WD-40 Company (WDFC) Q3 2012 Earnings Report, Transcript and Summary

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 costs in North America as a result of the supply chain architect project. Barring a rapid spike in oil prices or other major event, we expect further improvement in our gross margin in the fourth quarter. Even though, we have seen some recent moderation of -- in the cost of oil, we continue to be concerned about the long-term fluctuation in oil prices, and we do not see how this volatility will subside. Moving forward, we expect to see the unstable oil market continue to have more spikes, as well as periodic declines. This volatility will make it difficult for us to predict the cost of oil at any time, and we will definitely work diligently to manage these costs and the impacts. The trend in our cost of business continues to improve, but was below our 30% target. Our cost of doing business was 33% in the third quarter compared to 34% in the prior year, a product increase in sales and relatively stable operating expenses. Favorable change in both gross margin and cost of doing businesses resulted in a higher EBITDA and net income versus the period last year. Before we focus a little more on our results, let me review the progress we've made during the third quarter towards our strategic initiatives. Our number 1 strategic initiative is maximizing the WD-40 brand through geographic expansion and increased market penetration. We want WD-40 in more places, with more people, using more, more frequently. We continue to build the WD-40 foundation with significant growth of the WD-40 brand in several key global markets. We continue to experience double-digit growth in our Asia Pacific region, and we're pleased to see growth again in certain European countries in the third quarter after an extended period of uncertainty and sluggish sales. Our number 2 strategic driver is being the global leader in the WD-40 Company's products categories and platforms. Sales of the multipurpose maintenance product grew 1% in the third quarter compared to the period last year. In the U.S., sales dipped 6%, period-versus-period, and were lower than expected after a very strong second quarter activity. Our new product line, WD-40 Specialist, picked up more steam, and thus far, has launched in the U.S., the U.K., France, Germany, Italy and Canada. We've also had a few shipments to Asia and Latin America. This new product line helped Europe sales get back into the growth mode, and we plan to launch it in other European markets, as well as Australia, in the upcoming months. Further opportunities are being explored for the WD-40 brand in the bicycle maintenance market. We commenced research in this fiscal year and are targeting an entry into the U.S. market in fiscal year 2013. We're also exploring similar opportunities in Europe for the motorbike market. And our number 3 strategic driver, which is focusing on strategic business relationships, primarily acquisitions, joint ventures and partnerships. While we have not yet have been able to find an acquisition opportunity that meets our criteria, we continue to explore licensing and partnership arrangements to build product offerings for our next generation of WD-40 Specialist and 3-IN-ONE products. This strategy is proving to be effective in meeting our goal to launch products in the new categories and platforms every 12 to 24 months. Our fourth strategic driver is pursuing long-term fundamental innovation for continued profitable growth of the company. Our innovation efforts extend beyond our new products and platforms and include new business processes, product reformulations and technology. We just began to realize cost savings and margin improvement from our local sourcing initiative in China, and we look forward to lower manufacturing costs stemming from our North American supply chain architect project. We have initial projects planned to reduce costs and improve quality and efficiency. We are hopeful that these initiatives will help offset other increases in product costs. With the slower economic recovery, there is always potential for cost to either increase or decrease depending on demand. However, we can all appreciate that our disciplined and planned approach to margin improvement will serve us well. Last but not least, under the fifth strategic initiative, we continue to attract, develop and retain tribe members to execute our vision. We welcomed 9 new tribe members during the third quarter to support sales and operations across the globe. We also completed a global compensation study to help us retain our talent with competitive and equitable compensation in each of our markets. We also invested in our leadership laboratory program, which consists of off-site training sessions that include topics such as organizational physiology -- psychology and creating a learning accounting -- sorry, a learning culture of accountability and constructive conflict resolution. Everyone is a leader at WD-40, and we realize the importance of investing in our people. This program is currently offered in the Americas and is open to tribe members at all levels in the company. This fiscal year, we have 65 members participating, which is 44% of our Americas tribe. That completes the update on strategic initiatives, so let's move on to the details of our third quarter results starting with sales. Multipurpose maintenance products made up 85% of global sales in the third quarter, with category sales up 1% in Q3 and up 6% year-to-date compared to the prior fiscal year periods. By trading bloc, the Americas were down 7%, Europe was up 8% and Asia Pacific was up 14% in Q3 compared to the prior year quarter. The decreases in the Americas was driven primarily by lower promotional activities in the U.S. period-versus-period, as the prior year period included our large military can [ph] promotion that was not repeated in this current fiscal year. We also experienced lower sales in Canada and Latin America. The sales increase in Europe was primarily driven by the U.K., France and our distributor markets, which offset decreases in other European direct markets. Sales in the U.K. and France benefited from shipments of the new WD-40 Specialist product line, as well as increased growth of our core multi-use product. Sales in the distributor markets benefited from the growth in the base business, as well as the timing of orders period-versus-period. The Asia Pacific region continues to be a strong growth engine for us with double-digit growth stemming from stable economic conditions and ongoing growth of our base business. Global sales of multipurpose maintenance products by brand were as follows: WD-40 brand sales were up 1% in Q3 and up 6% year-to-date; 3-IN-ONE brand sales were up 1% in Q3 and 3% year-to-date. Homecare and cleaning products made up 15% of our global sales in the third quarter, with this category's sales up 4% in Q3 and 3% up year-to-date. Products under this category includes Spot Shot, 2000 Flushes, Carpet Fresh, No Vac, 1001, X-14, Lava and the Solvol brands. By trading bloc, sales of homecare and cleaning products in the third quarter were up 2% in the Americas and down 6% in Europe and up 25% in Asia Pacific. Sales growth of homecare and cleaning products in the Americas was driven by Spot Shot and 2000 Flushes in the U.S., which had sales increases of 10% and 5%, respectively in the third quarter. This growth stemmed primarily from new distribution and increased level of promotional activities within the warehouse club trade channel. In Europe, sales of the 1001 brand declined by 6% in the third quarter following strong second quarter sales growth. Sales growth of homecare and cleaning products in Asia Pacific region were driven by Carpet Fresh and Solvol sales in Australia, which increased 27% and 18%, respectively, in the third quarter. The growth was attributed to ongoing promotional activities and some new product offerings. Let me talk a little bit about the results by segment. In addition to the organic growth, our global sales benefited from price increases implemented to offset rising input costs. The impact from changes in foreign currency rates was relatively small, reducing our sales in the third quarter by $400,000 and increasing our sales year-to-date by $700,000. Our 2012 fiscal year-to-date results translated at last year's exchange rate, or what we term as constant currency basis, would have produced sales of $257.2 million, versus the actual of $257.9 million. A little more about the Americas now. Sales in the Americas segment decreased 5% in the third quarter and are up 6% year-to-date versus the prior year period. This segment accounted for 50% of global sales in the third quarter versus 54% in the prior year period. In the U.S, sales were down 4% in the third quarter due to the lower sales of WD-40 brand. In the prior year third quarter, we had a major military camp promotion, whereas our major promotional period this fiscal year was in the second quarter. We had very strong WD-40 brand sales growth in the second quarter due to the promotional activities and the national launch of WD-40 Specialist. Year-to-date, sales in the U.S. are up 7%, with WD-40 sales up 9%, Spot Shot sales up 10%. This growth was partially offset by lower sales of 2000 Flushes, which declined 4% year-to-date. Sales in Latin America decreased by 7% in the third quarter and 2% year-to-date, driven by declines in our multipurpose maintenance products. Sales in Latin America have been impacted by severe economic slowdowns in Mexico and Chile. Sales in Canada decreased 30% in the third quarter due to a lower level of replenishment orders and decreased promotional activities with certain customers in the mass retail channel. Year-to-date sales in Canada were up 2%. Changes in foreign currency rates did not have a material impact on sales. Now we'll cross over the pond to Europe. Sales in the Europe segment started to stabilize after a period of uncertainty and stagnation. Sales growth of 7% overall in the third quarter, and we are down 3% year-to-date compared to the prior fiscal year period. Changes in foreign currency exchange rates had an unfavorable impact in the third quarter sales of $2.5 million. That's on a constant currency basis. European sales would have increased 9% in the third quarter and the year-to-date impact, however, is not material. The segment accounted for 35% of global sales in Q3 compared to 33% in prior fiscal year period. We sell into Europe through a combination of direct markets and in certain countries, as well as through exclusive marketing distributors in other countries. We have direct sales operations in the U.K., in Italy, in France in Iberia, which includes Spain and Portugal, and markets we term as the Germanics region, which includes Germany and Austria and Denmark, Holland, Switzerland, Sweden and the Netherlands. Overall, sales from the direct markets were flat in the third quarter and decreased 6% year-to-date compared to the prior year periods. Sales in the U.K. and France grew 4% and 12%, respectively, due to the growth of our multi-use product and sales from the recently launched WD-40 Specialist product line. This growth was fully offset by declines in other direct countries, which continue to be impacted by adverse and uncertain economic conditions. Sales from direct markets accounted for 66% of the European sales segment in the third quarter compared to 70% of the European segment sales in the prior fiscal year. We sell through exclusive independent marketing distributors in Eastern and Northern Europe and in the Middle East & Africa, and virtually all sales consist of the WD-40 brand. Sales in our European distributor markets increased 23% in the third quarter and 4% year-to-date. Sales in distributor markets quarter-to-quarter have been impacted by the timing of price increases and customer orders, but continue to benefit from ongoing growth of our multi-use base business. Now we'll take a look at the Asia Pacific region. Sales in the Asia Pacific segment were up 16% in the third quarter and up 24% year-to-date. The segment amounted for 15% of global sales in Q3, up from 13% in the prior fiscal year period. Asia Pacific sales in the third quarter benefited from changes in foreign currency exchange rates. On a sales consistent currency basis, we would have produced net sales of $12.8 million versus the $13 million. Year-to-date sales on a constant currency basis would have been $38.2 million versus the actual of $39.1 million. Sales in Australia increased 17% in Q3 and 15% year-to-date compared to the prior fiscal year periods. The sales growth was attributed to stable economic conditions, the ongoing growth of our base business, as well as the launch of new products within the Solvol brand during the quarter. There was a favorable impact from changes in foreign currency exchange rates. Sales in China grew 5% in the third quarter and 34% year-to-date. We benefited from the ongoing growth of our core base business and higher levels of ordering during the promotional periods that were conducted in the first and third quarters of the current fiscal year. Sales throughout the rest of Asia increased 22% in the third quarter and 27% year-to-date. The increase was due to stable economic conditions and the growth of the WD-40 multi-use product throughout the distributor markets, including those of Indonesia, Korea and Malaysia. That's it for the sales update. I'll take a break and turn it over to Jay, who will review the financials and some progress towards our 50/30/20 measures.

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 the gross margin by another 70 basis points. Sales price increases are implemented on a country-by-country basis to help offset the impact from increased input costs. Period-versus-period, our price increases have favorably impacted our gross margin by 210 basis points and have been driven by price increases implemented within the last 12 months. Lower advertising and sales promotional discounts positively impacted our gross margin by another 20 basis points. A lower percentage of sales during the quarter was subject to promotional discount compared to that in the prior fiscal year quarter. The 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 of these may cause fluctuations in gross margin, period-to-period. The impact of our major initiatives on our cost of goods sold is another factor that caused our gross margin to change. As Garry mentioned earlier, we began to see lower manufacturing costs from our local sourcing project in China and the North American supply chain architecture project. So recently, we have produced all of China's products in the U.S. Over the past year, we have contracted with a China-based packager and are now locally sourcing products in the China market. While some product continues to be produced and shipped from the U.S, a large portion of China's cost of goods sold during the third quarter was from the local packager. Lower costs in China, driven by local sourcing and other favorable mix impacts, positively impacted our margin by 70 basis points, period-versus-period. In regards to the North American supply chain architecture project, we began activities and incurring expenses to restructure our network and consolidate our third-party packaging facilities in the first quarter of this year. Our goal is to improve service delivery to our customers while reducing overall costs within our supply chain. In the third quarter, we began realizing lower manufacturing costs from some of our packagers. However, the savings was more than offset by the activities associated with the transition. The net impact of the changes in activities negatively impacted our gross margin by 40 basis points in the third quarter. We anticipate having a positive impact from this project once the transition activity is completed. All other impacts, combined, negatively impact our global gross margin. The higher proportion of sales, our lower margin distributor markets, as well as shift in brand mix, negatively impacted our gross margin by 70 basis points period-versus-period. Much of our sales growth in the third quarter came from our European and Asian marketing distributors, which have lower margins due to the lower pricing given to our distributors in exchange for managing the sales and distribution functions. All other miscellaneous impacts, combined, negatively impacted our gross margin by 30 basis points. Themes similar to those discussed for the quarter also apply to the year-to-date results. Gross margin year-to-date was 41 -- 49.1% compared to 50.6% in the prior year of fiscal quarter -- or prior year, year-to-date period. The decrease of 150 basis points in gross margin was attributable to higher raw material and manufacturing costs, net expenses related to the North American supply chain architecture project, higher trade and promotional discounts and shifts in sales mix. On a year-to-date basis, these impacts were only partially offset by the positive impact from the sales price increases. Well that completes the gross margin discussion. Now onto the 30, or our cost of doing business. In the third quarter, the cost of doing business was 33% of net sales compared to 34% in Q3 of the prior fiscal year. Our goal is to have the cost of doing business to be at or below 30%. Period-versus-period, our sales increased by 2% in Q3, while our operating expenses declined by 1%, causing a decrease in our cost of doing business percentage. Year-to-date, the cost of doing business was also 33% of net sales compared to 34% in the prior fiscal year. Just to give some context, the makeup of the 30, or our cost of doing business, approximately 75% comes from 3 areas: first, our people, the investments we make in our tribe members; second, our investment in marketing and advertising and promotion to ensure our consumers and potential consumers are aware of our products; and third, freight, the cost of getting our products to our customers. Year-to-date, our people costs made up 39% of our cost of doing business, followed by investment in advertising and promotion, which made up 23%; and finally, freight costs, which made up 14%. Now a little more detail on our SG&A expenses. Our SG&A expense in the third quarter was $22.7 million versus $22.6 million in the prior fiscal year quarter. As a percent of net sales, it was 26.1% in Q3 versus 26.4% in the prior fiscal year quarter. The increase in SG&A expenses was primarily due to higher employee-related expenses, as well as professional service costs. Our employee-related costs, which include salaries, bonuses, profit-sharing, stock-based compensation and other fringe benefit increased by $0.3 million in the quarter. The increase was primarily due to annual compensation increases and higher staffing levels, which were partially offset by lower stock-based compensation expenses period-versus-period. Professional service costs increased $0.1 million due to higher legal and consulting fees. These increases in the SG&A expenses were partially offset by a $0.2 million decrease in freight costs, primarily attributable to truckload optimization resulting from the North American supply chain project. All other miscellaneous expenses decreased by $0.1 million, which include R&D expenses, sales commissions to our brokers, meeting expenses and office overhead. Our SG&A expense year-to-date $67.3 million versus $65.9 million in the prior fiscal year period. As a percentage of sales, SG&A expense was 26.1% year-to-date versus 26.8% in the prior year period. Employee-related costs increased by $1 million, primarily due to annual compensation increases and higher staffing levels, which were partially offset by lower bonus and stock-based compensation expenses, period-versus-period. While we experienced freight savings during the third quarter, our freight costs year-to-date were up $0.7 million due to increased diesel cost, higher sales volumes and smaller order sizes. Professional service costs increased $0.5 million due to higher legal and consulting fees. Changes in foreign currency exchange rates further increased SG&A expenses by $0.2 million. These increases were primarily -- or partially offset by lower R&D and new product exploration expenses, which decreased $0.4 million and it is really attributable to the higher level of investment in the prior year period related to the WD-40 Specialist development. Travel and meeting expenses decreased by $0.3 million. Other miscellaneous expenses, which include broker sales commissions, insurance, bad debt expense, also decreased by $0.3 million period-versus-period. Advertising and sales promotional expense in Q3 was $6.7 million compared to $7.1 million in the prior year period. As a percent of sales, A&P investments was 7.7% in Q3 compared to 8.3% in the prior year period. The decrease in advertising and sales promotion expenses was primarily due to reduced promotional activity in Europe, along with lower cost associated with promotional programs conducted in the Americas. Year-to-date advertising and sales promotional expense of $19.5 million was $0.9 million higher than that experienced in the prior fiscal year period. Advertising and sales promotional expense as a percent of sales was 7.5% year-to-date versus 7.6% in the prior year. The increase in advertising and sales promotion expenditure was primarily due to higher level of advertising and promotional activities during the first and second quarters in our Americas and Asia Pacific segments. Amortization of intangible assets remained relatively constant at $0.5 million in Q3 compared to $0.6 million in the prior year period. Year-to-date amortization was $1.7 million compared to $1.0 million in the prior fiscal year period. The increase in amortization is related to our decision to reclassify our 2000 Flushes, Spot Shot and 1001 trade names from indefinite-lived intangible assets to definite-lived intangible assets. The change was effective February 28th, 2011, and amortization of these 3 trade names began on March 1, 2011. The prior year-to-date period only included amortization of the Carpet Fresh export team, trade names and customer lists acquired in the 1001 acquisition. Total operating expenses in the current quarter were $29.9 million versus $30.3 million in Q3 last year. Operating income in Q3 was $13.1 million compared to $11.8 million in the prior quarter. Year-to-date, total operating expenses were $88.4 million versus $85.4 million in the prior year period. Operating income year-to-date was $38.1 million compared to $39 million in the prior year, fiscal year. EBITDA, the last of our 50/30/20 measures, was 16% of net sales in Q3 compared to 15% in the prior year. Year-to-date EBITDA was 16% of net sales compared to 17% in the prior year. We target 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 and investments. Our EBITDA percentage is also affected by the investments we make for future growth. The provision for income taxes in Q3 was 29% versus 31.4% in the prior fiscal quarter. The prior period third quarter was higher, partially due to the inclusion of $0.3 million of uncertain tax liability associated with our foreign operations, which did not reoccur in the current third quarter. The current quarter's tax rate also benefited from a decrease in the state tax rate as a result of recent changes in the California state tax law, as well as the higher portion of income generated by our foreign operations, which is taxed at lower rates. Year-to-date, the provision for income taxes was 29.3% versus 32% in the prior fiscal year. The lower tax rate year-to-date was due to the same factors discussed for the quarter, the combined effects from the increase in income from foreign operations and the California tax law changes. Absent any other onetime change, we expect the effective tax rate for the year to be close to 30%. Net income in Q3 was $9.1 million, versus $8.1 million in the prior year quarter. Changes in foreign currency rates did not have a material impact on net income period-to-period. Diluted earnings per common share were $0.57 in Q3 compared to $0.47 in the prior fiscal quarter. Our diluted shares outstanding decreased from 17 million shares to 16 million shares. Year-to-date, net income was $26.5 million versus $26.2 million in the prior year period, again, changes in foreign currency rates did not have a material impact on net income period-to-period. Diluted earnings per common share were $1.64 year-to-date compared to $1.53 in the prior fiscal year period. Diluted shares outstanding decreased from 17.1 million shares to 16.1 million shares. Regarding the dividend, on June 19, the Board of Directors declared a quarterly cash dividend of 29%, payable on July 31, 2012 to shareholders of record on July 16, 2012. Based on today's closing price of $50.42, the annual dividend yield would be 2.3%. A look at our financial position at May 31, 2012. Our company's financial position continues to be strong, sustained by a strong balance sheet and consistent cash flows. We have a solid foundation to support our strategic initiatives and our working capital needs, including support for cost savings initiatives, market expansion and new product introductions. Our net cash position decreased from the end of the prior year, primarily due to our share repurchase activity. Our net cash position at May 31 was $26.7 million compared to the $45.7 million on August 31, 2011. At May 31, we had cash of $71.7 million, less $45 million outstanding on our $75 million revolving line of credit. At August 31, we had cash of $56.4 million, less $10.7 million of debt. Another item to note regarding our balance sheet is inventory. Our transition to a new supply chain structure in North America has resulted in and will continue to result in higher levels of inventory than we've held in the past. Our inventory increased by $8.1 million year-to-date, up from $17.6 million at the end of the fiscal year, to $25.7 million at the end of Q3. The increase in inventory was primarily attributable to the increased purchases in support of our North American supply chain architecture project, although we also had contributing factors resulting for the launch of the WD-40 Specialist product line, as we acquired more inventory. During the third quarter, we acquired nearly 183,000 shares of our stock at a total cost of $8.2 million. Our latest share repurchase plan was approved by the Board of Directors on December 13, 2011, and provides authorization to acquire up to $50 million of the company's outstanding shares through December 12, 2013. During our first quarter, we completed purchases under the company's previously -- the previous $60 million buyback plan, and year-to-date, the company has repurchased a total of 748,000 shares at a total cost of $30.9 million on-- for both plans combined. In addition to the share repurchase activity, we returned capital to shareholders through our regular dividend payments, and year-to-date, our dividend payments have totaled $13.6 million. We focus on the balance between investing for the future and returning capital to shareholders. We target our dividend payout ratio at 50% of net income, and we continue to expect to execute on our $50 million share repurchase program. That completes the financial overview. For more information, again, will be available in our 10-Q, which will be filed tomorrow. Now back to Garry.

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 China and our Asia distributors, and that we began to experience stabilization in some of our European markets. You heard that we are looking deeper at the opportunities for the WD-40 brand in the bicycle and motorbike maintenance markets. You heard that our gross margin continues to improve and was impacted by expenses associated with supply chain architecture project and higher proportion of sales in lower margin distributor markets. You heard that the North American supply chain architecture project and local sourcing initiatives in China are beginning to yield cost reductions, which we expect will further improve our gross margins in the fourth quarter to reach our gross margin target of 50%. You heard that our guidance remains unchanged and that we still expect sales growth of 5% or more for the fiscal year, but we may come in, in the lower end of our guidance range due to the uncertain business conditions impacting European sales and the business environment. You heard that we continue to make progress and invest in our capital, in our strategic initiatives to support profitable growth, particularly over the long-term. You heard that we acquired 183,000 shares during the third quarter under our current $50 million share back (sic) [buyback] program, and finally, you heard that the company's financial position continues to be strong and to provide long-term returns for our shareholders. As I usually try to do in closing, I'd like to share a quote with you from Paulo Coelho, and he was the guy who wrote the novel, The Alchemist. "You can become blind by seeing each day as a similar one, each day is a different one, each day brings a miracle of its own. It's just a matter of paying attention to this miracle." Thanks for joining us on the call today, and we would be pleased to open the conference call for your questions.

[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.