Ladies and gentlemen, thank you for standing by. Good day, and welcome to the WD-40 Company third quarter fiscal year 2014 earnings conference call. Today's call is being recorded. At this time, all participants are in a listen-only mode. At the end of the prepared remarks, we will conduct a question-and-answer session. (Operator Instructions) I would now like to turn the presentation over to the host for today's call, Ms. Wendy Kelley, Director of Investor Relations and Corporate Communications. Please proceed.

Thank you. Good afternoon, and thanks to everyone for joining us today. My name is Wendy Kelley, and I'm very happy to be here today as one of WD-40 Company's newest tribe members. I look forward to interacting with many of you and my role is Director of Investor Relations in Corporate Communications. On the 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 our earnings press release and current quarter corporate presentation are available on our Investor Relations Web site at investor.wd40company.com. A replay of today's webcast will also be made available at that location shortly after this call. As a remainder, today's call includes forward-looking statements about our expectations for the company's future performance. Of course, actual results could vary 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. With that, I'd now like to turn the call over to Garry.

Good day. Thanks, Wendy, and thanks for joining us on today's conference call. Today we reported net sales of 95.7 million for the third quarter of fiscal 2014, an increase of 3% over last year, and the highest revenue quarter in our company history. Year-to-date net sales were $285.4 million, an increase of 4% over the prior year. Net income for the third quarter was $10.4 million compared to $10.3 million last year. Diluted earnings per share for the third quarter were $0.69 compared to $0.66 last year. Year-to-date net income was $32.2 million, an increase of 2% over the prior year period, and year-to-date diluted earnings per share were $2.10, up 4% from $2.01 in the prior fiscal year. Before we focus on the sales results, let's take a moment to review the progress we've made towards our strategic initiatives. Strategic initiative number one is to grow WD-40 multi-use product. Our goal under this first initiative is to take the WD-40 multi-use product to more places for more people with more uses. In line with this initiative, sales of WD-40 multi-use product increased 3% in the third quarter compared to last year. We grew multi-use product sales 14% in the EMEA segment, and 11% in our Asia-Pacific segment. Multi-use product sales decreased 8% in the Americas segment, primarily due to lowest sales activity in Canada and the U.S. Sales of our multi-use product were down by 9% in the U.S. and 17% in Canada. And I'll discuss the drivers of these changes in sales when I review the segment results later. 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 with the identified geographies and platforms. The…

Garry, thank you. In addition to the information presented on the call, we suggest that you review our Form 10-Q for the period ended May 31st, which we'll file tomorrow. First, let's review our 50-30-20 rule; those are the measures we use to guide our business. As you may recall 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 for that is 30% or less. And finally the 20 which 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 20%. 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 presentation. Now, let's look at the gross margin or the 50 in our 50-30-20 rule. Gross margin in the third quarter was essentially flat coming in at 51.4% compared to 51.3% in the prior year. The slight increase of 10 basis points in gross margin was driven by lower input cost as well as the impact of price increases and lower promotional discounts. These positive impacts were partially offset by unfavorable impacts from foreign currency exchange rates and increased warehousing and transportation costs. Our cost of products sold, looking at our input costs, we experienced a favorable impact of 110 basis points from our major input cost changes. This was driven by changes in the cost of petroleum based materials along with the lower cost of cans in our EMEA and American segments. Changes in other input costs negatively impacted gross margin by 10 basis points. We consider…

Thank you, Jay. We remain cautiously optimistic about several macroeconomic factors. We expect to see continued growth driven by our strategic initiatives which should help drive a solid end of this fiscal year. We hope that we will continue to see relatively stable input costs, and that our efforts to improve operations in-sourcing will continue to benefit our gross margin and operating results. Given this in our outlook and the proximity to the yearend we have upgraded our guidance from that that we shared with you in April. The following fiscal year 2014 guidance does not include any acquisitions or divestitures and assumes that the foreign currency exchange rate will remain close to the recent levels. So for the year we expect our fiscal year net sales results to be in the range of 380 million to 387 million or a growth of between 3% and 5%. We now project our gross margin to be close to 51.5%. We expect global advertising and promotional investment to be in the range of 6% and 7% of net sales. We therefore expect net income of between 41 million and 43 million, which will achieve a diluted EPS of between $2.70 and $2.83 assuming 15.2 million weighted average shares outstanding. In summary, what did you hear from us today? You've heard we increased sales by 3% in the third quarter. You've heard that consistent with our strategic initiative we saw double-digit growth of sales of our WD-40 Specialist product line within all three of our trading blocks. You've heard that we grew gross margin by 10 basis points. You've heard that we grew diluted earnings per share to $0.69 and return capital to shareholders through the purchase of approximately 111,000 shares at a cost of 8.2 million. And you heard that our outlook is cautiously optimistic and that we are updating our full year guidance. In closing, as I do, I'd like to share a quote with you from -- this time from Walter Bowie, "The mightiest works have been accomplished by men who have kept their ability to dream great dreams." Thank you for joining us today. We'll be pleased to now open the conference call to any questions.

(Operator Instructions) Our first question comes from the line of Liam Burke.

Good afternoon, Garry. Good afternoon, Jay.

Good afternoon, Liam.

Hi, Liam.

Garry, you talked about timing of promotional activities in the Americas and how it affected third quarter sales, and then Jay alluded to the additional inventory carry on these -- related to these promotions. Are these in traditional WD-40 brands, are they in Specialist or are they both?

The majority of them, Liam, would be in traditional WD-40 brand, the multi-use product, and we are seeing those promotional activity spread over both the third and the fourth quarter.

Okay. And -- I'm sorry.

More so in the fourth than in the third.

Okay. You mentioned the European implementation and the Asia-Pacific; do you anticipate any expense lag or any operational setbacks there?

It was actually in EMEA, Liam.

I am sorry, EMEA.

And it was the planned first stage of the execution of the new ERP system that we've been working on there for a couple of year now. We're facing in the actual implementation, we are in Phase I. It went as planned. Now, we don't expect any additional material cost from that. It all takes about nine months to have it completely embedded, but so far so good.

Thank you. And, Jay, on the cash flow statement, it was down year-over-year on the working capital line, specifically current liabilities. Is there anything unusual in there or is it just timing?

It's really just timing. We'd expect to see it normalize to about our average.

Okay, great. Thank you.

Thank you.

And we will take our next question from Linda Bolton-Weiser with B. Riley.

Hi. I'm sorry if you explained this with the last question, but I'm not sure I understand about the promotional activity in the Americas, because on the one hand you said that displays or transporting them or something hurt your gross margin and yet there was no promotional activity that really drove your sales. So, I'm a little confused about that. Do you expect that sales uptick to happen next quarter as a result of that cost to have those promotions, or can you explain a little bit more?

Yes. Linda, yes, the answer is yes. What Jay was speaking about was the transport and warehousing activities to get the product into our distribution centers, not the transport and warehouse activities to get it to our customers. And also, some of the product that we are building there has a higher cost because of the display configurations that we have, some of which expenses are expensed earlier than later. So, yeah, we'd expect that as in line with our guidance we'd have a reasonably solid fourth quarter particularly in the U.S.

Great, thank you. And then, can you just explain a little bit more about Canada? And can you clarify; did you say Canada MPMP sales were down 78% of the quarter? Is that correct?

I think it was 17.

Seventeen, okay.

Yeah.

So, Canada is about, I don't know, 16 million a year or 4 million a quarter of sales.

Okay.

So, I guess I am just wondering, so if it was down 17% in the quarter, I mean that's not a huge variance on sales because of Canada. I mean it affected the quarter, but not in a large way, so …

Yeah, it's event-driven. Canada just had the worst winter in 35 years, and without pushing the random excuse generator and blaming weather, that did cause some distribution issues and so people wouldn't just go into stores. In fact in the quarter it was down 22 and down 17 year-to-date. The other thing that impacts us in Canada and this has been out there for some time now. We did a -- in the retail trade channel, we did a voluntary recall of our smart store delivery system due to some regulations in Canada. And that happened earlier on this year. So we are missing the sales of smart store in the retail channel. We are still selling it through the industrial trade channel. So it will take us a little time to lap that, but that's really the two main impacts that happened in Canada.

Okay, great. And then, if I look at your change in the guidance for the year with the raising of the EPS guidance and I guess the gross margin guidance, I actually had, I think the consensus had the gross margin around 51.5 already for the year. So when we look at our models, I guess to raise EPS, we would lower maybe the A&P and/or the SG&A expense in the fourth quarter. So am I thinking of that the right way?

Okay, great. And then on, just one final question on WD-40 Specialty line, you've said strong growth, I think you said up 27% in the quarter, is that right?

That is accurate.

So that's strong. But I think last quarter you said it had doubled year-over-year. So …

That's accurate also.

Okay. I mean it's slowing or is that just a quarter-by-quarter fluctuation?

This is going to bounce around for a while. There is no way it's slowing. We get selling, then we get new customers and then of course as we introduce new categories we're going to get spurts, but we're very, very happy with Specialist. As I said in my remarks, we are confident that Specialist will be a solid revenue and earnings machine for us for many years to come as we execute the program in a deliberate way across the markets of the world at a time that's it's appropriate.

Okay. Thank you very much.

Thank you, Linda.

Thank you. Our next comes from the line of Daniel Rizzo with Sidoti and Company. Please proceed with your question.

Just one quick follow-up on the Specialist; it was up 27% in the quarter, was there any one region that it's outperforming the others or maybe you're satisfied with that, specifically how is it doing in the Americas?

Very fine; it's very good. We're comfortable that it's doing fine in all areas that we've launched it, and the growth depends too on what we launch into what areas and what regions at what time, but overall we're very comfortable.

I mean early in the quarter was there any one reason that outperform the others?

No, not necessarily. And again, it's off the basis or the base that it's performing of differs from region-to-region. So we think overall that we're going to get fluctuations from region-to-region. We don't talk about what's going on in each region. We're looking at the overall growth, and we are very happy with 27% growth quarter-over-quarter.

And one more quick question; you indicated on a call in the press release that those higher expenses are related to, I guess, protecting intellectual property rights. I'd assume that's not something new, that's kind of -- it's an ongoing thing that's been happening …

For many, many, many years we have a robust intellectual property protection program that's been put in place for many years. There hasn't been really any changes to it other than we've just got more activity, but intellectual property protection to us is a real and focused activity, and as I said we just continue to do. When we are in the 188 countries around the world, as Jay mentioned with different laws and different regulations, it takes some work.

The fact that you mentioned it for this quarter, does that mean it's uptick, it's been more of initial recently versus in the past or is it just -- I mean is it just pretty much been the same?

No, run rate is about the same, but we mentioned it, because it's a very, very important part of our business, and we actually -- we want people to know that we are investing and protecting one of, if not the most important asset we have in the company.

Okay. All right, thank you very much.

You are welcome.

Our next question comes from the line of Jeff Zekauskas with J.P. Morgan. Please proceed with your question.

Hi, good afternoon.

Hi, Jeff.

Did volumes grow in the quarter?

Overall, not much.

But they were slightly positive?

Slightly positive, yes. We haven't had any pricing really, but the two -- the other impact was exchange rates, but certainly volumes are growing year-over-year. And we expect that we will have volume growth for the full year definitely.

Because I felt that there was a positive price benefit, and I thought there was a positive price benefit and I thought that the sales not adjusted for currency were flat and so that's why I'd have thought that volumes were down a little bit.

Okay. There might be a slight decrease in volumes. You're right. There was a slight impact from the price increases. And you're right, adjusted for currency we're flat period-on-period on the quarter. Year-to-date, we are up quite a bit. So I think -- yeah, that's …

But the other side of that too Jeff is we actually measured consumable ounces and depending on where those ounces are sold, that tells us -- reflects our volume growth. So, volume growth for the year is definitely up in ounces across the globe.

Right. So, in the fourth quarter of last year or -- let me try this a different way. Does your management compensation in the fourth quarter changed a lot as to whether you report to 70 or 283? –or it does not matter in terms of bonus compensation?

Yes. Depending on where we end up according to our targets, we will have an impact in the fourth quarter, either positive or negative if we exceed or miss our targets in any significant way.

Like this last year in the fourth quarter you really had a step up in SG&A expense …

Yes, we did have. As we hit those higher targets of last year's growth rate, yes.

So, do you expect your SG&A expenses in the fourth quarter to be up or down year-over-year?

We haven't shared that.

Shared that, okay.

It's Jay, I'll just add to that, Jeff. We wouldn't expect the change in compensation to be as dramatic this year as it was last year.

Right. Are you selling your homecare business or you're not selling it?

At this stage we are not selling it. I mean we are selling the products, but it's not a long-term part of our business. We've looked at about a year and a half ago. We did quite an in-depth evaluation of what we should do with it. And the outcome was we can generate more cash from it over time. If we sold anything it would primarily be that in the U.S., and only some of the brands. We're quite happy with what we're doing with 1001 in the U.K. at this time, and also in Australia. So, we've stabilized that business now. And as other part of our business grows it becomes less and less. The other thing is that we made a very deliberate decision some time ago to redirect all of the R&D and product development away from that group and pour it into Specialist and Bike, which is now paying benefits as we continue to grow Specialist.

Will Canada come back in the fourth quarter?

Canada will have a disappointing year only because of the events so far. But Canada will come -- it will be a reasonable quarter we think, but we will see Canada bounce back next year as we start to launch some more new product and we get over some of the challenges they've had this year.

Because of the timing of promotions, do you expect the U.S. business to come back in the fourth quarter?

Yes.

Okay. Thank you very much.

Thanks, Jeff. Nice to hear you.

My pleasure.

(Operator Instructions) Our next question comes from the line of Joe Altobello with Oppenheimer. Please proceed with your question.

Thanks. Hey, guys, good afternoon.

Hi, Joe.

I just want to dive into the top line, obviously you guys don't give quarterly guidance, but it was a little bit lighter than we were looking for in the quarter, it sounds like based in your commentary, Garry, that by and large the quarter was as expected in terms of where you guys were at, but for Canada, and obviously Canada is not a big piece of your business. So I'm just curious, one, is that a fair way to look at how the quarter played out? And then, two, I mean obviously you're now looking for 3% to 5% top line growth versus 4% to 8%, so it sounds like something changed in the quarter, we're trying to figure out is it the U.S. because it sounds like it was more of a timing issue this quarter, but it sounds like there are other underlying issues there.

Well, let me back up a little bit. You asked me a lot of questions there rolled into one. I think that we would have liked a little stronger quarter in revenue. It patted out a little bit towards the end, and it's not -- and really it was files falling from quarter-to-quarter as they do so. There is nothing we're really worried about. So, I think that if things would have come into the third quarter we would have had a stronger one, and we might have had a little high overall expectation. So I think just as we've got through the year, we're fine. I think also we are still flipping through some of the changes we made in Asia, and then we've also had that little upset in Canada. So, if you roll those things together, yes, I think we could have expected a little higher overall revenue growth in the full year than we are going to get now, although it's going to be a great year. This quarter was the largest quarter in the sales history of the company. We're very much looking forward to our first $100 million quarter, and we will publicly open a bottle of lemonade when we do that. But I think overall we are okay.

Okay. But it wasn't just timing, but it did lower the full year guidance, it wasn't just pushing revenue from 3Q to 4Q for example?

But it pushes it out to the other end as well.

Okay, 1Q.

Yes. So, I think that's really where it sits at the moment.

Okay.

And once you get through three quarters, you've got a better feel of what the whole year is going to be. So -- and again, we are not dumb enough to run our business in 90-day intervals.

Good to hear. Two other questions, I guess on new products, any update on Bike, number one? And number two, what's your thought on rolling out additional products beyond Bike? I mean do you want to see how Bike does first, or are you going to be more aggressive in fiscal '15 on that front?

We will be launching Bike in Europe at Interbike coming up in a couple of week's time. We are very happy with the Motorbike business that we've launched in Europe. And we'll be expanding distribution of our overall Bike products as we move further into this fourth quarter next year. We are in the Bike business to stay. It's got a lot of positives in that. It helps us engage a very large group of passionate end users particularly helping us get into the used area. We think any of that recreational area where lubrication and protection and cleaning is important helps us replace that connection you had, Joe, when you were first introduced to WD-40 when you head your head under the bonnet of the car with your dad. That doesn't happen any more. And we are -- at least not in the U.S. It certainly does happen in some of the more emerging markets, but we believe that this is a very strategic and important step in continuing to enhance the relevance of the brand across many generation. So -- and we've seen that evidence already. The Bike activity has been very positive towards the brand.

Okay, and in terms of the cadence of new products?

Yes. In the Bike range of products, it will probably remain fairly stable. But in Specialist, which is really the other side, we will be continuing for many years to come to introduce categories of products. We are just shipping WD-40 Specialist Lawn and Garden in Australia in the next month or so. We are testing that down there as you know, we are happy so far with the response we are getting. We've done Motorbike in the U.K. We've extended the range of products in Specialists in the U.S. But this is deliberate. We are not going to be like a blind dog in a meat house here. This is a very valuable shield, and we will not slap it on anything. It will be deliberate and controlled and ensuring that we continue to keep our promise to our end users, which is delivering above expectation performance at great value.

When could we see Lawn and Garden in the U.S. dealing?

I don't know. It depends how it proves out in Australia.

Okay, great. Thank you, guys.

Thank you, Joe.

Ladies and gentlemen, that does conclude our allotted time for questions, as well as our conference call for today. We thank you for your participation, and ask that you please disconnect your lines. Thank you.