Good day and welcome to this WD-40 Company First Quarter 2014 Earnings Release Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to President and Chief Executive Officer for WD-40 Company, Mr. Garry Ridge. Please go ahead, sir.

Today before we start, I'd like to remind you that except for the historical information, this conference call may contain 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 statements including the impact of commodity prices, the introduction of new product lines and the fluctuating global market conditions including foreign currency exchange rates and both impacting 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 you are urged to carefully review these and other documents and to look for updated company information on our Investor Relations website at www.wd40.com. Thanks for joining us today on the conference call, and we'd like to go on now and discuss the first quarter results. Today, we reported net sales of $95.5 million for the first quarter of fiscal 2014, which was slightly above Q1 of last year and was a record quarter for the company. Net income for the first quarter was $11.5 million compared to $10.9 million in Q1 of last fiscal year. Diluted earnings per share for the first quarter was $0.74 compared to $0.69 for the same period last fiscal year. As we review our results for the first quarter, we'll be doing so under our 50-30-20 rule and our strategic initiatives. While global sales remained fairly flat due to the timing…

Thanks, Garry. In addition to the information that we're presented on this call today, we suggest that you review our Form 10-Q, which we'll be filing tomorrow. First, let's review our 50-30-20 rule, that's the measures that we use to guide our business. As you may recall, the 50 represents gross margin. We target our gross margin to be at or above 50% of sales. The 30 represents our cost of doing business, which is our total operating expenses excluding depreciation and amortization. Our target for that is 30% or less. And finally, the 20 represents EBITDA. If our gross margin is at or above 50% and our cost of business is 30% or less, our EBITDA will be at or above the 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-Qs and in our investor presentations. First, let's take a look at the 50 or the gross margin. Gross margin in the first quarter was 52% compared to 50.1% in the prior fiscal year period. The increase of 190 basis points in gross margin was primarily driven by price increases, lower promotional discounts as well as lower input costs and lower manufacturing costs stemming from our supply chain-related initiatives. Our margin was also favorably impacted by changes in foreign currency exchange rates. A quick look at the input costs. We experienced this favorable net impact of 30 basis points from our major input costs. Impacts from changes in the cost of petroleum-based materials and aerosol cans combined to favorably impacted our gross margin by 50 basis points. Much of this benefit came from the Asia-Pacific and EMEA segments. Changes in our other input costs including raw materials related to homecare and cleaning products had…

Thanks, Jay. If we sum up, there are several macroeconomic factors that impact our outlook. As well as our progress towards our strategic initiatives. We are cautiously optimistic about several macroeconomic factors, which include the stability of the global economy, major input costs and foreign currency exchange rates. In terms of sales, we feel the growth of our multi -- WD-40 Multi-Use Product and the WD-40 Specialist product line will overcome the uncertainty that continues to linger across the globe. We also expect our multi-purpose products to offset decreases in our homecare and cleaning products. As for input costs, we hope that our initiatives will help us maintain our margin and offset the volatility and uptrend we're seeing in petroleum-based materials. Now on to our guidance, which remains unchanged from what we shared with you in our October call and the annual shareholder meeting in December. The following fiscal year 2014 guidance does not include any acquisition or divestiture activities, and it does assume that foreign currency exchange rates will remain close to recent levels. For the year, we expect our fiscal year net sales to be in the range of $383 million to $398 million and that would be a growth of between 4% and 8% versus fiscal 2013. We project our gross margin will be close to 51%. We expect our global advertising and promotional investments to be in the range of 6.5% and 7.5% of net sales and we expect our net income to range somewhere between $40.5 million and $42.8 million, which would achieve a diluted earnings per share of between $2.65 and $2.85 assuming 13 -- sorry, 15.3 million weighted average shares outstanding. In summary, what did you hear from us in this call today? You heard that the growth in our multi-purpose products more than offset decreases in homecare and cleaning products. You heard that we grew gross margin to 52% partly due to lower import costs and lower manufacturing costs stemming from our supply chain initiatives. You heard that we continue to make progress on our strategic initiatives including preparing for a lower VOC formula conversion in California as well as developing new SKUs for launch later in fiscal year 2014 and 2015. You heard we grew diluted earnings per share from $0.69 to $0.74 per share and have increased our regular quarterly dividend by 10% to $0.34 per share. And you heard that our outlook is cautiously optimistic, and that we are maintaining our guidance with sales growth of between 4% and 8% for fiscal 2014. In closing, I'd like to share a quote with you from Nelson Mandela. "It's better to lead from behind and to put others in front especially when you celebrate victory when nice things occur. You take the front line when there is danger. Then people will appreciate your leadership." Thank you for joining us today. We'd be very happy to open for questions.

[Operator Instructions] We'll take our first question from Liam Burke with Janney Capital.

Garry, could we get an update on the Specialist brand rollout? It's the earliest -- I mean, the most -- the longest time it's been on the shelves is in the North American markets and then you sort of rolled out to Asia-Pacific. But can we get an update on how that's going?

I think we're currently in 27 countries. We took it out to some new ones in Australia or I think in Turkey in the first quarter. We continue to be cautiously and optimistic but pleased with the progress. We continue to see ongoing replenishment sales in the North American market particularly in the hardware, home improvement and automotive category. We're happy with the work that's happened in the U.K. with the motorcycle and we're now rolling that into a couple of new countries. So we continue to see that Specialist will offer us good opportunity to execute and to deliver growth on the back of the power of the shield in the core brands. So, it's still -- even though it's been a while, it's still very early days for us. There's a lot of work to do but we feel good about it.

Okay. Thank you, Garry. You mentioned an ERP upgrade in the European or EMEA now?

Yes.

Do you anticipate any kind of disruption based on the guidance that you've given?

No, we're -- we are -- we're really at the near end of the upgrade. It's just a matter -- it's been running parallel for a while. There's some more work to be done. We don't see any disruption at all at this time. It's been progressively tested through a number of the markets. Our first go live launch is May 2014.

Okay, great. And then Jay, you had some heavy working capital needs, is there anything unusual there? Or can we expect a fairly normal cash flow, a cash flow similar to what we've seen in the past years?

Yes. We expect $40-plus million on an annual basis of kind of free cash flow.

We'll take our next question from Jeff Zekauskas with JPMorgan. Youyou Yan - JP Morgan Chase & Co, Research Division: This is Youyou Yan for Jeff. Could you please specify on the raw material guidance regarding which raw materials or manufacturing costs do you expect to really go up given that the annual guidance of gross margin is 51% versus 52% for this quarter?

Well, we don't see -- we see the current range of raw materials is what's embedded in our current outlook on margin. So we have other impacts associated with mix that may have -- that have -- that are built into some of that 51%.

But as we say, we say we expect it to be close to 51%. We're not good enough to be 100% laser accurate but we're certainly happy at the moment that it's above 51%. Youyou Yan - JP Morgan Chase & Co, Research Division: Do you see the recent trend of -- on higher HDP price on a year-over-year basis have any negative impact on your gross margin for the next quarter?

You mean plastics? Youyou Yan - JP Morgan Chase & Co, Research Division: Yes.

Plastics is -- has a -- it's a very -- the 2 biggest components in our raw material costs are petroleum and steel cans, which I think together make up, Jay, about...

About 50...

60%. We don't have a lot of plastic in our overall costs basis. Youyou Yan - JP Morgan Chase & Co, Research Division: Okay. And also from a longer-term perspective, where do you expect your SG&A expense would be in terms of the total sales from a longer-term perspective in order to get the 30% target?

Yes. I mean, we see the 30% being achieved over time as we grow revenue. We don't see a reduction on our current SG&A expenses. We see them continuing to grow but not growing at the rate of sales. And as sales will increase, we'll be able to see that -- we'll be able to get closer to the 30%. Youyou Yan - JP Morgan Chase & Co, Research Division: So over time, is there a target, say, 5 years or 10 years or you don't know yet?

Well, in our minds we have a target. The 5-year range is really probably the -- I think that's a reasonable range for that target.

We'll take our next question from Linda Bolton-Weiser with B. Riley.

Can you -- I mean, clearly this was your hardest sales growth comparison of the year, and you explained that it was the timing of promotional activity. And in the second quarter, it looks like you have a much easier comparison. So is it reasonable to assume that we'll see a little bit higher sales growth in the second quarter? And is there any way to quantify the effect that timing had on the sales growth in the quarter?

Linda, we don't comment quarter-to-quarter. What we do believe is that our range for the year between 4% and 8% is still a worthy range. But there are -- both promotional and geographic mix that affect quarter-to-quarter, you're right. We just had the biggest quarter in the company's history compared to the second biggest quarter in the company's history, which was the first quarter of last year. So although there would be a desire for us to get more granular, we really are in a position where we'd like to stay within the annual target, and we'll -- we see that we'll be talking about that again at the end of the next quarter. So that's kind of where we feel we are right now.

Okay. And then, I think that you've talked in the past about entering into contracts or modifying your contracts for the tin cans in January. Is that something to come further -- later in the month? Is there anything you can talk in terms of -- do you expect those costs to be down year-over-year? Or is there any color you can give on that process?

Yes. At the moment, we're not expecting them to be down but we aren't expecting a very significant increase -- we are not expecting a dramatic increase either. We're still in negotiations and we'll be able to comment once those are completed kind of near the end of the month.

Great. And then in terms of your expansion in Specialist and these other lines, the Motorbike and BIKE line, is there any way to quantify how much of your SG&A increase is due to the investments behind that? I know you had a subsidiary for the BIKE line, they had 2 employees, are you going to be adding? Are you adding more people? Is this what the SG&A increase is? Or is it more just regular operating day-to-day investments?

It's regular operating day-to-day investments. We are really leveraging primarily the infrastructure that we have in place. But you're seeing increases for things like our continued deployment of people in China, which we would be doing whether we had Specialist or not. But there is really very, very little incremental extra overhead associated with the Specialist growth.

Okay. And then in terms of the just general economic outlook, are you seeing changes? Like how does Europe feel to you? Because we had seen some signs of improvement and I guess, some of your European business was quite good this quarter. But do you sense any change, any reversal and softening or sort of a little bit of improvement there?

No. We think it's at steady where it was. I was interested this morning on CNBC. They were talking about retail sales were up in Europe over the Christmas period. I think -- my view on Europe is, there's less fear there now than there was 1 year ago. And fear is a paralyzing aspect, so from our point we feel steady as she goes. We feel reasonable about the European market as we do everywhere right now. I think we're in a state of -- particularly in the segments that we operate in, that -- where primarily housing and automotive seem to be doing okay. So that's why we said we're cautiously optimistic about the macroeconomic conditions there, seem to be around us at the moment.

Okay. And, I guess, finally, just on the lawn and garden line that you've alluded to in the past, is there anything else you can tell us? I mean, I would think you would have to launch that, if you were going to, before the spring. Would that have to be by February or March? Or do you have anything you can tell?

Well, lawn and garden was an example of one of the things that we're working on. And we shared it as saying this is an area that we may go into. There are a number of those projects in fact on the table, and we have to get the business model right for them. But we have a lot of work to do with Specialist still in other areas before we bring new categories in. But what we're really sharing is that we see that there are a lot of categories that Specialist has a potential to go in. We've been doing work around the opportunity in lawn and garden. We're looking at others as I said so. As we get closer and when we're ready to go, we'll either let you know that we are testing or piloting or we're going to go full stream.

Okay. And then can I just fit in one more? You had mentioned some additional formulations or SKUs or something in 3-IN-ONE product. Can you distinguish for us how that's posited in the market versus WD-40 as a product? And then if you can give us some idea of what these additional things might be?

Yes, sure. Some of them are out there now. 3-IN-ONE is basically precise delivery one drip at a time. And we've already launched a couple of extensions of the 3-IN-ONE system with the -- what we call our Marksman delivery system, which is an extendable tube on our 3-IN-ONE brand. But it's basically taking solutions to the end-user under the 3-IN-ONE brand in the lubricant and protection category with a different delivery system than WD-40.

Okay. And then -- so that would mean, it wouldn't be really cannibalizing of WD-40? It would be something new and incremental to the whole...

No. When the end-user has a different need than the delivery system does. But they maybe a little cross but it will not cannibalize WD-40 in any way at all.

Okay, great. And then just one last one. On your non-strategic homecare and cleaning businesses, what specifically are you like doing? I mean, are you -- what would make you decide to auction off the business -- hold an auction and actually sell the businesses? And is the profit margin actually going up because you're cutting unprofitable SKUs and A&P spending, so the margins are actually going up?

I'll answer that second one first. Yes, that's exactly what's happening. We have reduced a number of SKUs and a number of kind of promotional activities that were just not generating the level of profitability that we'd like. As reflected in that, we've seen the pullback in sales. As far as our decision to auction it, we are comfortable with holding it. We see the cash flow from it as being -- well, as it's embedded in some of our expectation. So it really would take somebody coming along saying, "Hey, these are a fit for us." And we want to be able to take these and leverage them in some way that's beyond what we see for them. We see our ability to continue to operate and execute in a harvest mode. If somebody wanted to pay us a premium to either change them, we'd be more than interested in entertaining the offer.

And remember, too, we're really primarily speaking about them in the United States. The 1001 business in the U.K. and our business down in Australia are a little bit different. So if we were to exit any of them, it would only be in the U.S. at this time.

And that does conclude today's question-and-answer session. Mr. Ridge, at this time, I'd like to turn the conference back to you for any additional or closing remarks.

Thank you for joining us today. Well, just a reminder that our next earnings conference call is scheduled for Tuesday, April 8, 2014, at 2 p.m. San Diego time. And until we meet -- we talk to you again, we hope you stop some squeaks. Have a good afternoon.

And again, this does conclude today's WD-40 Company First Quarter 2014 Earnings Release Conference Call. We thank you again for your participation.