WD-40 Co (WDFC) 2015 Q1 法說會逐字稿

Good day, and welcome to the WD-40 Company first-quarter FY15 earnings conference call. Today's call is being recorded.

(Operator Instructions)

I'd 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, ma'am.

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 the call.

Before we get started, let me remind you that supporting materials for this call are available on our Investor Relations website at investor.WD40Company.com. In addition to our traditional disclosures, the Company has published an earnings presentation, which can be downloaded from this website. We encourage investors to review this presentation in conjunction with today's prepared remarks. 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 the 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, January 7, 2015. 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'd now like to turn the call over to Garry.

Thank you, Wendy, and good day, all, and thanks for joining us for today's conference call. Today we reported net sales of $96.4 million for the first quarter of FY05 (sic - see press release, "FY15"), which was a 1% increase from the first quarter of last fiscal year. Net income for the first quarter was $10.8 million, compared to $11.5 million in Q1 last year; and diluted earnings per share for the first quarter were $0.73, compared to $0.74 last year.

Before we dive into the sales results, I'd like to take a moment to update you on the progress around our strategic initiatives. Strategic initiative number one is to grow WD-40 Multi-Use Product, affectionately known as MUP. Our goal under this first initiative is to take WD-40 MUP to more places, for more people, with more uses.

Although global sales of WD-40 Multi-Use Product were nearly flat in the first quarter of this year as compared to the first quarter of last year, we saw growth of MUP sales in both of the Americas and Asia-Pacific segments. In fact, we experienced double-digit growth in several markets within our Asia-Pacific segment, primarily within our distributor markets in the Asian region.

The sales growth of the WD-40 Multi-Use Product that we experienced in the Americas and Asia-Pacific was entirely offset by a decline in EMEA, primarily due to the unfavorable impacts of foreign currency, and a decline in orders following a heavy promotional period in the fourth quarter of last fiscal year. I will discuss this decline in EMEA in more detail when I review the results by segment. Finally, we look forward to sharing with you in the near future new initiatives we have planned for the WD-40 Multi-Use Product product line later in the year.

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 defined geographies and platforms. The WD-40 Specialist product line continued to support the WD-40 brand, with a global growth rate of 28% in the first quarter compared to the prior year first quarter. Each market, country and segment experiences different short-term trends relating to the sales of the WD-40 Specialist product line. We continue to believe that 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 of our Company to derive revenue from new sources outside of our flagship WD-40 brand. In FY14, we launched some exciting new products under the multi-purpose maintenance products umbrella, which included a complete refresh of the 3-IN-ONE offering in the US, and we expect these new products will start to contribute to our sales growth in FY15. We also completed the acquisition of the GT85 brand in September 2014, and we started to generate sales from this new brand during the first quarter of this fiscal year.

Strategic initiative number four is to attract, develop and retain outstanding Tribe members. In attracting, we welcomed 26 new Tribe members during the first quarter. As Zig Ziglar once said: You don't build a company, you build people, and then the people build the business.

Building our Company's bench strength for our future success is a top priority. To support this initiative in FY15, we have launched another year of our leadership laboratory program, a program which has been created to provide comprehensive training to develop all levels of Tribe members who -- in the interest of their own professional development. As far as retain is concerned, we are excited to learn in this quarter that recently our US profit sharing and 401(k) retirement plan received the highest rating in its peer group by BrightScope, a leading independent provider of retirement plan ratings and investment analytics.

Our strategic initiative number five looks at operational excellence. This initiative includes the continuous improvement of optimizing resources, systems and processes in order to help offset rising cost and protect our operating margin. Operational excellence is important to meet the ever-increasing customer and regulatory requirements, and the efficiency of managing our time, talent and [treasure].

We have several initiatives planned for FY15, which include: marketing enhancements -- sorry, making enhancements to our supply chain in both the Americas and EMEA; transitioning all 50 states to the lower VOC formula we launched in California in FY14; focusing on category management; and continuing the implementation and upgrade of our ERP system in EMEA. We look forward to providing you with updates on these initiatives throughout the fiscal year.

That completes the update on our strategic initiatives. So, let's move on to the details of our first-quarter results, starting with sales.

Consolidated net sales grew to $96.4 million, which is a growth of approximately 1% in the first quarter versus the comparable period last year. Although this sales growth is lower than our targeted growth rate for FY15, we believe that we continue to be well positioned for substantial growth and -- sustainable growth of our multi-purpose maintenance products over the longer term, and are maintaining our FY15 sales growth guidance of between 4% and 8%.

If we take a closer look at sales by product group, sales of our multi-purpose maintenance products were $84.9 million in the first quarter, up approximately 1 percentage point versus last year. And as a reminder, products under this category include WD-40 Multi-Use Product, WD-40 Specialist, and the 3-IN-ONE brand, WD-40 BIKE, as well as our newest member of the WD-40 brand family, GT85. As you know, we focus our time, talent and treasure on this area of our Business, which accounted for 88% of our global sales in the first quarter.

By trading block, sales of multi-purpose maintenance products in the first quarter were up 3% in the Americas, down 5% in EMEA, and up 14% in Asia-Pacific. I will discuss the drivers of some of these changes in a few moments.

Sales of our home care and cleaning products were $11.5 million in the first quarter, down about 1% from last year. The category accounted for 12% of our net sales in Q1. As a reminder, the home care and cleaning products include the brands of Spot Shot, 2000 Flushes, Carpet Fresh, No Vac, 1001, X-14, Lava and Solvol brands.

By trading block, sales of our home care and cleaning products were down 3% in the Americas, down 6% in EMEA, and up 13% in Asia-Pacific. As a reminder, our home care and cleaning products, particularly those in the US, are considered harvest brands that continue to generate positive cash flows but are becoming a smaller part of the Business as net sales of the multi-purpose maintenance products grow with the execution of our strategic initiatives.

Now, on to our results by segment, let's start firstly with the Americas. Net sales in the Americas, which includes the United States, Canada and Latin America, increased to $44.8 million in the first quarter, up 2% versus last year. The segment accounted for 46% of global sales in both the current and prior year.

Sales of multi-purpose maintenance products increased nearly 3% in the Americas, but that increase was partially offset by a nearly 3% decrease in the sales of our home care and cleaning products. The increase in sales in multi-purpose maintenance products was mainly driven by higher sales of WD-40 multi-purpose maintenance products in Latin America, which were up 19%. This growth is attributed to the continued growth of WD-40 MUP through the Latin American region, including in Mexico, Brazil and Peru. This increase in sales was partially offset by a 13% decrease in sales in Canada, primarily due to the change in distribution, as well as the timing of some customer-specific promotions. In the United States, sales of multi-purpose maintenance products remained relatively flat quarter to quarter.

Now, on to our EMEA segment: Net sales in the EMEA segment, which includes Europe, the Middle East, Africa and India, decreased to $34.6 million in the first quarter, down 5% versus last year. The segment accounted for 36% of global sales, compared to 38% in the first quarter of last year. Sales of multi-purpose maintenance products decreased by approximately 5%, and sales of home care and cleaning products decreased by approximately 6%.

Because our results can fluctuate due to the change in foreign currency exchange rates, we also show our results in what we call constant currency. For that, we translate the current period results from our foreign subsidiaries' functional currencies into US dollars at the prior period's exchange rate. The functional currency of our UK subsidiary is the pound sterling. On a constant-currency basis, sales in the EMEA segment would have decreased to $33.8 million in the first quarter, down 7% versus last year.

In addition to the impact of foreign currency changes when translating functional currency results into US dollars, EMEA's results in pound sterling are also affected by foreign currency exchange rates due to the fact that a significant portion of these sales are denominated in euros and US dollars. As a result, pound sterling sales are also negatively or positively impacted by the weakening or strengthening of the euro and the US dollar against the pound sterling. In the first quarter, the euro and the US dollar declined against the pound sterling by 8% and 3%, respectively, as compared to the first quarter of last fiscal year, reducing EMEA sales by approximately 3% from period to period.

We sell into EMEA through a combination of direct operations, as well as through exclusive marketing distributors. In direct markets, which account for 56% of sales in EMEA, net sales declined 7%, primarily due to the decline in the euro and the lower level of customer orders following a heavy promotional period in the fourth quarter of FY14. Other direct markets, which generate a significant portion of their sales in euros, were down by approximately 5% in pounds sterling due to the weakening of the euro.

In the distributor markets, which account for 44% of EMEA net sales, declined 4%, primarily due to the decline in the US dollar, and slower sales in the Middle East and eastern European markets, primarily due to the political unrest in the regions. The distributor markets, which generate a significant portion of their sales in the US dollars, were down by approximately 2% in pounds sterling due to the weakening of the US dollar -- a lot of exchange rates there.

Now, on to the Asia-Pacific segments: Net sales in the Asia-Pacific segment, which includes Australia, China and other countries in the Asian region, increased to $17 million in the first quarter, up 14% versus last year. The segment accounted for 18% of global sales, compared to 16% in the first quarter of last year. Sales of multi-purpose maintenance products increased 14%, and sales of home care and cleaning products increased 13%. Changes in foreign currency exchange rates did not have a material impact on sales for Asia-Pacific segment from period to period.

Net sales in Australia remained relatively constant from the first quarter of this year as compared to last year. Changes in foreign currency exchange rate had a negative impact on the sales results in Australia. In Australian dollars, sales increased 3% over the period last year, primarily due to increased promotional activities.

Sales in China decreased 14% in the first quarter, compared to the first quarter of last year, primarily due to the timing of promotional programs. The promotional program that we ran in the first quarter of last year started and ended during the quarter, whereas the one that we have run in the first quarter of this year started mid-quarter and will end -- or did end in mid-December. We continue to focus on the long-term opportunities 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 in the rest of the Asian region increased 36% in the first quarter, as compared to last year, and more than made up for the sales declines we saw in China. These increases were driven by improved sales of their multi-purpose products through most of our distributor markets, including those in South Korea, Indonesia and the Philippines. That's it for the sales update.

I will take a break now and turn it over to Jay who will continue the review of the financials.

Thank you, Garry. In addition to the information that we're presenting in this call today, we suggest that you review our Form 10-Q for the quarter, which we will file tomorrow.

First, a quick review of our 50/30/20 rule: That's the measures that we use to guide our Business. And as you may recall, 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 at or below 30% of net sales. And finally, the 20 represents EBITDA. If our gross margin is above 50%, and our cost of business is 30% or less, our EBITDA will be above 20%.

EBITDA is earnings before interest, taxes, depreciation and amortization. And the descriptions and reconciliations of these non-GAAP measures are available in our 10-Q, and in our investor presentation, which is available on the Investor Relations website.

Now, a look at the 50, or our gross margin in the 50/30/20 rule: Gross margin in the first quarter was 51.6%, compared to 52% in the prior fiscal year period. The slight decrease in gross margin was driven by the impacts from foreign currency exchange rates in EMEA, and costs associated with increased promotional activities in the Asia-Pacific and the Americas regions. These unfavorable impacts were partially offset by a decrease in input costs, along with price increases. Though we cannot control the impacts of foreign currency on our results, we continue to be focused and deliberate in managing the rest of our Business for maximum growth in our gross margin.

We experienced a net favorable impact of 80 basis points from our major input costs. This was driven by changes in the cost of petroleum-based special chemicals and aerosol cans, primarily in our EMEA segment. In addition, our gross margin improved by 30 basis points as a result of increases implemented -- price increases implemented over the past 12 months in parts of EMEA and parts of Asia-Pacific.

Changes in foreign currency exchange rates within our EMEA segment negatively impacted gross margin by 60 basis points. In EMEA, our cost of goods are sourced almost entirely in pounds sterling, while revenues are generated in euros, pounds sterling and the US dollars. The value of the euro and the US dollar both deteriorated versus the pound sterling in the first quarter of this year, as compared to that first quarter of last year. This caused revenues sourced in those currencies to be worth less in pounds sterling, thus resulting in a decrease to gross margin.

Also impacting gross margin this quarter were higher promotional discounts, which had an unfavorable impact on our gross margin of 50 basis points. The cost of promotional activities such as sales incentives, trade promotions and cash discounts that we give to our customers are recorded as a reduction in sales. The timing and magnitude of these activities cause fluctuations in gross margin period to period. Gross margin was also negatively impacted by 40 basis points due to sales mix changes, as well as other miscellaneous costs which had a slight increase from the prior first quarter of last year.

Now, on to the 30, or our cost of doing business: In the first quarter, our cost of doing business was 34%. This is a slight increase from the 33% for the first quarter last year. While our goal is to have our cost of doing business to be at or below 30% of net sales, we plan to continue our investments in new product development, brand protection, as well as regulatory and quality assurance. As a result, we expect our cost of doing business to remain near current levels throughout the remainder of FY15. We expect to move closer to our target of 30% over time, as our revenues grow.

Year to date, 76% of the total cost -- of our cost of doing business came from three areas: people costs, or the investments that we make in our Tribe; our investments in marketing, advertising and promotional activities; and freight, the cost to get our products to our customers.

EBITDA, the last of our 50/30/20 measures, was approximately 18% of net sales in the first quarter, a decline from the 19% in the prior fiscal year period. We target our EBITDA to be above 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.

Well, that completes our 50/30/20 discussion. Now let's take a closer look at one topic we know is on many investors' minds: the declining price of a barrel of crude oil.

Crude oil is at a five-year low. However, modeling the impact of the price of crude oil on our Business is very complex.

So, historically, we've looked at oil within a range. Over the last four years, oil has held very closely to the range of $85 to $110 a barrel. As long as the price of crude stays within this range, there's general stability in our margin. As it moves out of this range, we see the potential for volatility.

It is important to clarify that though petroleum-based specialty chemicals make up a significant portion, approximately 40% of the input costs associated with a can of our WD-40 Multi-Use Product, only a small amount of the cost is directly indexed to the cost of crude oil. This is because we do not buy crude oil. Instead, we buy custom-formulated specialty chemicals, which have their own complex cost drivers, including the manufacturing region, production costs, and distinctive supply and demand characteristics.

So, though falling crude oil prices will most likely be a net positive for our gross margin, it is extremely difficult to know the long-term impact of such changes until we actually see it in our cost of goods, which will take time. We will continue to monitor the situation closely, and provide updates as we learn more.

Now, let's move back to our first-quarter results. Here are some details on our SG&A expenses: In the first quarter, SG&A expense increased by 3% to $27.4 million compared to the prior year period. As a percentage of net sales, SG&A expense was 28.5% in the first quarter, compared to 27.9% in the prior year period. The increase in SG&A expense was driven by higher employee-related costs, a higher level of travel and meeting expenses, and the impact of changes from foreign currency exchange rates.

Employee-related expenses increased $300,000 compared to the prior year. These increases were primarily due to an increased employee base, as well as annual merit increases. Also contributing to the increase in SG&A was travel and meeting expenses in support of our strategic initiatives, which increased $200,000 when compared to last year. Finally, changes in foreign currency exchange rates had an unfavorable impact, period versus period, increasing SG&A expenses by about $200,000.

In the first quarter, we continued to invest in research and new product development, and invested $1.6 million in R&D, up from the $1.4 million last year. The majority of this investment is associated with our multi-purpose maintenance products, as we believe that by continuing to focus on innovation and renovation, we strengthen our foundation for the future.

Advertising, sales and promotional expense increased by 5% in the first quarter to $5.9 million. And as a percentage of sales, A&P investment was 6.1% in the first quarter compared to 5.9% in the prior year; the increase primarily associated with a higher level of promotional activities in both EMEA and the Asia-Pacific. Increases were slightly offset by a little bit lower promotional program activities in the Americas. As a reminder, it is common for sales and advertising -- sales, promotion and advertising expenses to fluctuate period to period, based on the type of marketing activity or promotion that we employ within any given period.

Amortization of our intangible assets increased by a total of $200,000, to $800,000 in the first quarter of this year. This increase was primarily due to customer lists that we acquired from our Belgian marketing distributor in the second quarter of 2014, as well as the GT85 acquisition, which we completed in September.

Total operating expenses in the current quarter were $34.1 million versus $32.9 million last year. Our operating income in the first quarter was $15.6 million compared to the $16.8 million in the prior year period.

Other expenses net, which includes interest income, interest expense, and other miscellaneous income and expense, in total decreased by $240,000 in the first quarter. The decrease was primarily due to the fluctuations in exchange rates. In the first quarter of this year, we recorded foreign currency exchange gains, whereas we recorded losses in the prior year quarter.

The provision for income taxes in Q1 was 30.6% versus 30.3% in the prior fiscal year quarter. The higher tax rate is primarily due to the timing of benefits associated with state tax filings.

Net income in the first quarter was $10.8 million versus $11.5 million in the prior year quarter. Changes in foreign currency exchange rates did not have a material impact on the translation of our consolidated results.

Diluted earnings per share was $0.73 in the first quarter, compared to the $0.74 in the prior year quarter. Diluted shares outstanding decreased from 15.4 million shares to 14.7 million shares.

Now, a look at our balance sheet at November 30: Our balance sheet and liquidity continue to remain strong. At the end of our first quarter, our cash balance was $46.4 million, and we had $42.6 million in short-term investments, which consist of term and time deposits held in money center banks. During the quarter, there were no additional borrowings against our revolving line of credit; and as a result, our debt remained at $98 million at the end of the first quarter.

We continue to return capital to shareholders through regular dividends and share repurchases. And on December 9, the Board of Directors declared a quarterly cash dividend of $0.38 per share, which reflects an increase of 12% over the previous quarter's dividend of $0.34 a share. And based on today's closing price of $85.48, the annualized dividend yield would be 1.8%.

As for share repurchases, we acquired 144,000 shares of our stock at a total cost of $9.9 million during the quarter. These shares were acquired under our current share buyback plan. We currently have two share buyback plans that have been approved by our Board of Directors, and are in place through August 31 of 2016. Between the two approved plans, the Company can acquire an additional $80 million of its outstanding shares.

That completes the financial review. And again, more information will be in our 10-Q, which we will file tomorrow. And I will turn this now back over to Garry.

Great, thanks, Jay. Most of you have heard me say many times that I look at our Business over the longer term, and that performance in a particular quarter is not as important as the long-term trends of our Business. Our progress in this quarter should be viewed with this perspective.

Our global business and our results are subject to ebbs and flows of many things, including changing foreign currency exchange rates, political unrest, and the changes in input costs, just to name a few. However, while we expect to see fluctuations in our sales and in our financial results in particular quarters, we anticipate seeing continued growth, driven by our strategic initiatives, which we believe will enable us to continue to deliver strong returns to our stockholders over the longer period.

Therefore, our FY15 guidance is as follows: This guidance does not include any future acquisitions or divestiture activity. We expect our global fiscal year sales to be in the range of $398 million to $413 million, and that's a growth of between 4% and 8%. We project our gross margin to be better than 52%. That's a slight upward revision from our last quarter guidance. We expect our global advertising, promotion investment to be in the range of 6% to 7%.

We expect our net income 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. We are comfortable with our current guidance range for net income, but there are global market dynamics going on outside the Company's control that may have offsetting effects which could impact specific elements of our guidance. These include the recent decline in the price of crude oil and the present trends in foreign currency exchange rates. Falling crude prices are certainly a net positive for our gross margin, but it will take time to fully understand the impact that recent declines in the price of crude oil will have on our financials.

Conversely, if recent trends in foreign currency exchange rates continue, particularly the strengthening of the US dollar, our consolidated results would be adversely impacted. We will continue to monitor the situation closely, and look forward to updating investors on any impact that these external factors might have on our guidance in the future.

In summary: What did you hear from us on the call today? You heard we experienced slow but steady growth of our multi-purpose maintenance products. You heard that our WD-40 Specialist product line continues to perform well, with global growth rate of 28% quarter over quarter -- or year over year in the quarter. You heard that we increased our dividend by 12%. You heard that we've identified some volatility around specific elements that impact our financial performance, including the recent decline in the price of crude oil and the recent trends in foreign currency exchange rates. And you heard that our long-term outlook remains optimistic, and we believe we are off to a good start in 2015, and we see a solid, steady year ahead as we continue to put our efforts behind our strategic initiatives.

In closing, as I do, I'd like to share a quote with you; this time from Winston Churchill. It's always wise to look ahead, but difficult to look further than you can see.

Thank you for joining us today. We're pleased to now open the call for -- the conference for any calls, and I will turn it back to the operator.

(Operator Instructions)

Our first question comes from the line of Liam Burke with Wunderlich Securities.

Good afternoon, Garry.

Hi, Liam.

Garry, part of the cost of doing business is you talked about additional investments in brand protection and new product development. That's right off the slide.

In terms of new product development, which way are you looking? Are you looking to develop another vertical like BIKE or something to leverage off the WD-40 brand?

Currently, the majority of the development -- well, let me put it -- divide it. There's longer term development, which would include new Specialist areas. But we've been doing a lot of work around WD-40 MUP.

And as I mentioned in the call earlier, we will be sharing later on in the year what we consider to be a new and an exciting development under the blue and yellow can. On top of that, we are also working on extensions of the Specialist product line, particularly in categories that we've identified have some longer-term growth opportunities.

Okay. You mentioned BIKE. Looks to be another developed product line here. You made the acquisition of the GT85. How's that progressing, vis-a-vis your expectations?

We're very encouraged with the initial launch in Europe with WD-40 BIKE. We are now selling our BIKE products in all three trading blocks and are currently now during this slow season, this winter season in the Northern hemisphere building distribution out for the summer season that will come.

So we're in the BIKE business. We see it as being a meaningful and developing business over time. And we will be -- we're integrating GT85 into our network.

So overall, I think we feel comfortable at the positioning of BIKE, and we look forward to continuing to build it to a meaningful part of our revenue. But it will take time.

Great. Thank you, Garry.

Thanks, Liam.

Our next question comes from the line of Linda Bolton Weiser with B. Riley.

Hi, happy new year to you guys.

Happy new year, Linda.

Happy new year as well.

Could I just ask you to clarify on the currency impact elements. When you were talking about the EMEA region, can you just clarify once again the total FX impact on the sales in the EMEA region for the quarter? In millions of dollars.

Are you looking at the percent changes?

Well, either give it to me in dollars, what sales would have been in local currency versus in dollars or give me a percentage impact, yes.

Let me just take a quick look at this, Linda, and -- so we've got -- again, the challenge in EMEA is that we have a currency impact on translation. That is taking the Sterling results and translating them back into US dollars. And that would have changed -- so for example, we ended up, our current results were $34.6 million, and had we not had the changes in currency on translation, we would have been at $33.8 million.

Now, again, as Garry said, we also have changes in the Sterling results that occur as the Sterling changes against both the dollar and the Euro. And that was -- that had a -- in period to period, there was effectively an 8% change in the Euro over that period and a about 3% change in the dollar.

Okay. So I guess what I'm trying to get at, as an analyst I'm trying to project for the year what that currency impact on your sales will be for the full year, and I had been modeling maybe negative 1% to 1.5%. Is that in the ballpark range, or can you help us out with that in any way?

Well, if rates stay at current levels, it would be more than that.

Okay. Can you give some rough idea, given where rates are now?

We haven't provided an outlook that basically locks in current rates throughout the remainder of the year. We haven't provided that.

Okay. All right. And then did the small acquisition, even though it was very small in the UK, did it make any favorable effect on sales growth in the EMEA region?

It was only small, Linda, a few hundred thousand, that's all.

Okay.

We're still very much in integration mode of that. We haven't started to expand its distribution yet. We had to tuck it into our system. And we would expect to start to ramp up that activity after February.

Okay. And then it seems that one of the difficulties a little bit with projecting everything for you guys quarter by quarter is just the timing of your promotions, and I know you've always cautioned that.

So if this was a -- if it was heavier promotion last quarter especially in EMEA you mentioned and it was lighter now, is there any way to project -- you're in the midst of your next quarter. Is the next quarter going to be normal or is there any shifts you can tell us about ahead of time to help us out?

We would expect EMEA in the second quarter to show growth. We have a lot of activity -- we would expect quarters 2 and 3 to be particularly active this year, given what we know in EMEA, given some launch of some new products that we've got planned.

So to be honest with you, Q1 was not a disappointment to us, but we don't -- we haven't got quarteritis, and we don't get quarteritis. The two things that are confusing us at the moment are the impact of oil and foreign currency. The underlying trading in the business, we have a very good handle on it, Linda, and feel really good.

Okay. All right. So just the oil issue, of course we're all watching these low oil prices. I actually try -- I don't know if I'm looking at the right exact thing, but I try to monitor from Bloomberg a commodity that might be similar to what you actually use. It looks like that's down also. Not down quite as much as oil, but it is starting to really be down quite a bit, double-digit year-over-year. So is it just a matter of the lag before the inventory that you have rolls off and it flows into your income statement, is that the timing lag that you referred to?

There are two things. Firstly, if you think about the quarter we've just been in or that we're talking about, oil prices started the quarter at $95, and ended the quarter around $80.

So we're really looking at a quarter that was very similar to all the quarters we've had in the past. And in fact, if you look at the last two quarters, we started at $100 and ended up at about $80. So funnily enough, it was right within our band, and we had movement within the quarter.

Then you saw oil drop from about mid-October to now. So again, we are now watching the impacts of that, and it's going to take time for, A, the inventory that we have in the system to move through the snake, the new inventory to come into the system and get into the snake and then move through the snake.

And on the input costs, not all of them, and as Jay has shared, there is only a portion of them that react closely to oil. The others react at different times because they're processed and manufactured.

So this is an interesting time for us. We've never really reflected at it going down like this. We know that when oil prices go up, we feel them sooner and harder. And now we're saying where is the reduction for the price coming down.

There is no doubt in our mind that lower oil prices are a good thing for gross margin going forward. We're still working out how much or how long, and that's why we revised our guidance to say instead of close to, greater than or better than the 52% that we have now. We hope to learn more on the way it flows into our business in the next 60 to 90 days.

Right. I understand totally. So can you give us a feel, Garry, for how you think about if you do -- if oil does stay down and you just start to experience these benefits, how do you think about reinvesting some back into your growth initiatives in the Company? Would you tend to do that? Or can you just think of how you think about that in your business?

Well, I think the thing that we do think about is our end users a lot. And if oil stays at a low number for a long period of time, and we don't know that yet because if I go back to 2008 and 2009, it was down around these numbers or lower then, but it bounced back again.

So the thing we don't want to do is we don't want to unnaturally impact regular pricing, because it just whip lashes the whole business. What we may do is increase the value proposition to our end users by running different or new promotions that we might get as new distribution. We really want to make sure that we continue to grow and to have a strong gross margin, but we also want to recognize the fact that we want to continue to deliver great value to our customers and to our end users.

So we will be watching that closely. It's a topic of constant conversation in the Company right now because we don't know. But we will decide going forward.

Great. That sounds good. And then just finally, I know you had tested this Lawn & Garden line in Australia. Do you have any further information on that? Could we see a launch more broadly come this spring?

We're still waiting. It's still summertime in Australia. They're not suffering the cold that we, some parts of the US are as you know. When we get that back, we will let you know. We may.

We also have other things. We've got some great new product development, products or a product in the line under our MUP, blue and yellow can that we will be bringing to market later in the year that we think is very exciting that probably will have a greater impact on the US market than a Lawn & Garden launch. Lawn & Garden certainly on the table, and if it works, we will be bringing it to the market.

Great. Thank you very much.

Thanks, Linda.

(Operator Instructions)

Our next question comes from the line of Jeffrey Zekauskas with JPMorgan.

This is Ben Richardson, stepping in for Jeff.

Hello, Ben.

How are you, Garry?

Good.

Just wanted to say quickly, it's touching on raw materials again, but just the timing of some of your negotiations and the duration of contracts you might have on steel cans, plastics or any of this. Is there anything that's to be negotiated sooner or later, and how long might these contracts be for these materials?

Typically the one that's the longest term is our can pricing. That's typically been an annual contract. We've had discussions and have -- we're in that time frame of renewal. We don't see a negative impact from them this year. And we will update you once they're concluded.

Okay. And just from previous drops in crude that we've seen, fourth quarter 2008, fourth quarter of 2010, I look and it's a multi-quarter response in your gross margin. Would you expect it to be any faster or any slower, given the magnitude of the decline in crude, just on the gross margin end?

We think it will take some time to fully embed. As we said earlier, there are -- oil is at the foundation of a number of these costs, but the speed with which any price in the underlying gets translated into our -- the finished goods that we buy that become our input costs can take time.

And we've typically seen that delay on the down side much longer than on the upside. I would expect that it would lay out over a couple of quarters as you say.

And then on the European weakness, I know some of it's clearly currency, but what's going on fundamentally in any of those channels? Can you identify any specific regions or what might be the source of -- ?

Over the whole of Europe, we had a quarter that was impacted a little bit by some political unrest in the Ukraine, but it was insignificant in the big scheme of things. I think it was what I would call a sit-down quarter. You can't dance at the party all night. You have to sit down a little while and let the market absorb what's in there.

So I think it's long term for the year, we see Europe as a growth market. We've got some major wins in the bag coming in, in the second and third quarter. The key markets like Germany, France, Italy, Spain and the UK look well.

We've seen stabilization in Russia now. We felt we may have got a little worse decline or even a little worse activity in Russia.

That didn't come. In fact, our can sales I believe are up in Russia. So I think it's just a quarter where we didn't have as much activity, but we think that 2 and 3 will be fine.

Okay. All right. Well, thank you very much.

Thanks very much, Ben.

(Operator Instructions)

Ladies and gentlemen, our next question comes from the line of -- a follow-up question from Linda Bolton Weiser with B. Riley.

Hi. Is there any way that you can quantify roughly how much the heavy promotional in EMEA in the last quarter, in the fourth quarter, how much that shifted from the first quarter into the fourth quarter of 2014?

Linda, it doesn't shift. It just happens.

Okay. So you wouldn't regard it as taking away -- I thought the way you worded it was it took away from some of the sales of this quarter. No?

No, no, it's just we had a heavier fourth quarter promotional quarter. The year, it's going to be a growth year.

So as I just said to Ben, excuse the way I describe it, but you can't dance at a party all night. Sometimes you sit down and rest, and I think in Europe they had a little sit-down in the first quarter. And the party will start in the second quarter again.

Okay. I look forward to the party.

And you know that a majority of our product is sold on impulse and is driven by display. So you have to sell in, let us go through the system and then sell out and sell in again.

So majority of our volume doesn't come off that shelf. It comes off what we call the playground which is driven by multiple location displays, driven by promotional events and activities.

And we don't -- Linda, we don't mix very well with Barbie dolls and barbecue sets. Christmas time is not a high -- the traffic aisles and the promotional aisles in stores are filled with gift items. So it's not unnatural for us in that Christmas quarter not to have as many promotions as we normally have.

Okay. Thank you very much.

Thanks, Linda.

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.