WD-40 Co (WDFC) 2015 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Good day and welcome to the WD-40 Company third-quarter FY15 earnings conference call. Today's call is being recorded.

(Operator Instructions)

I would now like to turn the presentation over to your 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 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 some supplemental slides which can be downloaded from this website. We encourage investors to review these slides in conjunction with today's prepared remarks. A replay and transcript 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, July 8, 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.

Thanks, Wendy. Good day and thanks for joining us for today's conference call. I'm pleased with the performance of our global business, yet foreign currency exchange headwinds are distorting our reported results. Hopefully today we will throw some color on what that is.

Today you will hear that we reported net income of $11 million and diluted earnings per share of $0.75 for the third quarter. Year-to-date net income was $33.1 million and diluted earnings per share were $2.24.

You will hear that we reported net sales of $92.5 million for the third quarter which is a 3% decline from the third quarter of last fiscal year. Year-to-date net sales were $286.2 million which is a slight increase year over year.

You will hear that the Americas performed very well in the third quarter with a 10% increase in net sales. You will hear that Asia-Pacific is on track for a great year despite a product quality challenge we encountered during the quarter.

You will hear that EMEA's base business is strong but reported sales continue to be impacted by significant currency headwinds and political and economic instability in Eastern Europe. You will hear that the WD-40 Specialist product line continues to perform well with global growth rate of 26% in the third quarter. And you'll hear that later this month we are launching our new delivery system for the WD-40 multi-use product in the USA.

In the third quarter nearly 40% of our revenues were generated in currencies other than the US dollar, which means we are experiencing significant foreign currency headwinds, particularly in EMEA. However, if you peel back the onion, our underlying business is performing well and in local currencies seeing growth in all but a few of our markets globally. While foreign currency exchange rates may have skewered the strength of our underlying business, we remain focused on our long-term strategic initiatives which are intended to drive organic growth despite foreign currency transaction and translation impacts.

Let me remind you that we currently have four subsidiaries located outside of the United States that generate sales and do business in currencies other than the US dollar. They are located in the United Kingdom, Canada, Australia, and China.

The main currency in which each of our subsidiaries conducts its business is called the functional currency. We have foreign currency translation exposure when we translate the results of our foreign subsidiaries from their functional currency into US dollars. The continued strength of the US dollar deflates the net sales denominated in currencies other than the US dollar and thus has a negative impact on our consolidated results.

In addition to this translation exposure, our UK subsidiary also experiences foreign currency transaction exposure because it conducts business in currencies other than its functional currency, the pound sterling. A significant portion of EMEA's net sales are generated outside the UK and transacted in euros and US dollars. When these sales are converted into pound sterling, EMEA reported results are impacted by the weakening of the euro against the pound sterling. In 2015, the euro has continuously weakened against the pound sterling, making transaction exposure more significant to our business.

Keeping the present currency environment in mind, I will now discuss our sales results in greater detail. Consolidated net sales were $92.5 million in the third quarter and $286.2 million year to date. These numbers reflect a decline of 3% for the quarter and growth of nearly 1% year to date.

If we take a closer look at the net sales by product group we continue to be well positioned for sustainable growth of our multi-purpose maintenance products. We refer to this group as MPMP. We focus our time, talent and treasure on this product group and it accounted for 88% of our global sales in the third quarter.

Consolidated MPMP sales were down 4% to $81.5 million in the third quarter and flat at $253 million year to date. By trading block, MPMP sales in the third quarter were up 12% in the Americas, down 18% in EMEA, and down 12% in Asia-Pacific. Year-to-date MPMP sales were up 4% in the Americas, down 7% in EMEA and up 10% in Asia-Pacific. If we take a closer look at the current quarter results, the increase in MPMP sales in the Americas was driven by strong growth of both our multi-use product and Specialist sales throughout the trading block, including double-digit growth of both categories.

MPMP sales in EMEA in the third quarter decreased 18% primarily due to the unfavorable impact of foreign currency exchange rates. Overall in EMEA we saw double-digit growth of Specialists despite currency headwinds.

The decrease in MPMP sales in Asia-Pacific in the third quarter was attributed to a 28% decrease in our Asian distributor markets. This decrease was due to a defective aerosol can component that caused an evacuation failure in one of our sizes of our multi-use products sold to our marketing distributors in various countries in Asia. We recorded a sales return allowance and we were not able to sell the product, this SKU, to our marketing distributor in the third quarter due to the quality issue.

Although our third quarter was negatively impacted by this event, it was an isolated incident and one which was quickly addressed from a quality perspective. Sales of MPMP products increased year over year in both China and Australia during the third quarter.

Turning to our home care and cleaning products group, sales were $11 million in the third quarter and $33.2 million year to date, up 1% in both periods. The product group accounted for 12% of net sales in the third quarter.

By trading block, sales of our home care and cleaning products in the third quarter were up 1% in the Americas, up 6% in EMEA and down 3% in Asia-Pacific. Year-to-date sales were flat in the Americas up 2% in EMEA and up 7% 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 contribution and cash flows but are generally expected to become a smaller part of the business as net sales of multi-purpose maintenance products grow with the execution of our strategic initiatives.

Now onto the results by segment. Let's start with the Americas. Net sales in the Americas, which includes the United States, Canada and Latin America, increased to $49.7 million in the third quarter, up 10% versus last year. Year-to-date net sales in the Americas increased to $139.2 million, up 4% versus last year.

Looking at the US alone, sales were up 11% in the third quarter and 4% year to date. During the third quarter the US experienced double-digit growth for all MPMP products due to the increased distribution and higher level of promotional activities. In the US, we experienced a 21% growth of the WD-40 Specialist product line in the third quarter and now 17% year to date.

In Canada, net sales were up 7% in the third quarter and down 3% year to date. Changes in foreign currency exchange rates had a negative impact on sales results in Canada. In its transactional currency, the Canadian dollar, sales increased by 19% in the third quarter and 6% year over year.

Total Latin American sales were up 7% in both the third quarter and year to date. The sales increases in Latin America for both periods was due to higher sales of the WD-40 multi-use product, primarily in Mexico due to a successful promotional program which was conducted in the third quarter of FY15.

Now over to EMEA. Net sales in EMEA, which includes Europe, the Middle East, Africa and India, decreased to $30.3 million in the third quarter, down 17% versus last year. Year-to-date sales decreased 7% to $103.6 million.

EMEA results in the third quarter were negatively impacted by currency headwinds as well as the political and economic instability in Eastern Europe. Since our results fluctuate due to the changes in foreign currency exchange rates, we also discuss our sales in what we call constant currency. For that we translate the current period results from the foreign subsidiary's functional currency into US dollars at the same-period last-year exchange rates. On a constant currency basis, sales in EMEA would have increased 9% in the third quarter and 3% year to date.

But wait, there's more. We sell into EMEA through a combination of direct operations as well as through marketing distributors. The direct market sales accounted for 67% of EMEA's total third-quarter sales and 61% of sales year to date. Direct market reported sales declined 6% in the third quarter and 5% year over year.

Now, here is the more. These sales declines were entirely due to foreign currency exchange impacts. If we look at the local currencies in which sales are transacted in EMEA in the direct markets, in the United Kingdom we sell in pound sterling, sales increased by 15% in the third quarter and 10% year over year. In the European direct markets where we sell in euros, sales increased 9% in the third quarter and 6% year over year. So, there you have it -- currency headwinds obscuring what is going on within our Europe direct markets.

Our distributor markets accounted for 33% of EMEA's total third-quarter sales and 39% of sales year to date. Distributor markets net sales decreased 33% in the third quarter and 10% year to date, primarily due to a significant decrease in Eastern European sales, particularly in Russia and Ukraine where there continues to be political and economic instability. During the third quarter we recorded no sales in Ukraine and we have only recorded sales for Russia in the last month of this quarter. Unfortunately, at this point, experts are uncertain on how long this political and economic situation in Russia and the Ukraine will last.

Now Asia-Pacific -- net sales in Asia-Pacific, which includes Australia, China and other countries in the Asian region, decreased to $12.5 million in the third quarter, down 11% versus last year. Year-to-date sales increased 9% to $43.4 million. Changes in foreign currency exchange rates had an unfavorable impact on sales. On a constant currency basis, sales in Asia-Pacific would have decreased 6% in the third quarter and would have increased 12% year to date.

In Australia, reported net sales were flat both in the quarter and year over year. Changes in foreign currency exchange rates had a negative impact on sales results in Australia. In its transactional currency, the Australian dollar, sales increased by 16% during the third quarter and 8% year to date.

Sales in China increased 10% in the third quarter and 11% year over year due to the continuing building of distribution, much of which came from southern China and ongoing promotional activities throughout the country. We continue to be optimistic about the long-term opportunities in this region, although we expect a lot of volatility along the way due to the timing of promotional activities and programs, the building of distribution, the shifting economic patterns, and varying industrial activities.

Sales in the rest of the Asian region decreased 28% in the third quarter. As I mentioned earlier, this decrease was due to a product quality issue linked to a defective aerosol can component in one SKU sold to our Asian marketing distributors. The issue was quickly identified and rectified and we do not anticipate having any further disruptions. We do not expect that sales in the Asian distributor markets will be negative impacted in the future period by this product quality issue.

Year-to-date sales in the Asian region increased 15% year to date primarily due to the increased sales of WD-40 multi-purpose product throughout most of the distributor markets, including those of South Korea, the Philippines and Indonesia.

Now I would like to provide you with an update on our strategic initiatives. Our strategic initiative number one is to grow the WD-40 multi-use product, the blue and yellow can with the little red top. Our goal under this initiative is to take the WD-40 Multi-Use product to more places for more people and with more uses.

Under the umbrella of strategic initiative number one we're really excited to finally give you a sneak peek of our innovative new delivery system. And it's on slide 10 of our third-quarter results earnings presentation that's currently on our website. Additionally, you can see a glimpse of our teaser campaign at www.WD40.com/ez.

Much like our Smart Straw it was designed to make WD-40 Multi-Use product even easier to use. The delivery system on this new product is designed to make the hard to reach easy to reach. The product will not replace any of our current delivery systems but rather is an additional SKU for our end users to choose. It's scheduled to be on select store shelves in the US by the end of this month.

Strategic driver 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 continues to grow, and sales of the product line increased 26% in the third quarter and 20% year to date.

We continue to launch new Specialist categories in markets around the world. Although each market and 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 will be a sustainable and substantial revenue and earnings growth engine for many years to come.

Strategic driver initiative number three -- broaden our product base and revenue. Our goal under this initiative is to leverage the strengths within our Company to derive revenue from new sources outside of our WD-40 flagship brand. WD-40 BIKE continues to grow and we've expanded our product line and it is now available in 19 countries at thousands of retailers around the world.

During the third quarter we continued to broaden distribution of our products. Our newest 3-IN-ONE product, Lock Dry Lube, was on the store shelves in retail channels in the US for the first time in the third quarter.

Strategic initiative number four -- attract, develop, retain outstanding tribe members. Our goal under this initiative is to attract, develop and retain our most valuable resource, our tribe. We welcomed 10 new tribe members during the third quarter, bringing our total number of new hires year to date to 48.

Developing our tribe and building our Company's bench strength for our future success remains a top priority. During the third quarter we concluded our fourth year of Leadership Lab, a program created to facilitate understanding of our leadership principles and values in order to develop the next generation of leaders within our organization. In total, we've had 162 tribe members graduate from various levels of Leadership Lab in the past four years. That's nearly 40% of our tribe globally.

Finally, our organization was recently recognized for the fifth consecutive year by WorldBlu as one of the most freedom-centered workplaces for high levels of innovation, accountability and transparency.

Strategic driver number five -- operational excellence. This initiative includes the continuous improvement of resources, systems and processes in order to help offset rising costs that protect our operating margin. We continue to make progress on several initiatives that we plan for FY15.

We've made additional progress in the implementation of the upgraded ERP system in EMEA. And in June we went live with our new system at our Italy branch.

I mentioned in the past that one of the projects we've planned in FY15 under the strategic initiative was to transition all 50 states to a lower VOC formula we launched in California in FY14. We continued working with our manufacturing partners on test production runs in preparations for the upcoming transition but it will not occur this fiscal year. There are no negative ramifications as a result of this change to our plans but the costs associated with the implementing of these regulatory requirements will shift now into 2016.

I will take a break now and I'll be happy to hand over to Jay who will continue the review of our financials. Thanks, Jay.

Thank you, Garry. In addition to the information that we're presenting on this call today we suggest that you review our Form 10-Q for our quarter which we will file tomorrow. Let's first review our 50/30/20 rule. As you may recall, those are the measures we use to guide our business.

The 50 represents our 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.

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

Now we'll look at our gross margin, the 50 in our 50/30/20 rule. Gross margin in the third quarter was 53.3% compared to the 51.4% in the prior fiscal year period. The increase in gross margin was primarily driven by decreased input costs in all three trading blocks. These favorable impacts were partially offset by the unfavorable impacts from foreign currency exchange rates in EMEA and increased discount and other allowances, primarily within our Americas and Asia-Pacific trading blocks.

Our cost of products sold, a closer look at input costs, we experienced a net favorable impact of 260 basis points from our major input costs. This was driven primarily by changes in the cost of petroleum-based specialty chemicals and to a lesser extent aerosol cans. As we have shared with you in the past it takes considerable time, approximately 90 to 120 days, for changing commodity prices to impact our cost of goods sold.

All three trading blocks saw net positive impacts to gross margin due to lower crude oil prices, one of the primary feedstocks of our petroleum-based specialty chemicals. As Garry mentioned earlier, we delayed the transition to all 50 states for the lower VOC formula of the Multi-Use products which was launched in California during FY14. However, when we move forward with the implementation we will expect to see some increase in our cost base.

Also impacting gross margin this quarter were improved warehousing, distribution and inbound freight costs, which had a favorable impact on our gross margin of 30 basis points, mainly in the Americas. As you may recall, last year we had some elevated expenses due to a promotion in the US that had special display configurations which resulted in increased storage and transportation costs. Transportation costs were also higher last year due to disruptions caused by adverse weather conditions.

In addition, our gross margin improved by 30 basis points as a result of sales price increases implemented in the past 12 months in certain markets in Asia-Pacific and EMEA. Gross margin had another positive impact of 30 basis points due to the combined effects of sales mix changes and other miscellaneous costs. The overall favorable sales mix changes in the Americas and EMEA more than offset the additional costs associated with the write-off of defective goods in our Asia distributor markets.

These improvements to margin were partially offset by increased promotional discounts and allowances which had an unfavorable impact of 110 basis points in the third quarter. This was driven by increased advertising, promotional spending and investment in the Americas and Asia-Pacific.

Changing foreign currency rates impact our net sales but they also impact our gross margin. In the third quarter foreign currency exchange rates adversely impacted our margin by 50 basis points. This is because in EMEA our cost of goods are sourced almost entirely in pound sterling while approximately 45% of our revenues are generated in euros with 30% pound sterling and the remaining 25% in US dollars.

Although the US dollar strengthened against the pound, the euro deteriorated against the pound compared to last year. As a result, revenues in total were worth less in pound sterling and thus decreasing our gross margin.

The themes that we've just discussed for the third quarter for gross margin also apply to our year-to-date results. Gross margin year to date was 52.5% compared to 51.6% in the prior year. Though we cannot control global market dynamics, such as the impact of foreign currency or the price of crude oil, we continue to be focused and deliberate in managing the rest of our business for maximum growth in our gross margin.

Now on to the 30, our cost of doing business. In the third quarter our cost of doing business was 35%, up from 34% the same period last year. While our goal is to have our cost of doing business at or below 30% of net sales, we plan to continue investments in our new product development activities, brand protection, regulatory compliance and quality assurance. As a result, we expect our cost of doing business to remain near current levels throughout the remainder of the year.

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 doing business came from three areas -- people costs, or the investments we make in our tribe; the investments we make in marketing, advertising and promotion; and freight costs, the costs to get our products to our customers.

Now, let's take a closer look at our expense items that lead to our final EBITDA measure. First, SG&A expenses. In the third quarter SG&A expense declined by $300,000 compared to the prior year to $26.6 million. As a percent of net sales, SG&A expense increased to 28.8% for the third quarter compared to 28.1% last year.

The decrease in the SG&A expenses was primarily attributable to the impact of $1.1 million from changes in foreign currency exchange rates and a decrease of $800,000 in professional service costs. The decrease in professional service costs were primarily driven by lower legal fees associated with litigation and intellectual property protection activities as well as reduced consulting services in our Americas and EMEA segments. These decreases were offset by $1 million increase in employee-related costs, a $200,000 increase in costs for travel and meetings, and $400,000 of increased other miscellaneous expenses.

Year to date, our SG&A expense increased by $1.2 million compared to the prior year, to $81.4 million. As a percentage of net sales, SG&A expense increased to 28.5% year to date compared to 28.1% last year. Year to date the increase in SG&A was primarily attributable to higher employee-related costs, which increased by $2.2 million compared to the prior-year period. These increases were primarily due to increased headcount and annual merit increases implemented in the first quarter, and were partially offset by lower earned incentive compensation accruals.

Also contributing to the increase in SG&A expense was travel and meeting expenses in support of our strategic initiatives which increased $700,000 compared to the prior year. Depreciation expense increased $400,000 compared to last year, primarily due to our increased investments in systems.

Finally, other miscellaneous expenses increased $400,000. These increases were partially offset by a $1.7 million impact due to changes in foreign currency exchange rates as well as $800,000 decrease in personal service costs associated with litigation, intellectual property protection activities, and general consulting services in our Americas and EMEA trading blocks.

We continued our investment in innovation and renovation by investing $2.2 million in the third quarter and $5.5 million year to date in research and development activities, which is up from $2 million and $4.4 million in the same period last year. The majority of this investment is associated with our multi-purpose maintenance products and directly supports our strategic initiatives.

Advertising and sales promotion expense decreased by 15% in the third quarter to $5.5 million compared to the prior-year quarter. As a percentage of sales A&P investment decreased to 6% in the third quarter compared to 6.8% last year. The decrease in advertising and sales promotion during the third quarter was primarily due to lower level of promotional programs and marketing support in EMEA and Asia-Pacific, which was offset by increased promotional activities in the Americas trading block.

Changes in foreign currency exchange rates had a positive impact of $300,000 on A&P expense in the third quarter. Year to date, advertising and sales promotion expense decreased by 6% to $16.9 million compared to the prior year. As a percentage of sales A&P investments decreased to 5.9% compared to 6.3% in the prior-year period. The decrease in advertising and sales expense year to date was primarily due to a lower level of promotional programs and marketing support in EMEA.

Changes in foreign currency exchange rates had a positive impact of $400,000 on our A&P investment during the year-to-date period. As a reminder, it is common for advertising and sales promotion expense to fluctuate period to period based on the type of marketing activity or promotion we employ.

The amortization of intangible assets increased by $100,000 to $800,000 in the third quarter of this year. Year-to-date such expenses increased by $400,000 to $2.3 million due primarily to our intangibles that we acquired in the GT85 acquisition completed earlier this year. Total expenses in the third quarter were $32.9 million versus $34 million in the third quarter last year.

Operating income in the third quarter was $16.4 million compared to $15.1 million in the prior-year quarter. And year-to-date total operating expenses were $106 million compared to $102 million for the same period last year. This resulted in year-to-date operating income of $49.6 million versus $47.1 million last fiscal year.

EBITDA the last of our 50/30/20 measures, was 19% of net sales in the third quarter, up from 17% in the prior-year period. Year to date, EBITDA was at 18% of net sales and flat compared to last year. We target EBITDA of 20%, but expect variations from time to time as sales, A&P investment and other expenses fluctuate with the timing of our activities. Our EBITDA percentage is also affected by the investments we make for future growth.

That completes the discussion on our operating items for the current quarter and the year to date. I'll quickly review our other non-operating items.

Interest income and interest expense in total remained relatively constant in both the third quarter and year-to-date periods. Other expenses increased by $400,000 in the third quarter and $1.3 million year to date. These increases were primarily due to higher foreign currency exchange losses as a result of the significant fluctuations in foreign currency exchange rates, primarily the euro against the pound sterling.

The provision for income tax was 30.2% in the third quarter and 30.1% year to date. This is compared to 30.4% and 30.6% in the prior-year periods. The lower tax rate is primarily driven by the portion of the Company's earnings from foreign operations which are taxed at decreasing rates.

Net income in the third quarter was $11 million versus $10.4 million in the prior-year quarter. Changes in foreign currency rates had an unfavorable impact of $500,000 on the translation of our consolidated results this quarter. On a constant currency basis net income would have increased by $1.1 million in the third quarter.

Our diluted earnings per common share were $0.75 in the third quarter compared to $0.69 in the prior-year quarter. Diluted shares outstanding decreased to 14.6 million shares, down from 15.1 million shares last year. Year-to-date net income was $33.1 million compared to $32.2 million in the prior-year period.

Changes in foreign currency exchange rates had an unfavorable impact of $800,000 on the translation of our year-to-date consolidated results. On a constant currency basis, net income would have increased by $1.7 million in the year-to-date period.

Diluted earnings per common share were $2.24 year-to-date compared to $2.10 in the prior-year period. Diluted shares outstanding decreased to 14.7 million shares from 15.2 million shares in the same period last year.

Now let's take a look at our balance sheet at May 31. Our balance sheet and liquidity remained strong. At the end of the third quarter our cash balance was $46.9 million and we had $48.3 million in short-term investments, which consist of time deposits held in money center banks.

During the quarter we amended our line of credit agreement with Bank of America to extend the maturity date of our revolving credit facility to 2020. It increased the revolving commitment to $150 million and to revise the financial covenants. In addition, other changes to the credit agreement now permit us to classify draws on the line of credit as long term provided certain conditions are met. You'll see this classification change on our balance sheet for the current quarter.

In the third quarter we borrowed an additional $5 million on our revolving line of credit. As a result, our debt outstanding is $108 million at the end of the period. The $5 million increase in the line of credit balance during the third quarter was used for share repurchases.

A quick word about capital allocation -- we continue to return capital to shareholders through regular dividends and share repurchases. On June 23, the Board of Directors declared a regular quarterly cash dividend of $0.38 per share payable July 31, 2015 to stockholders of record at the close of business on July 17, 2015. Based on today's closing price of $88.82, the annualized dividend yield would be 1.7%.

During the third quarter, we acquired approximately 136,000 shares of our stock at a total cost of $11.3 million. This plan, which was approved in October of 2014, became effective March 1, 2015, and it provides authorization to acquire up to $75 million of the Company's outstanding shares through the plan's end date, August 2016.

That completes the financial review. More information will be available on our Form 10-Q which we'll file tomorrow. Thank you so much. And now back to Garry.

Thanks, Jay. Now let's take a look at our view for the remainder of FY15. We've updated our full-year 2015 guidance. It reflects the impact of foreign currency exchange movements as well as the macro economic and political challenges in our European markets, particularly in Russia and Ukraine, as well as the quality issues identified in Asia-Pacific. This guidance does not include any future acquisitions or divestiture activities and is based on recent foreign currency exchange rates.

We expect our fiscal year net sales results to be in the range of $383 million to $390 million, which will mean either flat or growth of up to 2%. We project gross margin to be better than 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 $44.5 million and $45.4 million, which would achieve EPS of between $3.03 and $3.09 assuming 40.7 million weighted average shares outstanding.

So, in summary and closing, our business continues to perform well. Foreign currency exchange headwinds will continue to impact our reported results, but we believe, if we remain focused on our long-term goals, we will navigate this environment just as we've done in the past.

In summary what did you hear from us on this call? You heard that the Americas performed very well in the third quarter with a 10% growth rate overall in revenue. You heard that Asia-Pacific is on track for a great year. Despite a minor hiccup in the quarter, they're up 9% year to date. You heard that EMEA base business is strong but the reported sales continue to be impacted by significant currency headwinds and political and economic instability in Eastern Europe.

You heard that the WD-40 Specialist product line continues to perform well with a global growth rate of 26% in the third quarter. You heard that crude oil costs going down continues to be a tailwind and we are seeing the positive impact of lower input costs in our gross margin. You heard that later this month we'll be launching our new delivery system for WD-40 Multi-Use product, and that is designed to make the hard to reach easy to reach.

You've heard that we continue to return capital to our stockholders and that we've begun executing repurchases under our new $75 million plan during the third quarter. And you heard that we amended our line of credit agreement which extended the maturity date of our revolving credit facility to 2020, increasing the line to $150 million and revised financial covenants.

So, in closing I'd like to share a quote with you from Mike Gafka. To be successful, you must accept all challenges that come your way; you can't just accept the ones you like.

Thank you joining us on the call today, and we'll be happy to take any questions.

(Operator Instructions)

Linda Bolton Weiser, B. Riley & Co.

First off, just a question on Eastern Europe and the weakness you're seeing there now. Did I understand you correctly that you said you only posted some sales in Russia in the last month of the quarter? Last quarter I think that the distributor markets in EMEA were up 9%. So I'm wondering how did this weakness -- it just caught you by surprise? Or it took time to settle into the market) I'm just wondering how embedded this weakness is being that it was still pretty strong last quarter. And also can you quantify it? Like, Russia and Ukraine, what percentage of the EMEA distributor markets would that be roughly?

Okay. Firstly, we've been seeing the activity in Russia and the Ukraine. I think we've mentioned it a couple of times. What we saw was a period of time where inventory in the market is being absorbed. So, we think that right now we're starting to see inventory coming back into the market from us.

We do about 10 million cans a year in Russia. So, that's about a $10 million business, plus or minus, that's real rough. So, that's about the extent of it. The Ukraine is a lot less.

The rest of the distributor markets in Europe are still performing well. In fact, you're right, they grew last quarter. And excluding the Ukraine and Russian business, they grew in the third quarter this year.

So, it's really isolated around the Russian economy. Inflation there went through the roof. It took some time for it to settle. We believe it will settle down and we'll see us back to some type of normalized business in the next couple of quarters. It's just a hiccup.

I'm not sure it took us by surprise. I think it just was something that we didn't understand the extent of the timing of it. And we're back on track again, I think, as long as Russia continues to improve.

Did you take any price increases there in Russia that maybe is making this be a temporary situation and then when the price increases settle in the growth will return?

No, we didn't. The ruble deteriorated against the dollar. We sell into Russia in US dollars. So, our marketing distributors there did take some pricing. We also helped support that with some promotional activities of free goods to minimize that. But, yes, the price has increased but it's truly because of the ruble.

Okay. Thanks. And then just seeing what's happening in China, I think people are bracing themselves for slower overall economic growth in China. Is that something that you're seeing at all? Or do you suspect that that could happen there, as well?

China is going to continue to be a bumpy road. The thing that we love about China is that there are a lot more people who don't know us than know us. Sure, if it's growing at 8% to 10% we do better, but we see China long term as a large market. Since opening we've taken the revenues from a couple million to $15 million or so. We're growing at 10% this year. We think we'll see growth again next year. It will bump around quarter to quarter but it's a journey that we're on and we're continuing on the path.

Okay. And then your new product here, that's going to be launched here, did you ship any of that at all in the third fiscal quarter or will the shipments begin in the next quarter in the fourth quarter?

They're all in this quarter. There was none in Q3. They started shipping this week. That's why you couldn't find them in the stores.

Okay. And then I haven't looked at all the pictures here but the bendy neck looks interesting. But it looks actually bigger than the straw application. So is it for a different type of application? And I assume this would be purchased by the user in addition to the straw type application? Is that true?

Yes. Basically the extended tube on this is about 8 inches in length and it's completely flexible. So, what it's meant to do is enable the delivery of our product to places that are very hard to get at with a normal can. Firstly, without a straw it's impossible to get there. And with our Smart Straw it can get there. But our heavy end-users, particularly in automotive, industrial, one of the big feedback points we got from our research over the past couple of years was we'd love to be able to deliver the product to these hard-to-get places easier.

It's a bigger can. It's designed to appeal to our heavy end-users. And we believe that it will be a can that they will have on the shelf as well as the other. It has a higher price, obviously, because that delivery system costs more. There's been a lot of innovation, a lot of work gone into it. We have a patent on it.

We're excited to take it to the end-users. And you should see displays initially in-store within the next week or so. The first stores will be Home Depot and then other retailers will follow soon after -- or other supply chains will follow soon after.

How fast do you think you can ramp up the distribution reach of it in the US? Do you think you'll get 80% there by the end of next fiscal year or even quicker?

I don't know. One of the things that we're working on now is demand. One of the key components of this is actually manually assembled right now. Our supply partners are in the late stage of putting in automated assembly equipment. So that's a bit of a pacing item.

So, I'd say by the end of this year we will have distribution in four or five of our major supply channels, and then we'll see where we go from there. It will take time. And then of course after that, the world is to come.

You know how we do things, Linda -- we're deliberate. We're not here as a bottle rocket. We're here to grow our revenue with our end-users over time. So, it will be interesting to see and we're excited to see how it moves off the shelf when it hits in a very attractive display configuration in the next couple of weeks.

Great. And then, can I just ask you, in terms of the VOC implementation, is there any way to quantify how much in those costs will be shifted to FY16? Is that $1 million or $2 million? Any quantification?

We haven't shared that yet.

Okay. And then, just finally, the quality issue here that you had with the one SKU in Asia, I know these things happen and everything, but you had something in Canada that happened, I think, about a year ago, as well.

Totally unrelated.

Right. But I'm wondering if there needs to be some improvement or modification of your monitoring of the outsourced suppliers when they're manufacturing the components and the products.

Thank you for the question. It was impossible to do that. The products that we manufacture in the past, all of our quality control stringent testing hasn't left. And the issue was not apparent until about three weeks after the product shipped because it took that long for the extender tube to actually disengage from under the valve.

It was really intriguing for us. But we were fortunate enough that this happened while product was on boats shipping across the Pacific Ocean. And when we then tested it on arrival, which we do, at our distributors, we identified the problem.

We don't know how we would have identified this problem other than the way we did. And I'm extremely proud of our quality people and the way they were able to actually catch this before it even got into the market. It only got to the actual distributor warehouses. So, they did a great job.

Okay. So, then, no end-user ended up with this problem in their hands?

Correct.

Okay, great, That's pretty much it for me. Thank you very much.

(Operator Instructions)

Ladies and gentlemen, with no further questions in the queue that will conclude today's conference. We thank you for your participation on today's conference call and ask that you please disconnect your lines.