Good day, and welcome to this WD-40 Company Second Quarter 2012 Earnings Release Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to Vice President of Corporate and Investor Relations for WD-40 Company, Ms. Maria Mitchell. Please go ahead.

Good afternoon, and thank you for joining us for our second quarter fiscal year 2012 earnings call. Today, we are pleased to have Garry Ridge, President and CEO; and Jay Rembolt, Vice President and Chief Financial Officer. This conference call contains forward-looking statements concerning WD-40 Company's outlook for sales, earnings, dividends and other financial results. These statements are based on an assessment of a variety of factors, contingencies and uncertainties considered relevant by WD-40 Company. Forward-looking statements involve risks and uncertainties, which may cause actual results to differ materially from forward-looking statements, including the impact of commodity prices, impact of changes in foreign currency exchange rates, the impact of introducing new products and fluctuating global market conditions, both in the United States and internationally. The company's expectations, beliefs and projections are expressed in good faith and are believed by the company to have a reasonable basis, but there can be no assurance that the company's expectations, beliefs or projections will be achieved or accomplished. The risks and uncertainties are detailed from time to time in reports filed by WD-40 Company with the SEC, including Forms 8-K, 10-Q and 10-K. And readers are urged to carefully review these and other documents and to stay up-to-date with most recent company developments provided in the Investor Relations section of our website at wd40company.com. Our third quarter earnings conference call is scheduled for Monday, July 9, 2012, and will be webcast. Now I'd like to turn it over to Garry Ridge.

Thank you, Maria. Good afternoon, and thanks for joining us today on the eve of a holiday. Today, we reported net sales of $86 million for the second quarter of fiscal year 2012, an increase of 9% over Q2 last fiscal year. Year-to-date net sales were $170.9 million, an increase of 7% versus the same period last fiscal year. Net income for the second quarter was $10.6 million compared to $9.1 million in Q2 last fiscal year, an increase of 16%. Diluted earnings per share for the second quarter was $0.65, up from $0.53 from the same period last fiscal year. Year-to-date net income was $17.4 million compared to $18.2 million in the same period last fiscal year, and year-to-date diluted earnings per share were $1.07, up from $1.06 for the same period last year. As we review our results for the second quarter, as we normally do, we'll be doing so under our 50/30/20 business model rule, and we'll be talking about our strategic initiatives. Firstly, overall we are pleased with our second quarter results. We grew global sales by 9% versus the period last year. Much of the growth came from the U.S., in part from our successful national launch of the WD-40 Specialist product line. Stellar sales growth in our Asia distributor markets and China helped offset the lower sales in Europe, which continues to be impacted by the economic uncertainty in the region. Our margin was below our 50% target due to higher input and manufacturing costs, and our investments in the North American supply chain architecture project, as well as higher discounts in display mix associated with our large increase in sales. We continue to be worried about rising oil costs and would like to see these costs roll back a little. If they continue…

Garry, thanks. I just want to remind you an addition to the information presented on this call. We suggest that you review our Form 10-Q, which we will file Monday, April 9. As we look at the rest of the financials, let's first look at our 50/30/20 rule. The 50, as you might remember, represents gross margin, which we target to be at or above 50% of net sales. The 30 represents our cost of doing business, which is our total operating expenses, excluding depreciation and amortization. Our target for this is 30% or less. And finally, the 20 represents EBITDA. If our gross margin is at or above our 50% level, and our cost of doing business is 30% or less, our EBITDA will be at or above the 20% of net sales. 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 investor presentations. First, we'll look at the gross margin, or the 50, in our 50/30/20 rule. Gross margin in the second quarter was 49.0% compared to the 51.8% in the prior year quarter. The decrease of 280 basis points in gross margin was primarily attributed to higher raw materials and manufacturing costs, expenses related to our North American supply chain architecture project and higher promotional discounts. These expenses were partially offset by the positive impacts from price increases. We experienced a net unfavorable impact of 290 basis points from our major input costs. Higher cost for petroleum-based materials, as well as aerosol cans period versus period, negatively impacted margin by 230 basis points. The remainder -- the remaining unfavorable impact of 60 basis points stem from higher raw material costs related to our homecare and cleaning products, as well as higher…

Thank you, Jay. You can take a breath.

Thank you.

Now let's touch on what we consider -- what is our bright future ahead at WD-40 Company. We expect the U.S. sales to continue to grow as we build distribution for the WD-40 Specialist product line. Sales are full speed ahead in Asia and China as new sales and marketing tribe members grow our base business and build new distribution in the industrial channel. The completion of our North American supply chain architect project will position us to reduce cost of goods sold and improve service to customers, particularly in fiscal year 2013 and beyond. All of these initiatives support our achievement of our sales and 50/30/20 targets over the long term. I'm quite pleased with our tribe for their initiative, hard work and persistence and perseverance to develop new market opportunities and implement gross margin protection strategies. Now on to our guidance, which we have updated to reflect the projected lower shares outstanding. While fiscal year 2002 -- '12 will be a great year, we anticipate we may come in at the lower end of our guidance range due to the challenges in Europe and the concerns over rising oil prices. The following fiscal year 2012 guidance does not include any acquisition activities and assumes foreign currency exchange rates will remain close to recent levels. Sales, we expect our fiscal year net sales results to be in the range of $353 million to $370 million or a growth of between 5% and 10% versus fiscal 2011. We project gross margin to be close to 50%. We expect our global advertising and promotion investment to be in the range of 7% and 8% of net sales, and we expect net income of between $37.2 million and $39.2 million, which would achieve a diluted EPS of between $2.33 and $2.45, assuming…

[Operator Instructions] And we'll go first to Liam Burke with Janney Capital Markets.

Garry, I think I've got this right. The multi-purpose maintenance in the Americas were up 26%. You identified the regained distribution, but also the launch of Specialist. The Specialist launch is relatively recent. Is it gaining traction that fast where you're actually moving the needle on sales growth?

The initial pilot we did, as we shared in the last call, exceeded our expectation. And at this time, we are reasonably pleased with the pickup. We are still in early stages, Liam, but we'd like to believe that the results we're seeing and the sell-through we're seeing in stores would indicate that our end users are pleased with what we're offering. They see value from it and that the blue and yellow shield is certainly giving them the confidence to buy the Specialist product line.

Are you seeing any shift from a core WD-40 product line to the more specialized on the -- anywhere in the channel?

When we initially went down this project, we were very conscious of the fact that there may be cannibalization. In the early data that we have, we have not seen any meaningful cannibalization.

Okay, great. And Jay, you said that inventory was up. Obviously, the math from the end of the year, $8.3 million, a lot of that were partially from sales increase and then a percent from the reorganization of the distribution channel. After the smoke clears, do you expect your inventory turns to get back to more historical levels?

I think it -- we expect it to be close. I think we will -- as we -- we will see a higher level of inventory, probably moderating at this level, maybe slightly down a little bit. But as we move and continue to increase our sales, I think we should get a feeling that it trends back to what we've seen in the past.

And we'll go next to Eric Hollowaty with Stephens Inc.

A couple of quick ones. The pricing that you announced some time ago in multi-purpose maintenance, has that been substantially or entirely implemented? Or is there any more to go for the rest of this fiscal year?

It's basically all done.

Okay. And with respect to your comments about future price increases that may be necessary, how do you think about -- what's your decision framework for making that decision? What are you looking at in order to determine whether that will be necessary? And how do you think about which channels you would implement that in? Do you think it would be channel and worldwide or just -- any more color you can give on how you're thinking about that would be great.

Okay, yes, let me approach a little bit of that. Thanks for the question. The major unknown in pricing is oil. Our goal as a company is to, again, get our gross margin above 50% and to drive it further north of that, and the majority of that improvement will come from product innovation, product mix and supply chain architecture and similar changes that will increase our efficiency. The wild card that we continue to have is oil, so the decision we make around oil is based on the severity of the move and the longevity of that move playing into our pricing system. So right now, we've seen oil kind of bouncing around $100 and so for a few months, I guess. We saw it bouncing around $85 last year for a while. What annoys us and worries us is not necessarily the price of oil, although high oil prices isn't necessarily good for the world in total or most of the world, but it's the volatility and the uncertainty of where it will be tomorrow. That's why the finance team did a deep dive looking at some of the offsets to that, which might have been hedging, which we worked out -- was not a great option for us. So we'll be watching oil. And when we feel that oil is at a stage where it's set at a new high, and it's -- there's a big possibility it will stay there. Or if we saw a massive change in the oil price because of some political condition that we thought was going to maintain a high price over time, then we would move. And because oil adds into 83% of our sales, which is our multi-purpose maintenance products, if we did it, we do it in all trade channels all around the world.

Okay, great. And with respect to the Specialist launch in Europe, how long do you think that will take? I take it from your comments, you started that in the third quarter. Do you expect it to be completed in the quarter? Or how should we think about that?

Well, Specialist launch will never be completed.

I should say the introduction.

Yes. The introduction started already. We've started to ship in, in Europe, in the U.K., Germany and Italy. And there'll be more to come as we bid that down. It's a matter of not biting off more than we can chew, but the -- thanks to all the work we did with BLUE WORKS. All the formulations were ready to go in Europe, and we were just waiting for some positive and -- or not, feedback from the pilot we did here. And as all the green lights went here, we were able to maneuver and marshal our activities fairly quickly, that enable us to start shipping in those countries which we've already started to do in this quarter.

[Operator Instructions] And we'll go next to Joe Altobello with Oppenheimer.

A couple of questions. First, in terms of pricing, since we're on the subject, I mean, you guys, as you've mentioned, have taken pricing throughout the world, I guess, over the last year or so, what's been -- have you noticed any impact on volumes at least near term or maybe longer term after the price increase? Or is the price increase typically pretty much incremental to the top line?

We initially get some pushback, of course, from the trade, so you may get some trade-generated volume fluctuations as you implement the price increase and that could be positive or negative. But as far as our end users are concerned, the research that we have when we track total ounces, we haven't seen any material negative impact.

Okay, great, that's helpful. And then secondly, on the gross margin. If I look at your guidance today of around "50%" gross margin for the year, you need to do an incremental improvement, I guess, in the back half of north of 100 basis points. Can you talk about all of the things that impact the gross margin in the first half? What's going to get better or which things will get better in the second half that are going to get you to that 50-plus percent gross margin?

Well, we expect to start benefiting from the implementation of the North American supply chain project, so we expect that to be positive to gross margin in the second half of the year. We also expect that mix of sales will benefit us on gross margin. Jay?

As well as pricing that we've been -- that we've taken in the first half of this year, so we've had some price increases in the first half that haven't been fully embedded.

Okay. Got it. Just one last one, if I could. I don't know if you guys quantified this, but can you tell us how much Specialist, at least the launch of Specialist in the U.S. did add to the top line?

No.

That does conclude our question-and-answer session. At this time, I would like to turn the call back over to Garry Ridge for any additional or closing remarks.

Okay. Thank you all for joining us. We look forward to being with you in about 90 days. Safe time over the holidays and keep stopping squeaks for us. Good afternoon.

That does conclude our conference. You may now disconnect.