WD-40 Co (WDFC) 2014 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Good day, and welcome to the WD-40 Company fourth-quarter and full fiscal-year 2014 earnings conference call.

Today's call is being recorded. (Operator Instructions) At the end of the prepared remarks, we will conduct a question-and-answer session. (Operator Instructions)

I would now like to turn the presentation over to the host for today's call, Ms. Wendy Kelley, Director of Investor Relations and Corporate Communications. Please proceed.

Thank you. Good afternoon, and thanks to everyone for joining us today. On our call today are WD-40 Company's President and Chief Executive Officer, Garry Ridge; and Vice President and Chief Financial Officer, Jay Rembolt. Following their prepared remarks, the operator will come back on the line for the Q&A portion of our call.

Before we get started, let me remind you that our earnings press release and current-quarter corporate presentation are available on our Investor Relations website at investor.wd40company.com. A replay of today's webcast will also be made available at that location shortly after this call.

As a reminder, today's call includes forward-looking statements about our expectations for the Company's future performance. Of course, actual results could differ materially. The Company's expectations, beliefs, and projections are expressed in good faith, but there can be no assurance that they will be achieved or accomplished. Please refer to risk factors detailed in our SEC filings for further discussion.

Finally, for anyone listening to a taped or webcast replay or reviewing a written transcript of this call, please note that all information presented is current only as of today's date, October 16, 2014. The Company disclaims any duty or obligation to update any forward-looking information, whether as a result of new information, future events, or otherwise.

With that, I would now like to turn the call over to Garry.

Thank you, Wendy. Good day, and thanks for joining us for today's conference call. Today we reported net sales of $97.6 million for the fourth quarter of fiscal year 2014, an increase of 4% over last year. Full fiscal year net sales were $383 million, also an increase of 4% over the prior year. Net income for the fourth quarter was $11.5 million compared to $8.1 million last year.

Diluted earnings per share for the fourth quarter was $0.77 compared to $0.53 last year. The full fiscal year net income was $43.7 million compared to $39.8 million last year. Diluted earnings per share for the full fiscal year were $2.87, up 13% from $2.54 in the prior fiscal year and a record high for the Company.

Before we focus on the sales results, let's review the progress we've made towards our strategic initiatives. Strategic initiative number one is to grow WD-40 Multi-Use Product. Our goal under the first initiative is to take the WD-40 Multi-Use Product to more places for more people with more uses.

In line with this initiative, global sales of WD-40 Multi-Use Product increased by about 5% in both the fourth quarter and full fiscal year, driven by our geographic expansion, increased distribution, and a higher level of promotional activities.

During the fiscal year we grew Multi-Use Product sales by 12% in EMEA and 1% in the Americas, and Multi-Use Product sales decreased about 2% in the Asia-Pacific segment.

Strategic initiative number two is to grow the WD-40 specialist product line. Our goal under this initiative is to leverage the power of the shield to develop new products and categories within identified geographies and platforms. The WD-40 Specialist product line continued to perform well, with double-digit growth across all segments and with a global growth rate of 34% for the full fiscal year. Although each market, country, and trading bloc experiences different short-term trends related to the sales of the WD-40 Specialist product line, the strong, long-term growth rates we have seen make it clear the WD-40 Specialist should be a substantial revenue and earnings growth engine for many years to come.

Strategic initiative number three is to broaden our product and revenue base. Our goal under this initiative is to leverage the strengths within our Company to derive revenue from new sources outside of our flagship WD-40 brand. In early September 2014, we announced the acquisition of the GT85 brand, a multipurpose maintenance products primarily sold in the United Kingdom in the cycling channels.

Though we do not expect to see any significant contribution from the brand into our financials in the near-term, there is a strategic element to the acquisition. GT85 and WD-40 BIKE share a similar base of customers and end users who trust and respect both brands. We believe we can leverage GT85's channel strength to expand the growth of the WD-40 BIKE in the UK. We have used this go-to-market strategy with other products in our portfolio over time.

Also falling under this strategic initiative in the fourth quarter, Australia will launch four products under the WD-40 Specialist Lawn & Garden product line, which includes a range of specially formulated products to clean, lubricate, and protect one's gardening tools and equipment. The launched in Australia is considered a pilot launch, and its outcome will impact our decisions in the future on whether we expand WD-40 Specialist Lawn & Garden in other geographies.

Our strategic initiative number four is to attract, develop, and retain outstanding Tribe members. We were pleased to welcome 15 new Tribe members during the fourth quarter and 45 during the fiscal year ended this year, with a total of 395 Tribe members globally. Our organization continues to be focused and deliberate in its recruitment, development, and retention efforts.

We offered our Tribe members several development opportunities in fiscal 2014, and these opportunities were well received by our Tribe globally. During the fourth quarter our leadership laboratory was recognized by Elearning! Media Group when it ranked third on the list of 100 organizations which are recognized for their best-in-class learning and development programs and for a learning culture.

In fiscal year 2014 our Tribe members delivered another year of solid progress and exceptional results. I am thrilled that these solid financial results will also allow us to reward our Tribe members for all of the hard work they have put into making our products available to more people in more places with more uses every day.

Strategic initiative number five is operational excellence. This initiative includes the continuous improvement of optimizing resources, systems, and processes in order to help offset rising costs and protect our operating margin. Operational excellence is also important to meet our ever-increasing customer and regulatory requirements.

During the fourth quarter we completed our initial transition into our new global human resource information system, which should greatly enhance our ability to operate as one world, one Company, and one Tribe. During the full fiscal year we saw many other successes with this initiative. We completed the initial transition to a major upgrade of our ERP system in our EMEA business segment.

We managed a smooth transition to a lower VOC, volatile organic compound, formula in California to meet new regulatory requirements. We also completed a can sourcing project with a focus on the Americas, and we improved the operational efficiency within our supply chain network.

That completes the update on our strategic initiatives, so let's move on to the details of our fourth-quarter and fiscal-year results, starting with sales. We continue to be well positioned for substantial growth of our multipurpose maintenance products. We focus our time, talent, treasure in this area of our business, which accounts for 87% of our global sales in the fourth quarter.

Sales of our multipurpose maintenance products were up about 5% in both the quarter and the full fiscal year, which is in line with our long-term target. As a reminder, products under this category include WD-40 multiuse product, WD-40 Specialist, and 3-IN-ONE brand, as well as sales of our newest member of the brand family, the WD-40 BIKE.

By trading blocs, sales of multipurpose maintenance products in the fourth quarter were down 2% in the Americas, up 11% in both EMEA and Asia-Pacific. For the full year, sales of our multipurpose maintenance products were up 2% in the Americas, up 11% in EMEA, and flat in Asia-Pacific.

The home care and cleaning products category accounted for 13% of sales in the fourth quarter, with category sales up 4% in the fourth quarter and down 5% for the fiscal year. Brands under this category include Spot Shot, 2000 Flushes, Carpet Fresh and no vac, 1001, X-14, Lava, and Solvol.

By trading bloc, sales of home care and cleaning products in the fourth quarter were up 1% in the Americas, up 9% in EMEA, and up 15% in Asia-Pacific. For the full fiscal year, sales of home care and cleaning products were down 7% in the Americas, down 2% in EMEA, and down 1% in Asia-Pacific. As a reminder, our home care and cleaning products, particularly those in the US, are considered to be harvest brands that continue to generate positive cash flows but are becoming a smaller part of our business as net sales of our multipurpose maintenance products grow with the execution of our strategic initiatives.

Now onto the results by segment with the Americas. Sales in the Americas segment decreased 2% in the fourth quarter but were essentially flat for the fiscal year. The segment accounted for 48% of global sales in the fourth quarter and 47% in the fiscal year.

Multipurpose maintenance product sales in the US decreased 2% in the fourth quarter but were up 2% for the fiscal year. Sales of multipurpose maintenance products in the US decreased in the fourth quarter primarily due to the timing of promotional activities for the multipurpose maintenance product. For the full fiscal year, the sales increase in the US was due to increased promotional activities, increased distribution, as well as increased sales of the WD-40 Specialist product line.

Home care and cleaning product sales in the US increased nearly 5% in the fourth quarter but were down almost 5% for the full year. The increase in the fourth quarter was driven by increased sales of 2000 Flushes and Spot Shot, which each decreased by more than 5%.

Sales in Latin America were up 6% in the fourth quarter and 7% for the full fiscal year, driven by strong organic growth of our multipurpose maintenance products through the region. Sales in Canada increased by 15% in the fourth quarter and 17% for the full fiscal year.

These declines are primarily due to some unusual short-term factors, including the previously shared voluntary recall in Canada, which has negatively impacted our distribution to mass retail accounts for the Smart Straw delivery system. Although the recall itself is behind us, it takes time to rebuild the channels with alternative product after an event of this kind. We expect the region will regain momentum in the coming quarters.

Now over to our EMEA segment: sales in the EMEA segment were up 11% in the fourth quarter and 10% for the full fiscal year. The sales increase in EMEA in the fourth quarter was primarily driven by the favorable impact of changes in foreign currency exchange rates. In order to show the impact of changes in foreign currency exchange on sales, we calculate sales on a constant currency basis. Constant currency represents the translation of our current fiscal-year sales from local currencies to US dollars, using the exchange rates in effect for the corresponding period of the prior fiscal year.

On a constant currency basis, sales in the EMEA segment with have been flat in the fourth quarter and increased 4% for the full fiscal year. The segment accounted for 41% of global sales in the fourth quarter and 40% for the full fiscal year. We sell into EMEA through a combination of direct operations as well as through exclusive marketing distributors.

Sales in our EMEA direct markets were up 8% in the fourth quarter and up 7% for the full fiscal year. In pound sterling, sales in the direct markets decreased 3% in the fourth quarter but increased 1% for the full fiscal year. The direct markets accounted for 62% of EMEA's total sales in fiscal year 2014 compared to 64% last year.

We sell through exclusive marketing distributors in Eastern and Northern Europe, in the Middle East, India, and Africa, and virtually all sales consist of the WD-40 Multi-Use Product. Our distributor markets in total were up 16% in both the fourth quarter and the full year. Although the favorable impact of changes in foreign currency exchange rates contributed to this double-digit sales growth, pound sterling sales still increased 5% in the fourth quarter and 11% for the full fiscal year.

This increase was driven by higher sales of our WD-40 Multiuse product in Eastern Europe and Russia as a result of increased promotional activity and organic growth. The distributor markets accounted for 38% of EMEA's total sales for the full fiscal year compared to 36% last year.

Now the Asia-Pacific segment. Sales in the Asia-Pacific segment were up 12% in the fourth quarter but were flat for the full fiscal year. The increase in sales in the fourth quarter was driven primarily by expanded distribution and increased promotional activities associated with the WD-40 Multi-Use Product and the continued expansion of the WD-40 Specialist product line in the region.

Although organic growth favorably impacted the full year's results, this growth was completely offset by unfavorable impacts from changes in foreign currency exchange rates in Australia. On a constant currency basis, sales in the Asia-Pacific region were up 4% for the full fiscal year.

Changes in foreign currency exchange rates did not impact sales in Asia-Pacific when compared to the prior year. The segment accounted for 30% of global sales in fiscal year 2014 compared to 14% last year.

Sales in Australia increased 14% in the fourth quarter and 1% for the full fiscal year. Changes in foreign currency exchange rates had an unfavorable impact on sales for the full fiscal year but did not materially impact the fourth-quarter results. On a constant currency basis, sales increased 11% for the full fiscal year. Growth in the region was driven by the launch of WD-40 Specialist and organic growth in the base business.

Sales in China increased 1% in the fourth quarter and 5% for the full year. The increase in the quarter and for the full year was primarily due to the higher levels of sales associated with promotional activities. We continue to focus on the long-term opportunities in China, but we expect to experience a lot of volatility along the way due to the timing of promotional programs, the building of distribution, shifting of economic patterns, and varying industrial activities.

Sales through the rest of Asia increased 24% in the fourth quarter but decreased 3% year to date. The increased sales in the fourth quarter were driven by higher sales and increased distribution of the WD-40 Specialist product line and increased promotional activities to the WD-40 Multi-Use Product in the region. Full fiscal year sales in the region have been negatively impacted by the transition to a new marketing distributor in Indonesia for full fiscal year 2014.

Thank goodness that's it for the sales update, because I need a drink of water. Now over to Jay, who will continue to review the financials.

Thanks so much, Garry. In addition to the information that we're presenting on the call today, we also suggest that you review our Form 10-K for the year, which will be filed next Tuesday.

First, we'd like to start with a review of our 50/30/20 rule, which really are the measures we used to guide our business. As you may recall, the 50 represents gross margin, which we target to be above 50% of net sales. The 30 represents our cost of doing business, which is our total operating expenses excluding depreciation and amortization. Our target is to be at or below 30% of net sales.

And finally, the 20 represents EBITDA. If our gross margin is above 50% and our cost of doing business is 30% or less, our EBITDA will be above 20%. EBITDA is earnings before interest, taxes, depreciation, and amortization. The descriptions and reconciliations of these non-GAAP measures are available in our 10-K and in our investor presentation, which is available on our Investor Relations website.

Now, a look at our gross margin, or the 50 in our 50/30/20 rule. Gross margin in the fourth quarter was 52.7% compared to 53% in the prior fiscal year period. The slight decrease in gross margin was driven by unfavorable impacts from foreign currency exchange rates in EMEA, which were partially offset by a decrease in input costs. Though we cannot control the impact of foreign currency on our results, we continue to be focused and deliberate on managing the rest of our business for growth in our gross margin.

A look at our input costs. We experienced a net favorable impact of 50 basis points from our major input costs. This was driven by changes in the cost of petroleum-based materials along with lower cost of cans in our EMEA segment. At times we consider and implement price increases on a country-by-country basis to help offset the impact from cost increases.

In the fourth quarter our gross margin improved by 20 basis points as a result of price increases that have been implemented over the past 12 months in EMEA and Asia-Pacific segments. Changes in foreign currency exchange rate within our EMEA segment had a negative impact on gross margin of 110 basis points.

In EMEA our cost of goods are sourced in pound sterling, while revenues generated in euros, pound sterling, and the US dollar. The value of the euro and US dollar both deteriorated versus the pound sterling. This caused revenue sourced in those currencies to be worth less in pound sterling, thus resulting in the decrease to gross margin.

Gross margin year to date was 51.9% compared to 51.3% in the prior year, which is the highest annual gross margin we've seen in the last decade. The increase of 60 basis points in gross margin for the year was primarily attributed to the lower input costs, along with the impact of price increases and lower promotional discounts. These favorable items were partially offset by the foreign currency exchange impacts in our EMEA segment as well as some higher warehousing and distribution costs in the Americas.

Well, that completes the gross margin. Now onto the 30, or our cost of doing business. In the fourth quarter our cost of doing business was 35%. This is an improvement from the 38% in the fourth quarter of last year. For the full fiscal year cost of doing business was 34% compared to 35% last year.

While our goal is to have our cost of doing business at or below 30% of net sales, we plan to continue our investments in new product development, brand protection, regulatory, and quality assurance. And as a result we expect our cost of doing business to remain near current levels through fiscal year.

We expect to move closer to our target of 30% over time as revenues grow. Year to date 69% of our cost of doing business came from three areas. 39% was related to our people costs, or the investments we make in our Tribe; 18% from our investments in marketing, advertising, and promotional activities; and 12% in freight costs to get our products to our customers.

Now, here is a little bit more detail on our SG&A expenses. In the fourth quarter SG&A expense decreased by 4% to $28.3 million compared to the prior period. As a percentage of net sales, SG&A expense was 29% in the fourth quarter compared to 31.5% in the prior-year quarter.

The decrease in SG&A expense was primarily driven by lower employee-related costs, which decreased $2 million compared to the prior year, primarily due to lower earned incentive payments, which were partially offset by increased salaries resulting from our increased employee base and annual merit increases. These lower employee-related costs were partially offset by an $800,000 unfavorable impact from changes in foreign currency exchange rates.

For the full fiscal year SG&A expense increased $4.2 million, or 4%, to $108.6 million. As a percentage of sales, SG&A expense was 28.3% for both fiscal years. The increase in SG&A was primarily driven by higher professional service costs, a higher level of travel and meeting expense, increased freight costs, higher depreciation, as well as the impact -- the negative impact from changes in foreign currency.

A significant portion of these increases were a result of increased professional service costs of $1.1 million, primarily due to legal fees associated with certain litigation and regulatory compliance matters as well as increases in general consulting fees. Also contributing to the increase was travel and meeting expense in support of our strategic initiatives, which increased $600,000 during the year.

Freight expense was up $300,000 versus the prior fiscal year, primarily due to the higher sales volumes. Higher depreciation of $300,000 was primarily due to our investments in computers, systems, and other capital assets to support our business operations. And finally, changes in foreign currency exchange rates had an unfavorable impact, increasing SG&A by $1.4 million over the prior period.

Similar to last year, in fiscal 2014 we invested $6.9 million in research and new product development activities. We believe that by continuing to focus on innovation and renovation, we will strengthen the foundation for future growth.

Advertising and sales promotion expense decreased by 15% in the fourth quarter to $5.8 million compared to the prior-year quarter. As a percentage of sales, A&P investment was 6% in the fourth quarter compared to 7.3% in the prior year. The decrease was primarily associated with both lower costs and lower level of promotional programs in the Americas.

For the full fiscal year advertising and sales promotion expense was $23.9 million compared to $24.8 million in the prior year. Advertising and sales promotional expense as a percent of sales decreased to 6.2% from 6.7%. This was again driven by the lower costs of promotional programs in the Americas, particularly those associated with our home care and cleaning products. As a reminder, it is common for our advertising and sales promotion expense to fluctuate period to period based on the type of marketing activity or promotion we employ during any given period.

Amortization and impairment of intangible assets decreased in total by $1.2 million to $700,000 in the fourth quarter compared to $1.9 million in the prior period. This decrease was primarily due to the $1.1 million impairment that we recorded to our 2000 Flushes trade name in the fourth quarter last year.

For the full year amortization and impairment of intangible assets decreased in total by $700,000 to $2.6 million compared to the $3.3 million last year. This decrease was again due to the prior-year 2000 Flushes impairment charge. This was partially offset by increased amortization expense resulting from a change to the remaining useful life of this trade name in Q3 of last year.

Total operating expenses in the current quarter were $34.9 million versus $38.1 million last year, and operating income in the fourth quarter was $16.6 million compared to $11.4 million in the prior year. Year to date total operating expenses were $135.1 million versus $132.5 million last year.

Operating income year to date was $63.7 million compared to the $56.6 million last year. EBITDA, the last of our 50/30/20 measures, was 18% of net sales in both the fourth quarter of this year and the prior year. For the full fiscal year EBITDA was also 18% of net sales, an improvement over the 17% in the prior fiscal year. We target EBITDA to be above the 20% of net sales but expect variations from time to time, as sales, A&P investment, and other expenses fluctuate with the timing of our activities. It is also affected by the investments we make for future growth.

Interest income, interest expense, and other net expense in total remained relatively constant for the fourth quarter compared to the prior year. For the full fiscal year, however, it increased by $1 million.

This increase was due to interest expense, which increased by $300,000 as a result of increased borrowings on our line of credit; and other expense, which increased $800,000, primarily due to fluctuations in the exchange rates. In fiscal 2014 we recorded foreign exchange losses, whereas we had recorded gains in the prior year.

The provision for income tax in Q4 was 30.4% versus the 27.6% in the prior fiscal-year quarter. The higher tax rate is primarily due to a higher proportion of income in the US, which is taxed at higher rates. Year to date, the provision for income taxes was 30.5% versus 30% in the prior fiscal-year period.

Net income in the fourth quarter was $11.5 million versus $8.1 million in the prior-year quarter. Changes in foreign currency exchange rates favorably affected the translation of our results by $600,000. Our fourth-quarter results translated at last year's exchange rates, or what we term as constant currency basis, would have produced net income of $10.9 million. Diluted earnings per common share were $0.77 in the fourth quarter compared to the $0.53 in the prior-year quarter. And diluted shares outstanding decreased from 15.4 million shares to 14.9 million shares.

For the full fiscal year, net income was $43.7 million versus $39.8 million in the prior year. Again, changes in foreign currency exchange rate had a favorable impact -- for the year, $700,000 of net income. On a constant currency basis, net income for the full fiscal year would have been $43 million.

Diluted earnings per common share were $2.87 for the full fiscal year compared to the $2.54 in the prior fiscal-year period. Diluted shares outstanding decreased from 15.6 million to 15.2 million shares.

Now let's take a look at our balance sheet at August 31. Our balance sheet and liquidity remain strong as our cash and term deposits continue to exceed our debt. At the end of our fiscal year our cash balance was $57.8 million, and we had $45 million in short-term investments, which consist of term and time deposits held in money center banks.

During our fiscal year we borrowed an additional $35 million under our revolving credit facility. The current portion of debt under that existing line was $98 million, up from the $63 million last year, leaving us with an additional $27 million available under the line at year-end.

We continue to return capital to our shareholders through regular dividends and share repurchases. Regarding the dividend, on October 3 the Board of Directors declared a quarterly cash dividend of $0.34 a share, payable October 31 to shareholders of record at the close of business on October 17, 2014.

Based on today's closing price of $67.93, the annualized dividend yield would be 2%. As for share repurchases, we acquired 602,000 shares of our stock at a total cost of $42.8 million during the fiscal year. These shares were acquired under our current share buyback plan approved by the Board of Directors in June of 2013.

It provides authorization to acquire up to $60 million of the Company's outstanding share through the plan's end date of August 31, 2015. Under the current plan the Company has repurchased 648,000 shares at a total cost of $45.4 million.

In order for the Company to continue repurchasing shares, our Board of Directors approved a new share buyback plan earlier this week that authorizes the Company to acquire up to $75 million of its outstanding shares through August 31, 2016. The new plan will be effective once the current share repurchase plan is completed.

In total we delivered a return on invested capital of 28.2% in fiscal 2014. We are very proud of this industry-leading statistic, and we'll continue to be focused and deliberate in the way we manage our business in order to generate maximum returns for our shareholders while continuing to support the Company's long-term growth initiatives.

Well, that completes the financial overview. More information will be available in our 10-K, which will be filed next Tuesday. Thanks so much, and now back to Garry.

Thank you, Jay. This was a good year, and we are pleased that we have been able to maintain growth across our business globally, despite some pumps that were hit along the way. Most of you know that I prefer to look at this business over the long-term. I have often said that our performance in a particular quarter -- in any particular quarter -- is not as important as the long-term trends of our business.

Through the focused and deliberate efforts of our hard-working Tribe members, we've made solid and steady progress in the last 10 years, where we've been able to double our global sales of multipurpose maintenance products. While we expect to see fluctuations in sales and in our financial results from time to time, we anticipate seeing continued growth driven by our strategic initiatives, which we believe will enable us to continue to deliver strong returns to our shareholders. So with that, let's turn to fiscal year 2015 guidance.

The following fiscal year 2015 guidance does not include any future acquisitions or divestitures and assumes that foreign currency exchange rates will remain close to recent levels. For fiscal year 2015 we expect our net sales results to be in the range of $398 million to $413 million, a growth of between 4% and 8%.

We project gross margin to be close to 52%. We expect our global advertising and promotional investment to be in the range of 6% to 7% of net sales. We expect net income of between $45.1 million and $46.4 million, which would achieve a diluted EPS of between $3.07 and $3.16, assuming 14.7 million weighted average shares outstanding.

So, in summary, what did you hear on this call today? Well, you heard my croaky voice from a little bit of a cold. But the more important things you heard was: we increased sales by 4% in both the fourth quarter and the full year. You heard that the Specialist product line continues to perform well, with a global growth rate year over year of 34%.

You heard we acquired the GT85 brand. You heard that we continue to maintain strong gross margins and, in fact, reported the highest annual gross margin in a decade of nearly 52% for the full year. You heard that we grew diluted earnings per share to $2.87, which is a record high for the Company.

You heard we delivered an industry-leading return on invested capital of 28.2% in fiscal year 2014. You heard that we continue to return capital to our stockholders through both dividends and share repurchases and that our Board of Directors recently approved a new share repurchase plan. You heard that our outlook for fiscal year 2015 and beyond is optimistic.

In closing, I would like to share a quote with you from Zig Ziglar. You don't build a business; you build people, and then the people build the business.

Thank you for joining us today. We would be now pleased to open the conference call to your questions. Back to the operator.

(Operator Instructions) Liam Burke, Wunderlich Securities.

Garry, I think you quoted a 34% increase in Specialist?

That's correct.

Is that heavily weighted towards the more mature or the markets where you've been in it the longest, like North America? And is the trend working -- are you satisfied with the trend in some of the newer markets?

Yes. Of course, the growth continues to gain momentum, particularly where we launched early. We are very comfortable and very happy with Specialist. It will be a long-term growth engine. We continue now to develop new categories and platforms. And it's not only benefiting our revenues of Specialist, but it's also helping us to further expand out MUP business, or our blue-and-yellow can business, Liam.

An example of that is through the development of WD-40 Specialist Motorbike in the United Kingdom, we gained 450 new distribution centers for our MUP product through the motorcycle industry. So we are very pleased with the continued success of the Specialist strategy.

And the same in Europe -- you saw distribution increase, or sales through the distribution or indirect channel increase 16%. Have you been adding distributors, or are you just seeing stronger end-user demand? You mentioned Russia and Eastern Europe.

No, we are not adding distributors. It's just further development of current markets. Russia, for example -- I think we are pushing through the 12 million can mark there now. That's probably doubled in the last past five to six years. And as you may recall, Liam, a lot of these markets have a long runway yet to go. So it's just more development of the markets that we are in.

Great. And, Jay, I know that you have had to step up inventory to support the new distribution infrastructure you've had. Has that ramp-up in inventory been completed? And can we just expect it to run at this level now or number of turns -- however you want to measure it?

Yes. I think that we see the current inventory levels as generally sustainable, although as we look forward, we do see a couple of events that would cause us to pull inventory a little bit above this level. As we look forward to next year, there are a couple of activities that we are envisioning dealing with. One is the conversion of our car product that would require us to increase some inventories. But the current levels for the longer-term sustained level are generally appropriate.

Great. Thank you, Garry. Thank you, Jay.

Linda Bolton Weiser, B. Riley.

I was wondering if you could just explain a little bit more about the disruption in Canada? I know that the recall is over with, but can you explain -- is it a matter of the retailers kind of being reluctant to take your product back? Or is it a technicality about getting a different product actually out there physically, like you're having --?

That would be the second point, Linda. What we did is in the retail channel we pulled the Smart Straw product out. It's been replaced with the classic product. The selling price of the two is lower.

So we had a mixed match of taking product back, refilling that pipeline. It's basically the offset. But there's been no negative reaction to the product overall.

So then it sounds like that's something you can anticipate or project when you would have this smoothed so that things are back to normal. Is that soon? I seem to recall this being an issue now for several quarters.

We will lap it in the fourth quarter. Well, there's a couple of things in Canada. We've had a couple of events in Canada.

One was we had the Smart Straw recall. The second was we had a downturn in one of the quarters, because Canada just had a horrible, horrible winter. So that's behind us, I hope. But as we said in the call, we would believe that we are going to see Canada back on a growth trajectory as we start to now move through the new fiscal year.

Okay. Okay. And then I seem to recall last quarter in the discussion on the call about, actually, promos in the US business that would kind of kick in that would return the whole Americas segment to growth in the August quarter. So I was a little surprised to still see it down. I know that Canada is still an issue. But did that promo happen, as you had talked about? Or am I remembering things incorrectly? What happened there?

Well, I can put a little more flavor on that. In the US for the full year, year over year our multipurpose maintenance products grew by 2.45% in actual revenue dollars. The quarters were a little flatter or a little more regular this year than they were last year.

But overall our business grew 2.45% in the US for our core business, which is the multipurpose maintenance products business. We grew 7.3% in Latin America. The Americas grew 1.7% in total. The difference was in the full year, our business in Canada was off about 16%.

Okay. And then this little acquisition you did in the UK, can you -- I know it's really small, and your total sales in the UK, I think, were about $25 million, if I'm not mistaken. So even if this thing has $2 million of annual sales, it's going to add 8% to your sales next year in the UK. So am I thinking of that correctly? And how are the margins of this versus your margins of your existing products there?

The GT85 business is small, and what we are doing with it is where we will have some impact on overall revenue, but it's only small. But it does generate a reasonable level of EBITDA. We will, however, be investing that in our continued growth opportunities for both our BIKE and motorcycle business. So we'll see a little revenue kick.

We will feel the full effect of the GT85 acquisition probably a year from now, as it helps us build out our business in the total BIKE segment. It's kind of like the Trojan horse, if you will. It allowed us to ride into the category with a head start, a bit like we used 3-IN-ONE in Spain and France some 15, 16, 17 years ago to establish ourselves.

Okay.

20 years ago.

And can I just switch to asking you about the outlook for your input cost? Certainly we are seeing very low oil prices these days, and your gross margin was very nice in the quarter.

Why would it be -- if your gross margin was 52.7% in the quarter, why would it not be actually higher, like closer to 53%, going forward, as you realize the benefits of these lower petroleum-based costs?

Well, if we were able to realize the benefits of these petroleum -- the lower costs over the full year, your analysis isn't too far off.

So, then, your comment about gross margin being close to 52% is just a little on the conservative side for the next year?

We are not really sure if this is a complete trend or if this is an event -- this recent dramatic reduction in the price of oil.

Okay. All right. And I guess just in terms of your little bit of an increase in your share repurchase from $60 million over two years to $75 million -- is that just a function of your confidence in the business? Or is there something else behind it? And do you still intend to add debt while cash builds up on the balance sheet? Is that how it's going to go?

Well, just to be clear, we didn't take the $60 million to $75 million. The Board authorized a new $75 million on top of this one -- the $60 million. So once the $60 million is used, which will be within the next quarter or so, we will then start into the new $75 million buyback program.

Okay. So it's still -- I thought both programs were over two years, though. Am I wrong?

Well, the first one was over two years. That had a completion date of 2015. We've actually -- we will actually complete that about nine months early, because we are nearly through that $60 million now.

So the new one has another two years to run, basically, at an increased level -- at a new amount of $75 million. So over a 3 1/2 year period, we would have had a total authorization of $135 million, which -- at this time we have used around $40 million-some in the total.

45.

$45 million.

Okay. Thanks very much. I appreciate it.

(Operator Instructions)

I thought I'd just follow up, just to get all my questions answered. But going back to the input costs, I think that you normally review your can contracts about once a year. Is that coming up soon, or have you just completed? And what would be the outlook for your can costs?

January is when we have our annual can cycle pricing that takes place. We don't at the moment envision anything other than some level of current stability.

Okay. And then on the pricing side, I mean, most of what we've seen lately is price increases to offset rising input costs; but now we are going into this lower oil price time period. Do you expect to realize price decreases on your products? And if so, how long would it take for that to flow through your income statement?

We will be as deliberate in considering that we are as deliberate as considering increases. So at this time we will do what we normally do, which is we will sit and see whether this current lowering of oil is an event, or is it a longer-term event, or a trend? But we are not anticipating any price decreases.

Okay. Great. And then just turning to the Asia region, I know that there had been this disruption from the distributor change.

Yes.

I'm assuming that's done and over with now? You did have pretty strong results in Asia in the quarter. So that's all completed?

That's done, and we are lapping that. And we expect our Asian region to show reasonable growth in the next -- in the upcoming year.

Okay. And then just one more question on A&P spending, your A&P ratio. I know that you say it will be in the 6% to 7% range, but if you really look at a trend, it's really been slightly declining in the last couple of years. Is that due to efficiencies of spending? Or why is it declining?

Well, number one is a deliberate shift out of the household products, which have a much higher cost of promotion than our normal product range. And number two, as we develop and launch our Specialist product range, we are able to use the halo effect of the brand. We are not launching a new brand; we are launching products under a brand. So we are able to, I think, get better efficiency out of our marketing investments.

Right. I got you. Okay. And then on Specialist, I know you said it was up 34% in the year, but have you said how big it is -- just in terms of percentage of sales or absolute dollars?

Not yet, but you'll be one of the first to know when we do.

So are MP/MP product sales -- were they up in the year, excluding Specialist?

Yes.

Okay. Okay. I guess that's all for me. Thank you.

Ladies and gentlemen, that does conclude our allotted time for questions. We thank you for your participation on today's conference call and ask that you please disconnect your line.