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

Good afternoon, and thank you for joining us for our third quarter and 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 company documents and stay up-to-date with our most recent company developments provided in the Investor Relations section of our website at wd40company.com. Our Fourth Quarter Fiscal Year 2012 Earnings Call is scheduled for Monday, October 15, 2012, and I'd like to turn it over to Garry now.

Good day, and greetings from sunny San Diego. Today we reported net sales of $87 million for the third quarter of fiscal 2012, an increase of 2% over Q3 last year. Year-to-date, our net sales were $257.9 million, an increase of 5% versus the same period last fiscal year. Net income for the third quarter was $9.1 million compared to $8.1 million in Q3 last year, an increase of 13% and diluted earnings per share for the third quarter were $0.57, up from $0.47 for the same period of last year, an increase of 21%. Our year-to-date net income was $26.5 million compared to $26.2 million in the same period last year, and year-to-date, diluted earnings per share were $1.64, up from $1.53 for the same period last fiscal year. As we review our results for the third quarter, we'll be doing so under our 50/30/20 rule and also our strategic initiatives. While our sales growth in the third quarter was moderate, partly due to the timing of promotional activities and other activities period-to-period, our sales growth of 5% year-to-date is within our guidance. The trend in our gross margin continues to improve, but was below our 50% target. Our gross margin was 49.5%, up 50 basis points from the second quarter and up 20 basis points from Q3 last fiscal year. While price increases implemented to date helped to alleviate higher input costs, our margin was impacted by other factors in the third quarter. We experienced a high proportion of sales from our lower margin distributor markets, and we also continued to incur expenses related to the North American supply chain Architect Project. We're excited to realize reductions in our cost of goods during the third quarter due to local sourcing initiatives in China, as well as lower manufacturing…

Garry, thank you. In addition to the information presented on this call, we also suggest that you review our 10-Q, which will be filed tomorrow. Let's take a look at the rest of the financials. First, looking at our 50/30/20 rule, you might remember that the 50/30/20 rule is the financial measures that we use to track our business. The 50 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 is 30% or less. And then finally, the 20 represents EBITDA. If our gross margin is at or above the 50% and our cost of doing business is 30% or less, our EBITDA will be at or above the targeted 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 the 10-Q and our investor presentation. As we look at our 50 in the 50/30/20 rule, gross margin. In the third quarter, it was up -- it was 49.5% compared to 49.3% in the prior fiscal year period. The increase of 20 basis points in gross margin was primarily driven by price increases and lower promotional discounts, which were significantly offset by higher input costs, as well as expenses related to the North American supply chain architecture projects. Cost of products. We had a lot of higher input costs. We experienced a net unfavorable impact of 140 basis points from our major input costs. Costs related to petroleum-based materials and aerosol cans period-versus-period negatively impacted the margin by 70 basis points, but we also experienced costs-- increases in some of our other raw materials and input costs, which negatively impacted…

Hey, thanks, Jay. The future continues to look bright for us as we continue to launch the WD-40 Specialist product line in new markets, work on the development of our next generation of WD-40 Specialist products and yield lower manufacturing costs and freight savings related to our local sourcing initiative in China and packager consolidation in North America. All these initiatives support our achievement of our sales and our targets of 50/30/20 over the long haul. Our fiscal year 2012 guidance remains unchanged. However, we still have concerns that we will come into at the lower end of guidance range due to the uncertain business conditions impacting the European sales. Our guidance does not include any acquisition activity and assumes foreign currency exchange rates will remain close to the recent levels. So with that, we expect our fiscal year net sales results to be in the range of $353 million to $370 million, or growth of between 5% and 10% versus 2011. We project gross margin to be close to 50%. We expect our annual global advertising and promotional investment to be in the range of 7% to 8% of net sales, and we expect net income in the range of $37.2 million to $39.2 million, which would achieve a diluted EPS of between $2.33 and $2.45, assuming 16 million weighted average shares outstanding. So let's sum up. What did you hear from us on this call? You heard we grew global sales by 2% in the third quarter, with sales up 5% year-to-date. While the timing of promotional activities and price increases may impact the timing of orders from period-to-period, we continue to see healthy sales growth from our base business and the launch of the WD-40 Specialist product line. You heard we continue to have strong growth in…

[Operator Instructions] We'll go first to Jeff Zekauskas with JPMorgan Chase.

This is Youyou Yan for Jeff. My first question is, of the 1.7% sales growth you achieved this quarter, can you let us know how much of it is volume, and how much of it is price?

We don't break it out.

Okay. So how do you see June and July's price-volume pattern different from the fiscal third quarter?

I'm sorry, I don't understand the question.

We have -- we are now in the beginning of July. So how do you see June and July's price and volume pattern different from your fiscal third quarter?

We don't comment quarter-to-quarter, but what we would guide you to is that we have restated our guidance for the full year with a provider that we may come in, in the lower end depending on what end ups -- what the final outcome is as far as conditions in Europe are concerned.

Okay. So over the past several weeks, we've seen the oil price, the coated steel price and some of the commodity chemical price going down recently. So how do you think that will influence your price and margin in the last quarter?

In fact, oil prices have gone up in the last recent period. As we commented on the call, we are seeing these fluctuations, but we may see some improvement in gross margin in the fourth quarter. But it will be because of the price of oil in quarters prior to that, not necessarily recently. In fact, oil has been fluctuating from between the mid-70s to the high-80s over the last, probably, 30 days to 45 days.

So you-- it would roughly take 1 quarter for you to realize the -- to have -- for the raw material price to be influencing your earnings, right?

It takes between 90 and 120 days, but it also depends on how long it stays at a certain price. If it fluctuates between a band in a short period of time, there's very little impact either way. And what we'd like to see is either -- is it to be stable over a period of time, that gives us a better indication of what raw material pricing would be.

Okay. And one last question, do you see the tax rate of roughly 29% sustainable going forward?

We're expecting our rate to be close to 30% as we end the year.

How about going forward, say, next year?

We haven't commented on next year.

Moving on to Joe Altobello with Oppenheimer.

Just first question, I guess, is in terms of the guidance, obviously you mentioned in your release that you continue to expect to be at the low end of the range, and a big reason for that -- or the cautious commentary that we heard in the release and as well as today's call was with regards to Europe. But it looks like Europe, sales were up 7% in the third quarter, and x FX, were up 9%. So it seems like things, at least from your perspective, got sequentially better. Am I missing something? Or was it just a blip in terms of the third quarter results?

No, we've said all year, Joe, that we expect Europe to be probably flat for the year. It's been tracking for the last 2 quarters before this. It's been tracking down. We did have a better quarter in Q3, which was something we expected to be able to meet our prior comments about it being flat. So we believe Europe will be flat at best for the year, but there's just a lot of uncertainty as you know, Joe, and we want to make our investors aware of the fact that its' something that we need to keep an eye on. But we said at the beginning of the year that we thought Europe would be flat, we could see some growth in the Americas, and we'd have double-digit growth in Asia Pacific. And I think that's how we feel right now, and that's what's reflected in our guidance.

Okay. That's helpful. And then secondly, in terms of China, I think you mentioned earlier that China sales in the quarter were only up 5% and up 34% year-to-date. Could you talk to the slowdown that you saw in the quarter and what caused that?

It's not unusual as we develop markets, particularly when we're developing them off of a low base, to have oscillated quarters from time to time. We really are looking at China over the long haul. We believe we'll come in double-digit, mid to high 20s for the year, that's not bad from our standpoint. But it won't be unusual for us to see some quarters being boom and some being less booming than others.

Okay. So it's just a normal variability, I guess?

It's just building distribution. You make the end user a way. You make it easier to buy them, then you make more end-users aware and make it more easy for them to buy. And until you get a market at a certain stage, and you probably remember this in the past from following us, in developing markets, you will see this happen. But there's nothing that we would be overly alarmed about, we're in China for the long haul. It's a great market. It's going to be good for us. There's lots of squeaks in China, and that's just a matter of us continuing to build distribution and build mental and physical awareness for our brand.

Got it. Okay. And just one last one, in terms of the bicycle and motorbike maintenance markets, I was somewhat intrigued by your comments. First, how big are those markets as best you can tell? And second, aren't your products used in those markets already?

Well, certainly our multi-use product is used in some of those markets, but there are specialist areas that need products different to our multi-use product. For example, WD-40 in bicycling is a particularly good and well-loved chain cleaner, but as far as a wet or dry lube, there may be something different that's needed. So we believe that particularly, as we've worked on the specialist platforms, we had the first part of the platform is lubrication and corrosion work, which moved into rust, and we believe that bicycling, motorbike and others are great opportunities for us to really use the power of the Shield to win users of other products. As far as size is concerned, we haven't talked about that outside yet, and we'll be working on that as we go forward.

[Operator Instructions] We'll move on to Liam Burke with Janney Capital Markets.

Garry, you talked about Specialist in Europe giving you some lift there. If I go back, you introduced Specialist a little earlier in the United States. Are you -- how is that trend moving?

We're very pleased, Liam. With -- our first move within Europe was in the U.K. and it did help us push in the last quarter. But this is -- there's no way that Specialist is anywhere near distributed as widely as we'd like in the U.S. yet. We continue to build that distribution. Geographically, we're continuing now to rollout in Europe, we've got the U.K. I think Germany and Italy are a couple we mentioned. There's more to come there. So the Specialist strategy is not only platform, but it's geography. So as we develop the platform, like we developed the lubrication and rust platform, we developed it in the U.S, now we continue to roll that out across trade channels in the U.S. And at the same time, we're taking those platforms to new geographies, like the U.K. and Germany and Italy, then we'll develop another platform in the U.S., and then we'll take that platform and take it out into other geographies around the world. So it's kind of a cookie-cutting thing, but suffice to say, the power of the Shield is really showing us its power, and we're happy with where we are so far and we'll continue to rollout products, not all of them will work, there will be some sometimes that, that we'll look at that didn't work. But overall, we feel this is a very strong platform for particularly helping us grow in markets where we've made the blue and yellow clip [ph] can, a very famous and would labeled in the past as mature.

Okay. And Jay, you were talking about having to build inventory for a couple of programs, the supply chain, architecture North America, plus building up the Specialist. As you work through that inventory and the programs become more established, will you be able to get down to your historical inventory turns or should we expect a little, little slower turns after you've completed the program?

Yes. We won't get back to that $15 million inventory number, or that $16 million number. We'll be in a range that's probably similar to what we're currently experiencing, although depending on the -- depending on timing, we would like to be able to drive it down below this. But really, it depends on the transition for -- the full transition for the supply chain architecture project.

And Liam, just to clarify your question, there's a difference between turns and absolute amount of inventory. Turns is amount of inventory into the actual revenue, and you -- where actual dollar inventory amount is a bit difference. So we are going to see an absolute dollar inventory increase because we intentionally changed our structure in the U.S., which means we've got less packages, making more product so our acquisition cost is lower, but we're holding more inventory at our warehouses to offset that net result positive. We will also have more inventory, because we're going to have increased revenue from Specialist product, which is more of a turns question, so there are 2 elements working there.

Okay. Yes, I was thinking more in terms of, okay, your historical turns, obviously, your turns will be less with these 2 programs, but...

Yes.

Our next question will come from Eric Hollowaty with Stephens, Inc.

Garry, I was wondering if you could help us connect the dots a little better on your implied sales guidance for the fourth quarter. It would seem to imply some decent growth in the fourth quarter in the Americas versus the toughest comp that you had for growth in that region last year. And I'm just trying to get my head around why you feel confident that, that might be achievable? And is there anything particular about the sales run rate for the rest of the year that we ought to be taking into consideration?

Well, no. We know in the second quarter in the U.S. we had substantial growth over the prior year. The third quarter was down a little bit, because we were up against the huge military program that we did last year. And then of course, we have Specialist in this year that we never had in last year. And we also had a full -- nearly a full quarter of Specialist that just wasn't there at all. So those would be the elements. We believe that we've got a reasonable promotional program in the fourth quarter in the U.S. We still believe that overall, the U.S. business will grow this year. Currently, I think it's at about 5%, I think there or so, if that's the case, then we feel that we will meet at least the 5% growth that we've talked about at the bottom end of our guidance overall.

Okay. So you are planning to run a promotional program in the U.S. for the fourth quarter in multipurpose maintenance that you did not have in the year ago fourth quarter?

Well, we are always running promotional programs. Some are just smaller or larger than others. The one that we were referring to before, where we did a huge military program last year, was something quite different, where we moved it from the second quarter to the third quarter. But we're running promotional programs all the time. If you choose to speed channel at the moment, you'll find us in automotive being very active at the moment, particularly on media and things to support that, but we don't -- not promote. Our job is to get real estate, and you get real estate through brand and promotion.

Well, Mr. Ridge, we have no further questions, sir, so I'll turn the conference back to you for closing or additional remarks.

Okay. I think we're all done. Well, thank you for your interest. We look forward to talking to you in 90 days or so, and whenever the next time is we meet, until then. Stop a squeak. Have a nice afternoon.

And again, ladies and gentlemen, that does conclude our conference for today. We thank you, all, for your participation.