Q4, compared to the $0.56 in the prior-year quarter.

Diluted shares outstanding decreased from 15.9 million shares to 15.4 million shares.

Year to date, net income was $39.8 million versus the $35.5 million in the prior-year period.

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

Diluted earnings per common share were $2.54 for the year, compared to $2.20 in the prior fiscal year.

Diluted shares outstanding decreased from 16 million shares to 15.6 million shares for the year.

Regarding the dividend, on October 4, the Board of Directors declared a quarterly cash dividend of $0.31 per share payable on October 31, 2013; to shareholders of record on October 21, 2013.

Based on today's closing price of $66.50, the annualized dividend yield would be 1.9%.

A look at our financial position at the end of the year.

We have a solid financial foundation that's supported by strong cash and short-term investment balances as well as low debt and access to additional liquidity.

This enables us to pursue both internal and external growth initiatives.

As of August 31, our cash and cash equivalents were $53.4 million, an adequate level to support both working capital needs and growth investments as well as enough to help weather fluctuations in the capital markets and global economy.

We also had $37.5 million in short-term investments, which consists of term deposits and callable time deposits held in money center banks.

As for debt, our balance under our $125 million line of credit was $63 million at the end of the year.

Capital allocation at WD-40 is a thoughtful and deliberate process.

We focus both on return of capital to shareholders and investing for the future.

Our first priority is our regular dividend.

We target our dividend payout ratio of 50% of net income and have increased dividends in each of the last three years.

We next look at opportunities to invest for future growth.

This can be either internal growth, which is market expansion and new product introductions, or by acquisition.

Return on invested capital is the guiding principle for us, and we evaluate opportunities based on the highest expected returns.

We are pleased that our return on invested capital has been above our target of 20% in each of the last three fiscal years.

Particularly given the investments we make in new products and markets to help support our long-term growth.

As Garry mentioned, we continue to look for acquisitions and have not yet found the right opportunity.

As a result, we return capital to our shareholders through our share repurchase program.

During the fourth quarter, we acquired in additional 161,000 shares of our stock at a total cost of $9.1 million, bringing the total purchases in fiscal 2013 to $31.4 million.

These purchases completed the $50 million share repurchase plan approved by the Board of Directors in December 2011 and also included initial purchases of $2.7 million under the new $60 million repurchase plan approved by the Board in June 2013.

Well, that completes the financial review.

More information, again, will be available on our Form 10-K, which will be filed Tuesday, October 22.

Thanks so much, and now back to Garry.

Thanks, Jay.

While we are celebrating our fiscal year 2013 results, we are also very excited about the outlook of initiatives we have in place to grow sales and earnings in fiscal year 2014 and beyond.

We continue to tackle new opportunities and grow our leadership position in our categories, with further product launches planned under our multi-purpose brands.

We remain cautiously optimistic about several macro factors, which include the stability in the global economy, major input costs, and foreign currency exchange rates.

Our fiscal year 2014 guidance assumes that we will benefit from new products and continue to experience recovery and improvement in the global economy.

As for import costs, we hope that initiatives in the pipeline will help offset rising costs and maintain our gross margin at or above 50%.

The following fiscal year 2014 guidance does not include any acquisitions or divestitures and assumes that the foreign currency exchange rates will remain close to recent levels.

For fiscal year 2014, we expect our net sales result to be in the range of $383 million and $398 million, or a growth of between 4% and 8% versus fiscal year 2013.

We project our gross margin to be close to 51%.

We expect our global advertising and promotion investment to be in the range of 6.5% and 7.5%.

We expect income of between $40.5 million and $42.8 million, which would achieve a diluted EPS of $2.65 to $2.80, assuming a 15.3 weighted average shares outstanding.

So, to sum up, what did you hear from us in this call today?

You heard we celebrated our 60th year in business by growing sales by 8% in fiscal year 2013.

You heard that our sales growth was fueled by both our multi-use products and new and increased distribution of WD-40 Specialist product line.

You heard that we achieved a gross margin of 51% in part due to cost savings from our North American supply chain architecture project and our local sourcing initiatives in China.

You heard that we continue to return capital to our shareholders through share buybacks.

In fiscal year 2013, we purchased over 596,000 shares at a total cost of $31.4 million.

You heard the WD-40 Company has been a good investment, yielding a return on invested capital of over 20% for the last three years.

You heard that our three new innovation teams are actively developing new products and categories to fuel growth over the coming years.

You heard that we expect sales growth of 4% to 8% in fiscal 2014 and that we are very excited about our future.

I want to thank each and every tribe member for their contribution that made our 60th year in business such an amazing one.

I'm proud to work with such a committed and engaged tribe, all working together to grow and sustain the WD-40 Company.

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

We hope that you're as pleased as we are with this year's performance, and we look forward to a productive and successful 2014.

And as I do in closing, I would like to share a quote with you, this time from Abraham Lincoln -- give me six hours to chop down a tree, and I will spend the first four sharpening the axe.

Thank you for joining us today.

We'd be pleased to now open the conference for your questions.

(Operator Instructions) Daniel Rizzo, Sidoti & Co.

I know one of the bigger long-term initiatives is the WD-40 Lawn and Garden.

Is that still on track?

Do I remember correctly if that's fiscal 2015 when that is going to launch?

WD-40 Lawn and Garden is one of the initiatives that we are working on around our WD-40 Specialist category expansion.

We're still in a development stage of that.

Uncertain yet of the actual development of launch of it.

But, again, it's one of the many categories that we are working on.

And then you indicated that the high input costs are one of the things that are kind of a headwind.

Could you just elaborate on what you are referring to there?

That might've been input costs, maybe?

I'm sorry, input, yes.

Sorry, I meant input.

Yes, I'm not sure that we see that yet as a headwind.

I think that our view is that there -- as long as they're somewhat stable that we're very comfortable.

And if I said it was an offset, then maybe I read my script wrong.

But we don't see input costs as being a major headwind.

Okay.

And then WD-40 Bike, is that -- I mean, that's going to plan in Company projections?

As we said, Bike is a pilot program.

We're still working on it in the US; we're going to be expanding it into other markets next year.

But so far, we are comfortable with the amount of awareness and the amount of activities it's generating around the passionate users in the bike segment.

It's certainly enhancing our overall brand positioning.

So we'll continue to learn, and it's one of the many, again, categories that we're working on at the moment.

But this would probably be just a little bit of a nichier project than some of your other product lines.

I mean, focusing on more people who are passionate about bikes and not really more the recreational users.

Would that be accurate?

Correct.

Okay.

Thank you, guys.

(Operator Instructions) Liam Burke, Janney Capital Markets.

Garry, during your prepared comments talking about gross margins, you talked a lot about supply chain initiatives in China.

You mentioned the local sourcing in -- for cans or [tin] plate.

Could you give us a sense as to where you are in terms of completing -- or how independent is the China operation in terms of local sourcing, manufacturing, etcetera?

We are nearly complete.

Okay.

So we do have some products -- some SKUs that do come from outside of China.

But the majority -- the vast majority are in China being manufactured for the China market.

Okay.

So most of what the benefit you've seen has already been done.

I mean, you can fine-tune it, you can bring some more product over, but you're seeing most of the benefit of these initiatives now.

We're seeing the benefit of the China initiative for local manufacturing in China.

For sourcing China products and sourcing as essentially complete with some of the additional spillover that will take place.

We completed the activities around the North American supply chain product, which are the structural changes within the warehousing and distribution system.

But we are still working on improving the efficiencies, etcetera, and have the opportunity to increase our savings from those.

Great.

And Garry, Specialist is now in 22 countries?

I think that's correct.

Are you seeing a degree of consistency in the ramp in terms of the customer take, or are some countries a little more challenging than, say, the US or the UK?

It varies across country.

It also depends on what SKUs or products we're taking in there.

But it's really very, very early days, Liam.

We were pleased that, in the fourth quarter, we gained distribution for specialists in the biggest home improvement retailer in the United States, and you'll find that in those stores now.

So we've got -- this is a long, windy, but very exciting road.

Great.

Thanks, Garry.

Thanks, Jay.

Joseph Altobello, Oppenheimer.

Hi, this is Christina in actually for Joe tonight.

I was wondering if you could talk about what the factors are that will input where you have fall in guidance for next year.

And then I believe you said that you're increasingly more confident in the global outlook -- and just why you're more confident.

The first part of your question around guidance, I missed what you asked.

I'm sorry.

Just the inputs that will affect where you fall within guidance?

I'm not sure I understand your question.

Just what are going to be the biggest variables in terms of where you fall within your guidance range in 2014?

Oh.

Well, I think gross margin is always important to us, so we want to be watching that closely.

The other areas -- we've got a range of sales that we feel reasonably comfortable about.

Our track record has been that we've been able to manage our advertising and promotional expenses over the years.

So certainly, as has been in the past, gross margin is important to us; but then that's linked with reasonable sales growth.

So I think those are the areas that we pay attention to all the time.

Okay, great.

I'm then not sure if you mentioned it, but your expectations for the tax rate next year?

We didn't.

It's near 31% -- between 30.5% and 31% is what we're seeing.

Okay.

Thank you.

(Operator Instructions) We have no more questions at this time.

Okay.

Thank you so much.

Thanks for joining us.

We'll be back here in January and, again, we congratulate our tribe for delivering a stellar year.

Good afternoon.

This concludes today's call.

We thank you for your participation.