WD-40 Company (WDFC) Q2 2015 Earnings Report, Transcript and Summary

And ladies and gentlemen, thank you for standing by. Good day. And welcome to this WD-40 Company Second Quarter Fiscal Year 2015 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 to -- 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 the supplemental slides, which can be downloaded from this website. We encourage investors to review this slides in conjunction with today’s prepared remarks. A replay 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, April 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.

Thank you, Wendy. Good afternoon, everyone. And thanks for joining us for today’s conference call. Today, we reported net sales of $97.3 million for the second quarter of fiscal year 2015, which is a 3% increase from the second quarter of last fiscal year. Year-to-date, net sales were $193.7 million, an increase of 2% over the prior year period. Net income for the second quarter was $11.3 million, compared to $10.3 million in the second quarter of last year. Year-to-date, net income was $22.1 million, compared to $21.8 million in the prior year period. Diluted earnings per share for the second quarter were $0.76, compared to $0.67 last year. Year-to-date, diluted earnings per share were up $1.49, compared to $1.41 last year. Before I talk in more detail about our sales results, I’d like to take a moment to update you on our strategic initiatives. Strategic initiative number one is to grow WD-40 Multi-Use Product. Our goal under this initiative is to take WD-40 Multi-Use Product to more places for more people with more uses. Global sales of Multi-Use Product were up nearly 3% in the second quarter and up 1% year-to-date. The growth came from our Asia-Pacific segment, primarily within our Asia distributor markets in China, which was slightly offset by declines in the Americas and EMEA. I will discuss these fluctuations in more detail when I’ll review the results by segment. Today, I’d also like to share with you an exciting new innovation for the WD-40 Multi-Use Product. Later, this fiscal year, we expect to launch a new delivery system target at the high volume users of WD-40 Multi-Use Product, which we believe will make the product even easier to use in workshops and factories. The new delivery system will launch in the U.S. in the fourth quarter of this fiscal year and we are looking forward to updating you on the progress of this innovation in the future. Strategic initiative 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 defined geographic regions -- geographies and platforms. The WD-40 Specialist product line continues to grow and sales of the product line increased 8% in the second quarter and 17% year-to-date. We continue to launch new Specialist categories in markets around the world. Although, each market, country and segment experiences different short-term trends relating to the sales of the WD-40 Specialist. We continue to believe that WD-40 Specialist will be a substantial revenue and earnings growth engine for many years to come. Strategic initiative number three to broaden our revenue and product base. Our goal under this initiative is to leverage the strengths within the Company to derive revenue from new sources outside our flagship WD-40 brand. In the second quarter, we launched a new 3-IN-ONE Lock Lube in the Americas region and we saw solid sales of our net GT85 brand in the U.K. In addition, our initial launch of WD-40 BIKE in Europe is off to a great start. We see a lot of future opportunities with these incremental MPMP products and we look forward to updating you in the future on their progress. Strategic initiative number four is to attract, develop and retain outstanding Tribe members. We welcomed 11 new Tribe members during the second quarter bringing our total to 37 for this fiscal year-to-date. Building our Company’s bench strength for our future success is a top priority. To support this initiative, we commenced our fourth year of leadership lab in February, a program which has been created to provide comprehensive training to develop all levels of Tribe members who are interested in professional development. Retaining our Tribe members is important to us as well. The skills and experience our Tribe members have will help us succeed with our strategic initiatives. In the U.S. our employee tenure is more than double the U.S. national average. Strategic initiative number five is operational excellence. This initiative includes continuous improvement of resources, systems and processes in order to help offset rising costs and protect our operating margin. Operational excellence is important to meet our ever increasing customer and regulatory requirements, and to efficiently manage our time, talent and treasure. We continue to make progress on the initiatives planned for fiscal year 2015. We have made great strides in the area of category management. Category management is a retailing and purchasing concept in which the range of products sold by our trailer is broken down into discrete groups by related products. By partnering with our customers and implementing a category management strategy, we’ve felt that customers maximize their ROI and to really win at the show. In addition to this work, we continue to move forward with the transitioning of all states to the U.S. into a lower VOC formula we launched in California in fiscal 2014. We expect to have this transition completed by the end of the current fiscal year. We look forward to providing you updates on these initiatives throughout the remainder of the fiscal year. That completes the broad update on our strategic initiatives. So let’s move onto the details of our second quarter results starting with sales. Consolidated net sales grew to $93.7 million in the second quarter and $193.7 million year-to-date. These numbers reflect growth of 2% -- of 3% for the quarter and 2% year-to-date comparing to the prior year periods. Although our underlying business is solid, we are currently experiencing some foreign currency exchange headwinds. Foreign currency exchange impact is a reality that every international business must navigate. Our business has both foreign currency transaction and translation exposure. While we can’t avoid the impacts of these foreign currency exchange exposures, we would like to provide a little more detail on how these exposures can affect our results. We currently have four subsidiaries located outside of the United States that generate sales and do businesses in currencies other than the U.S. dollar. They are located in the United Kingdom, Canada, Australia and China. The main currency with each of our subsidiaries conduct its business is called the functional currency. We have a foreign currency translation exposure when we translate the results of our foreign subsidiaries from their functional currency into U.S. dollars. The recent strengthening of the U.S. dollar deflates the net sales denominated in currencies other than U.S. dollar and thus has a negative effect on our consolidated results. In addition to this translation exposure, our U.K. 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 of the U.K. and are transacted in euros and U.S. dollars. When these sales are converted into pound sterling, EMEA’s reported results can be impacted by the weakening or strengthening of these transaction currencies. In the second quarter, the average exchange rate for the euro against the pound sterling declined 7% whereas the average exchange rate for the U.S. dollar against the pound sterling increased by 6% when compared to the same period last year. So keeping the present currency environment in mind, I will now discuss our sales results in greater detail. If we take a closer look at our net sales by product group, we continue to be well positioned for sustainable growth of our multipurpose maintenance products. As a reminder, the products on this group include WD-40 Multi-Use Product a blue and yellow can, WD-40 specialist, 3-IN-ONE, WD-40 Bike and GT85. We frequently refer to this group as MPMP. We focus our time, talent and treasure on this product group as it accounted for 89% of our global sales in the second quarter. Consolidated MPMP sales were $86.6 million in the second quarter and $171.5 million year-to-date, up 3% and 2% respectively. By trade block, MPMP sales in the second quarter were down 1% in the Americas, up 1% in EMEA and up 32% in Asia-Pacific. Year-to-date, MPMP sales were up 1% in the Americas, down 2% in EMEA and up 21% in Asia-Pacific. If we take a closer look at the current product sales, the decrease in MPMP sales in the Americas was driven primarily by lower sales in Latin America and United States due to the timing of promotional activities. Although, the increase in MPMP sales in EMEA during the second quarter was only 1%, the unfavorable impact of foreign currency exchange rates masked a much bigger and higher organic growth rate in this trade block period from period to period. The significant increase in MPMP sales in Asia-Pacific was primarily due to increased sales of WD-40 Multi-Use Product throughout our Asian distributor markets and in China. Turning to the homecare and cleaning products group. Sales were $10.7 million in the second quarter and $22.2 million year-to-date, up 3% and 1% respectively. The group accounted for 11% of net sales in the second quarter. Our homecare and cleaning products include the brands Spot Shot, 2000 Flushes, Carpet Fresh, no-vac, 1001, X-14, Lava and the Solvol brands. By trading block, sales of our home care and cleaning products in the second quarter were flat in the Americas, up 8% in EMEA and up 11% in Asia-Pacific. Sales year-to-date were down 1% in the Americas, up 1% in EMEA and up 12% in Asia-Pacific. As a reminder, our homecare and cleaning products, particularly those in the U.S. are considered harvest brands that continued to generate positive cash flows, but are generally expected to become a smaller part of the business as net sales of our multi-purpose maintenance products grow with the execution of our strategic initiatives. Now onto our results by segment and let’s start with the Americas. Net sales in the Americas, which include United States, Canada and Latin America, decreased to $44.7 million in the second quarter, down 1% versus last year. Year-to-date net sales in the Americas increased slightly to $89.5 million as compared to $89.3 million last year. In the second quarter, the segment accounted for 46% of global sales versus 48% in the prior year period. Total U.S. sales were down 1% in both the second quarter and year-to-date. The decrease in sales in the U.S. was driven primarily by lower sales of WD-40 Multi-Use Product due to the timing of promotional activities. However, in the U.S., we experienced double-digit growth of the WD-40 Specialist product line in both the second quarter and year-to-date. Sales in Canada were down 1% in the second quarter and down 7% year-to-date. The decrease was driven primarily by lower sales of homecare and cleaning products in both the second quarter and year-to-date. Total Latin American sales were down 6% in the second quarter, but were up 7% year-to-date. The decrease in sales in the second quarter was driven primarily by lower sales of multi-purpose maintenance products due to the timing of promotional activities. Year-to-date, the increase in sales was mainly driven by higher sales of WD-40 multi-purpose maintenance products throughout the region including Mexico and Chile. Now onto our EMEA segment. Net sales in the EMEA segment, which includes Europe, the Middle East, Africa and India, increased to $38.7 million in the second quarter, up 1% versus last year. Year-to-date sales decreased 2% to $73.7 million in the second quarter. The segment accounted for 40% of global sales, which is flat compared to last year. As we discussed in detail earlier, our results fluctuate due to the change in foreign currency exchange rates. Therefore, we also discuss our sales in what we call constant currency. For that, we translate the current period results from our foreign subsidiaries functional currencies into U.S. dollars at the prior period’s exchange rates. On a constant currency basis, sales in the EMEA segment would have increased 8% in the second quarter and 1% year-to-date. We sell into EMEA through a combination of direct operations, as well as through exclusive marketing distributors. Direct markets sales accounted for 61% of EMEA's total second quarter sales and 58% of sales year-to-date. Direct market net sales declined 3% in the second quarter and 5% year-over-year when compared to the prior year period. These sales declines were primarily due to the general weakening of the euro, the currency in which a significant portion of the EMEA direct market sales are generated. Also contributing to the decrease in sales was the timing of customers orders compared to the prior year period. Our distributor markets accounted for 39% of EMEA's total second quarter sales and 42% of its sales year-to-date. Distributor markets net sales increased 9% in the second quarter and 2% year-to-date primarily due to the strengthening of the U.S. dollar, the currency in which a significant portion of EMEA distributor markets sales are generated. Also contributing to the growth was the higher sales of promotional activities associated with the WD-40 Multi-Use Product particularly in Northern Europe and the Middle East. This increase in sales was partially offset by lower sales in the Eastern Europe, primarily due to the economic conditions and political unrest in the Ukraine and Russia. Now onto the Asia-Pacific segment. Net sales in the Asia-Pacific segment, which includes Australia, China, and other countries in the region, increased to $13.9 million in the second quarter, up 28% versus last year. Year-to-date sales increased 20% to $30.9 million. The segment accounted for 14% of global sales compared to 12% in the second quarter of last year. Changes in foreign currency exchange rates had an unfavorable impact on sales. On a constant currency basis, sales in the Asia-Pacific segment would have increased 32% in the second quarter and 22% year-to-date. In Australia, net sales declined 2% in the second quarter and 1% year-to-date. Changes in foreign currency exchange rates had a negative impact on sales results in Australia. On a constant currency basis, sales in Australia would have increased 7% in the second quarter and 4% year-to-date. This increase in sales was primarily due to the increased distribution and successful promotional activities in the period. Sales in China increased 57% in the second quarter and 12% year-over-year primarily due to new distribution and increased promotional activities in the region. The momentum we are seeing in China right now is very exciting and we continue to be optimistic about the long-term opportunities in this country. Although we expect a lot of volatility along the way due to the timing of promotional programs, the data building of distribution shifting economic patterns and the varying industrial activities. Sales in the rest of the Asian region increased 44% in the second quarter and 39% year-to-date. These increases were driven by improved sales of WD-40 Multi-Use Product throughout most of our distributor markets including those of South Korea, Indonesia and the Philippines. So that’s it for the sales update and now over to Jay, who will continue the review with the financials.

Garry, thank you. In addition to the information presented on this call, we suggest that you review our Form 10-Q for the quarter which we will file tomorrow. First, a look at our 50/30/20 rule, you may remember those are the measures we used to guide our business. As you recall 50 represents 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. And then finally, the 20 represents EBITDA. For gross margin, it’s above 50% and our cost of doing business is 30% or less. Our EBITDA will be at or above the 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, as well as our investor presentation, which is available on our Investor Relation website. Now on to our gross margin or the 50 -- in our 50/30/20 rule. Gross margin in the second quarter was 52.6%, compared to 51.6% in the prior fiscal year period. The increase in gross margin was primarily driven by decreased input costs and lower promotional discounts in all three segments along with select price increases primarily in Asia-Pacific. These favorable impacts were partially offset by the unfavorable impacts from foreign exchange rates in EMEA and changes in sales mix. A look at our input costs. We experienced a favorable impact of 130 basis points from our major input costs. This was driven by changes in the cost of petroleum-based specialty chemicals, as well as aerosol cans. As we explain during our first quarter earnings call, we expect to see net positive impacts on our gross margin when crude oil prices fall and we did see this in our gross margin in this quarter. As a reminder, although, approximately 35% of the input costs associated with the can of our WD-40 Multi-Use Product are made up of petroleum-based specialty chemicals, only a small portion of these costs are directly indexed to the cost of crude oil. Also impacting gross margin this quarter were lower promotional discounts, which had a favorable impact on gross margin of 50 basis points, primarily in the Americas and EMEA segments. Cost of promotional activities such as sales incentives, trade promotions, cash discounts that we give to our customers are recorded as a reduction to sales. And the timing and magnitude of these activities can cause fluctuations in gross margin from period-to-period. In addition, our gross margin improved by 20 basis points as a result of price increases implemented in the last 12 months largely in Asia-Pacific. Garry discussed in detail how our changes in foreign currency exchange rates have an impact on net sales. In addition to the impact they have on sales, they can also impact our gross margin. This is because in EMEA our costs of goods are sourced almost entirely in pound sterling. Well, approximately 45% of our revenues are generated in euros, 30% in pound sterling and the remaining 25% in U.S. dollars. Although, the dollar has strengthened against the pound sterling, the value of the euro deteriorated more significantly versus the sterling in the second quarter. These cause revenues in total to be worth less than pound sterling thus decreasing our gross margin. In the second quarter, changes in foreign currency exchange rates within our EMEA segment negatively impacted our gross margin by 20 basis points. Gross margin was also negatively impacted by 80 basis points due to sales mix changes and other miscellaneous costs, which increase from the second quarter of the prior year. The themes discussed for the quarter for gross margin also apply to year-to-date results. Gross margin year-to-date was 52.1%, compared to the 51.8% in the prior fiscal year. The increase of 30 basis points in gross margin was driven primarily by the decrease in input costs across all trading blocks along with price increases in Asia-Pacific and these favorable impacts were partially offset by the unfavorable impacts from foreign currency exchange rate in EMEA and changes in our sales mix. Though we cannot avoid the impact of global market dynamics on items such as foreign currency or the price of crude oil, we continued to be focused and delivered in managing the rest of our business from maximum growth in our gross margin. Now on to the 30 or our cost of doing business. In both the second quarter and year-to-date, our cost of doing business was 34%, flat compared to similar period last year. While our goal is to have our cost of doing business be at or below 30% of net sales, we plan to continue our investments in new product development, brand protection, regulatory and quality assurance. As a result, we expect our cost of doing business to remain in your current levels throughout the remainder of the fiscal year. We expect to move closer to our target of 30% overtime as revenues grow Year-to-date 76% of the total cost of doing business came from three areas, number one, our people costs or the investments we make in our tribe; also investments we make in marketing, advertising and promotion and finally freight cost, the costs to get our products to our customers. Now let’s take a closer look at the expense items that lead into our final EBITDA measure, first SG&A expenses. In both the second quarter and year-to-date, SG&A expense increased by 3% compared to the prior year period to $27.4 million and $54.8 million respectively. In the second quarter, SG&A expense decreased to 28.1% of net sales, down slightly from the 28.3% in the prior year period. Employee related expenses increased by $800,000 compared to the prior year period. These increases were primarily due to increased headcount as well as annual merit increases, which were implemented in the first quarter. These additional costs were partially offset by lower earned incentive compensation accruals. Professional services increased $200,000 over the prior year. This increase is associated with our continued investment in intellectual property protection along with higher legal fees associated with litigation. Finally, other miscellaneous expenses which include travel and median expense, depreciation expense, general office overhead, other costs increased $400,000 compared to the prior year. These increases were partially offset by $700,000 favorable impact due to foreign currency exchange rates. Year-to-date SG&A expense increased to 28.3% of net sales compared to the 28.1% in the prior year. Year-to-date employee related expenses increased by $1.1 million compared to the prior year period. These increases again were primarily due to increased headcount annual merit increases implemented in the first quarter and were also partially offset by lower incentive compensation accruals. Also contributing to the increase in SG&A was travel and meeting expenses in support of our strategic initiatives which increased $400,000 when compared to the prior year. Finally, depreciation expense increased $300,000 compared to last year primarily due to our continued investment in our systems. These increases were partially offset by $500,000 favorable impact due to foreign currency exchange rates. We continued our investment in innovation and renovation by investing $1.7 million in the second quarter and $3.3 million year-to-date in R&D activities up from $1.4 million and $2.9 million in the same period last year. The majority of this investment is associated with our multi-purpose maintenance products and therefore directly supports our strategic initiatives. Our R&D tribe members engaged in consumer research new product development, product improvement and testing activity. Advertising and sales promotion expenses decreased by 9% in the second quarter to $5.5 million compared to the prior year quarter. As a percent of sales, A&P investment decreased to 5.6% in the second quarter compared to 6.4% in the prior year period. The decrease in the advertising and sales expense during the second quarter was primarily due to lower promotional -- lower levels of promotional programs and marketing investments primarily focused in the America’s segment. The decreased expense was partially offset by increased investment in our Asia-Pacific segment. Changes in foreign currency exchange rates had a favorable impact of $200,000 in the second quarter. Year-to-date our advertising and sales promotion expense decreased by 2% to $11.4 million compared to the prior year period. As a percent of sales, A&P investment decreased to 5.9%, compared to 6.1% in the prior year period. The themes discussed for the quarter for advertising and sales expense also applied to our year-to-date results. As a reminder, it is common for advertising and sales promotion expense to fluctuate from period-to-period based on the types of marketing activities and/or promotional activities we imply within any given period. Amortization of intangible assets increased $100,000 to $800,000 in the second quarter of this year. Year-to-date, such expenses increased by $300,000 to $1.5 million for the year-to-date period. Total operating expenses in the second quarter were $33.6 million versus $33.3 million in the second quarter of last year. Operating income in the second quarter was $17.6 million, compared to $15.3 million in the prior year quarter. Year-to-date, total operating expenses were $67.7 million, compared to the $66.2 million in the same period of last year. This resulted in year-to-date operating income of $33.2 million versus the $32 million last fiscal year. EBITDA, the last of our 50/30/20 measures was 18% of net sales in both the second quarter and year-to-date periods, both of which were the same as the prior year periods. We target our EBITDA of 20% of net sales, but expect variations from time-to-time as sales, A&P investment and other expenses fluctuate with the timing of our activities. Our EBITDA percentages also affected by investments we make for future growth. Well, that completes the discussion of the operating items for the second quarter and year-to-date. I will quickly review our other non-operating items. Interest income and interest expense in total remained relatively constant in both the second quarter and year-to-date periods compared to the prior year. Other expenses increased by $1.2 million in the second quarter and $900,000 year-to-date compared to the prior year periods. This increase was due to the higher foreign currency exchange losses as a result of the significant fluctuations in the exchange rates for the euro against the pound sterling. The provision for income taxes was 29.6% in the second quarter and 30.1% year-to-date versus 31% and 30.6% in the prior year periods, respectively. The lower tax rate was driven by an increase in the Company’s earnings coming from foreign operations. Net income in the second quarter was $11.3 million versus $10.3 million in the prior year quarter. Changes in currency exchange 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 been $11.8 million in the second quarter. Diluted earnings per share were $0.76 in the second quarter, compared to $0.67 in the prior year quarter. Diluted shares outstanding increased -- decreased to 14.7 million shares from 15.3 million shares. And year-to-date, our net income was $22.1 million, compared to the $21.8 million in the prior year period. Changes in foreign currency exchange rates had an unfavorable impact of $400,000 on translation of our year-to-date consolidated results. On a constant currency basis, net income would have been $22.6 million in the year-to-date period. Diluted earnings per common share were a $1.49 year-to-date, compared to a $1.41 in the prior year period. Diluted shares outstanding decreased to 14.7 million shares from 15.3 million shares. Now let’s take a look at our balance sheet at February 28, 2015. Our balance sheet and liquidity continued to remain solid. At the end of the second quarter, our cash balance was $43.7 million and we had $42.1 million in short-term investments, which consist of term and time deposits held in Money Center Banks. During the quarter, we borrowed an additional $5 million on our revolving line of credit. As a result, our debt outstanding was $103 million at the end of the second quarter. The $5 million increase in the line of credit balance during the second quarter was used primarily for share repurchases. Let’s turn to capital allocation, we continue to return capital to shareholders through regular dividends and share repurchases. On March 24th, the Board of Directors declared a quarterly cash dividend of $0.38 per share payable April 30, 2015 to stockholders of record at the close of business on April 16, 2015. Based on today’s closing price of $87.14, the annualized dividend yield would be 1.7%. During the second quarter, we acquired approximately 57,000 shares of our stock at a total cost of $4.7 million. Between August of 2013 and February 2015, we repurchased roughly 849,000 shares of our stock at a total cost of $60 million. And as a result, we’ve exhausted our $60 million share buyback program. Our new plan which was approved -- which the Board approved on in October of 2014 became effective once the $60 million plan was exhausted. It provides authorization to acquire up to $75 million of the Company’s outstanding shares through the plans and date of August 2016. Through February 28, 2015, no repurchases has been made under the $75 million plan but we’ve started to execute repurchases under this plan in the third quarter. Well, that completes the financial overview. Again more information will be available on our Form 10-Q which we’ll be filing tomorrow. And thank you so much and now back to Garry.

Great. Thanks Jay. Our underlying business is performing well right now. In constant currency, our global sales rates were much higher than those reflected in our actual results for the second quarter and the year-to-date. Foreign currency exchange risk is a reality that every international business must navigate. Today it’s a headwind, tomorrow it may be tailwind although we can’t control most of its influences on our reported results. Today we try to provide you with a better understanding of its impacts on our reported sales and earnings. And other dynamic we are currently navigating is the falling crude oil prices. Crude oil cost going down is certainly a net positive for our business. However, we are still uncertain exactly how that will embed in our business over the longer term or where they’ll be in the future. We had a number of product increases planned this fiscal year to offset the cost of implementing certain new regulatory requirements, particularly in the Americas region. The recent declines in the cost of crude have allowed us to delay those planned price increases. We’ve updated our fiscal year 2015 guidance to reflect our current view of the business. This guidance does not include any future acquisitions or divestitures and is based on recent foreign currency exchange rates. We expect that our fiscal year net sales results to be in the range of $387 million to $400 million or a growth of between 1% and 4%. We project gross margin to be better than 52%. We expect that global advertising and promotional investment to be in the range of 6% and 7% in net sales. We expect net income of between $45.1 million and $46 million which would achieve diluted EPS of between $3.07 and $3.13 assuming 40.7 million weighted average shares outstanding. Despite the uncertainty that foreign currency and crude oil are causing in both our top and bottom line results, our underlying business is performing as we expected it would this fiscal year and in a way, which we believe will enable us to continue delivering strong returns to our stockholders over the longer term. So in summary, what did you hear from us on this call today? You heard that our business is performing well right now and that in constant currency, our global sales growth rates were much higher than those reflected in our actual results for the second quarter and year-to-date. You heard that the WD-40 specialist product line continues to perform well with global rate of sale increase of 17% year-to-date. You heard that crude oil cost going down continues to be a tailwind. However, we are still uncertain exactly how their impact will embed in our business over the longer term. You heard that later this fiscal year we expect to launch a new delivery system targeted at high volume and uses of the WD-40 Multi-Use Product that we believe will make the product even easier to use in workshops and factories. You heard that we continue to return capital to our stockholders and that we completed our repurchase under our $60 million share buyback program during the second quarter and that we begin executing the repurchases under our new $75 million plan during the third quarter. You heard that our underlying business is performing as we expected it would this fiscal year and in a way, which we believe will enable us to continue delivering strong returns to our stockholders over the longer term. And as I do, in closing, I’d like to share a quote with you from Sue Grafton. Ideas are easy. It's the execution of ideas that really separates the sheep from the goats. Thank you for joining us today. We’d be pleased now to open the conference call to your questions. Back to the Operator.

Thank you, sir. [Operator Instructions] And our first question comes from the line of Liam Burke with Wunderlich. Please proceed with your question.

Thank you. Good afternoon, Gary. Good afternoon, Jay.

Hey Liam.

Hi Liam.

Gary, you had double-digit growth in the U.S. on the specialist line about 8% overall worldwide. Does the quarter-to-quarter growth rates in specialist sort of narrowed WD-40, they ebb and flow with promotional activities?

Not to say much promotion, Liam, more so in new distribution. Certainly, we did run our first promotion with specialist earlier this year. But it’s a matter of building distribution and getting more of the product on shelf. In fact, if you were to go in a low store now you would see that come March, we actually have, I think up to eight U.S. co-use of specialist in distribution in those stores and many others. So year-to-date, our specialist growth is 17% and we are happy with where we are going with it.

Great. Jay, in your breakdown of cost of goods, majority of it raw materials and obviously it’s subject to the ebb and flow. 12% is non raw materials related. You’ve done a lot of things in terms of manufacturing processes and redoing distribution. Do you see anything else you can do in that area?

Well, we’ve got initiatives around sourcing of raw materials, which we’ve seen benefits of over time as we see benefit from expanding our supply chain around cans for example is one. In EMEA, we’ve added a new filler in Continental Europe that puts us closer to our customers. We did that in China as well a couple of years ago. So there is a variety of things that we can and are continuing to look at as we move forward.

Great. Thanks very much.

Thanks, Liam.

[Operator Instructions] And we move next to Linda Bolton-Weiser with B. Riley.

Hi. How are you?

Hi, Linda.

Hey.

So, yeah, your constant currency sales growth in the quarter of 7% was very impressive, especially since I think you had some hard comparisons in the EMEA and Americas region and yet in your gross margin discussion you said that lower or less promos and discounts actually helped your gross margins. So if there was kind of less promotion and discount, how did you produced such good sales growth and is this something that is kind of -- we should expect a little bit more robust growth going forward, or is this really truly a strange situation in the quarter and why was that?

I think you’ll find that particularly we had a solid sales growth down in Asia-Pacific. China performed very well. And of course, we had increasing distribution in our distributor markets. We had you may remember also that the shift of sales out of one quarter into another because of the Long Beach shipping to Bakkal may have also had some impact. In EMEA, we are seeing continued growth of specialists. We are seeing motorbike products continue to take lift. We just started distribution of bike over there. So it’s really a shame that the currency is kind of shadowing the good work that they are doing over there. But overall, we would like to think that in normal times we can grow ourselves between 4% and 8% and this quarter was at the upper end of what our normal guidance is. So I think overall nothing extremely special. Obviously, we are expecting a reasonably solid second half of the year as well. It’s just really now which way the currencies go but underlying we are very comfortable and very pleased with the great work tribe are doing.

So remind to understand correctly that all of the reduction in the reported sales growth guidance is due to currency. You cut basically on the local currency -- you cut that expectation the same.

All of the -- what’s lowered our guidance from the 4% to 8% which we had in our initial guidance is really currency impact.

Okay. And then you alluded to this new delivery system Garry in the U.S. I think you said it was launching in the fourth fiscal quarter. Is this something that will help you garner more shelf space? Or are you losing some SKUs somewhere else? And is it higher margin products that have a higher average selling price?

Yes -- no, yes, yes. No, we weren’t use shelf space. Yes, it is a highest selling product. It’s a new version of our Smart Straw that’s aimed at the heavy end uses, the industrial and tribe and we are very excited about it.

Okay. And so you are just starting in the U.S. and then perhaps more globally, or are there plans for global launch already in place or…?

Well, challenge is making enough of it in the early stages. And when you see it and you will know within the next few months, you will think this is a pretty easy deal, but it’s taken us four years to develop this and one of the components of it is particularly intricate in its manufacturing process. So it’s really about getting ramping up production obvious to be able to take it globally. It will go globally eventually. I would say we will just see it in the U.S. probably for the next year as we betted in. And you know what we like, we like to do some pilot, try it, make sure we got it right, we think we have and then we will take it to the appropriate markets around the world.

How easy do you think it will be for competition to copy the delivery method?

I got a few multiple millions of dollars and a lot of right research and development. They probably could, but it’s like our Smart Straw, it’s taken a long time for anybody to copy that. And even though that has copied it, the product is inferior. Nobody has that volume. Since we thought of selling Smart Straw, I think we sold about $1 billion worth of Smart Straw and it’s our volume that allows us to cost effectively manufacture it where most of our competitors have no way near as you know the volume we have which really puts a lot of this innovation either prohibitive or severely impacting negatively their margins.

Right. And then I know that you have mentioned that the Lawn & Garden is actually a smaller kind of potential sales effect than this new delivery system, but is the Lawn & Garden going to be launched in the U.S. or are you still deciding on that or…?

We are still deciding. We certainly are comfortable with the results in Australia or in fact after this call today, I get on the plane and I am traveling down there and we will be reviewing it, but we will continue it down there. But it’s a matter of productization and we believe that what we are doing with specialists in the U.S. in the new extensions that we put out this year, coupled with this new delivery system that we’re developing. We can’t be like the blind dog in a meat house. We got to take the juiciest piece of meat first and we think that’s it. But lawn and garden is definitely not off our agenda in the U.S. But we are concentrating on what we think are the biggest opportunities first. We can’t do everything and we’ve got more opportunities now than we have execution power. So we need to pace ourselves and be deliberate.

Right. And then just on the whole currency and thank you for the thorough currency explanation. That’s very helpful. But I’m just curious if in some markets where there is big currency devaluations, are you able to take pricing but I guess, I’m trying to think these are your distributor markets in EMEA. So, I’m not sure, does that mean you can’t or can take pricing, or how does that work in terms of trying to offset that effect?

Well, let me talk about one that’s probably on your mind, which is Russia. The rubles devalued at its top point around 60%, is down to around 40% now. We sell into that market in U.S. dollars. So our distributors are therefore making adjustments to pricing, which a lot of them have made. And we are in the same boat with a lot of other products, that has slowed down the market somewhat, not because of price but because of instability. There is now product at many different price levels. So we’re waiting for that to flush through and then we’ll see how it settles down. But Russia is probably the biggest one.

Okay. And then just with the declines of crude oil and are you finding that -- I mean, it just sounds like your competitors are reacting a little bit and there is some reaction. So it’s been harder in general to take the pricing. Can you give a little more color on the competitive actions regarding what’s going on right now?

I’m not sure I understand. But I think you said that our WD-40 competitors are doing stuff with pricing?

No, no. I mean you -- I mean, are they reacting to low crude price, some are being more aggressive on promotion or current prices I guess?

Not that we’ve seen. They’re in the same boat as us. They really don’t understand the impact right now. And you just can’t link one to the other. I think one of the learning moments that we’ve had from this oil change is we’ve spent thousands of the hundreds of hours trying to get our arms around what happens and it’s really helped us understand a lot better into the future. What we do know is that when oil goes up, our prices from our supplier seem to go up a lot quicker than when oil goes down and that’s an interesting learning moment that we’ll be carrying forward in our experiences when prices start to rise again.

Right. Got you. Okay. Thank you very much.

Thanks, Linda.

And our next question comes from Jeffrey Zekauskas with J.P. Morgan.

Hello. This is Ben Richardson sitting in for Jeff.

Hey, Ben.

Hey. So, I just want to -- I look at the diagram here of the make up of the cost of can of WD-40. And it’s clear that the petroleum component is coming down at least on a trailing six months run rate. Can you talk a little bit about the various raws and from steel can negotiations to plastics to the petroleum-based components and sort of rate at which those flow through your COGS?

Well, we can start with plastics because that’s the one that has had really minimal impact at this point in time, even though there is a petroleum to plastic. The cost of our plastic Smart Straw mechanism is really -- has much more of a manufacturing, both cost associated with it, so those don’t seem to change that much with the raw inputs. So, we haven’t seen much change in our plastics. The cans have essentially remained somewhat at stable. We saw some overall can price decreases that we were able to achieve last year and then in through this year. As we look forward, we are not seeing a significant increase or decrease going forward in our can pricing. And we have been seeing kind of some benefits from certainly the cost of our some of the chemicals that are specifically indexed to crude oil. Those would be things for -- in some of our mineral spirits are directly -- we have some direct linkage to the cost of oil. The other petroleum-based chemicals have variety of market dynamics that are just not as clear and connected. And as a result, we’ve seen some moderation but not at the same level. Hopefully that addressed the areas you’re thinking about.

Yes. That’s great. And just given your -- I guess jumping back quickly to revenues. Given your expectation of a stronger back half here, is that lot like seasonal? And I guess one of the different comments of any pickup you would expect in the back half?

Well, as with most of that years they depend on when certain promotional activities fall. We see a larger portion of that promotional activities come through the spring into the summer time, but that depends which half of the world you are in because half of the world we live in springs one time and springs another time in the other half of the world. So it’s just basically -- we’ve often -- you’ve often seen or most times you see that our second half is normally a little heavily weight -- heavier weighted than the first half of the year. We don’t have a big Christmas season anywhere. We don’t mix very well with Barbie dolls and barbeque sets, but when those shelves are empty after that period of time of course we can move in. So I think it’s nothing in particular, it’s just a general business overall.

Okay. Thank you very much.

And ladies and gentlemen, that does conclude our allotted time for questions. We do thank you for your participation on today’s conference call. And we ask that you now please disconnect your lines.