Q4 2019 Earnings Call
Today's call is being recorded at this time all participants are in listen only mode. At the end of prepared remarks, we will conduct a question and answer session to register to ask a question that anytime during this call. Please press star one on your telephone keypad.
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I would now like to turn the presentation over to the host for today's call Ms., Wendy Kelly 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, Our WD 40 company, Chief Executive Officer, Gary Rich and Vice President and Chief Financial Officer, Jay Rembolt also joining us for today's call is our recently appointed President and Chief operating Officer, He Brad Steve.
Brings with him to this newly created addition, 28 years of experience with our brands and our culture welcome Steve.
In addition to the financial information presented on today's call. We encourage investors to review our earnings presentation earnings press release and Form 10-K said the period ending August 31st 2019.
These documents are available on our Investor Relations website at Investor Day, WD 40 company Dotcom, a replay and transcript of today's call will also be made available at that location. Shortly after this call.
On today's call, we will discuss certain non-GAAP measures descriptions and reconciliations of these non-GAAP measures are available in our S. T SEC filings as well as our earnings presentation.
As a reminder, todays call includes forward looking statements about our expectations for the company's future performance of course actual results could differ materially the companys 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 factor.
As detailed in our FCC filing for further discussion finally for anyone listening to a webcast replay reviewing a written transcript of this call. Please note that all information presented its current only as of today's date October 17th 2019, the company disclaims any duty or obligation to update.
Any forward looking statement, whether as a result of new information future events or otherwise with that I'd now like to called the turn the call over to Gary. Thanks, Wendy Good day and thanks for joining US for today's conference call. Today, We reported net sales of 106.7 million for the fourth quarter fiscal year 29.
Hi team up 4% compared to the fourth quarter last year for the full fiscal year net sales were 423.4 million the only 4% over last year.
Translation about foreign subsidiary results from their functional currencies to the U.S. dollar had an unfavorable impact on styles in both the fourth quarter and full fiscal year on a constant currency brightest basis. We grew net sales by 6% year over year for both the fourth quarter and the full year.
Yeah.
Our net income and diluting diluted earnings per common share for both the core to end the full year, well unfavorably impacted because of a robust oh for uncertain tax position that we recorded and disclosed in the fourth quarter fiscal year 2019.
As a reminder, but then it income and diluted earnings per common share were favorably impacted in the prior year due to the U.S. tax cuts in job jobs Act Jay will talk about this in more detail shortly.
Net income for the fourth quarter was 8.6 million compared to 21.6 million last year diluted earnings per share for the fourth quarter was 63 cents compared to $1.54 for the same period last year.
Net income for the full fiscal year was 55.9 billion compared to 65.2 million last year and diluted earnings per share for the full year, what $4 in two cents compared to four dollarssixty four in the prior fiscal year.
For the purposes of this call after discussing how strategic initiatives will focus primarily on the fish financial and operating results for the fourth quarter fiscal year 2019.
For a complete discussion about four years results for 29 Ting. Please refer to the press release, we issued earlier today and now annual report on Form 10-K , Hi, which we expect to follow on Tuesday October 20 seconds.
Now, let's start with the discussion about asked strategic initiatives and the brands that support many of them.
We aspire to drive consolidated net sales to approximately 700 million in revenue by the end of fiscal year 2025 and to do so well following up 55, 30 25 business model.
We'd like to remind investment investors that these long term targets, a guide post not guidance and they probably wrong and roughly right.
I acknowledged that we anticipated 2025 targets, our aspirational, but we believe that if the tribe stays focused we can successfully bring these targets with enbridge has.
As a reminder, we refer to the brands that are going to get us to add 2025 as 2025 brands. They are WD 40, multi use product WD 40 specialist three in one WD 40 bike GT 85001 spot shot so well LABA and novick.
2025 brands, our core strategic focus and the primary growth engines for a company.
[noise] strategic initiative number one is to grow WD 40, multi use product our goal under this initiative is to make the blue and yellow can with little Red top available to more people in more places to find more uses more often we aspire to grow the WD 40, multi use product to approximately 530 million in revenue.
By the end of fiscal year 2025.
In the fourth quarter sales of WD 40, multi use product was 80.5 million up nearly 3% compared to last year. This growth drove growth was driven by strong sales in Asia Pacific, where we saw double digit growth in Australia, China, and the L. Asian distributor markets in local currencies. We also saw solid growth at WD.
40, multi use product in EMA and for the full fiscal year global sales of WD 40, multi use product with 325 point sixmillion up nearly 4% from last year.
[noise] strategic initiative number two is the two graded the WD 40 specialist product line.
One more excited than ever for the future of WD 40 specialist in the fourth quarter sales of WD 40 specialist with 9.8 million up 22% compared to the fourth quarter of last year. This growth was driven primarily by strong sales in the United States, where we saw growth of 28%.
We're excited to share with you our newest product WD 40 specialist penetrant with flexible schedule. The latest innovation adds the eight inch Bendable stroll currently available on easy reach to ask specialists penetrant.
We've developed over 20 unique WD 40 specialist formulas since the product lines inception in 2011.
These are quite too I was 30 uniquely label products available around the world.
BD 40 specialists contributed 35.4 million in fiscal year 29 up nearly 30%.
From last year.
This continues to move the company towards its goal for the initiative growing the product line up to approximately 100 million in revenue by the end of fiscal year 2025.
We're optimistic about the long term opportunities for WD 40 specialist however, they might be some volatility in south along the way to to the timing of promotional programs. The building of distribution and various other factors that come with building out a new product line.
Strategic initiative number three is to broadened product in revenue base.
Strategic initiatives three includes maintenance products like three in one WD 40 bike and GE 85, but also includes home care brands, such as spot shot and LABA in the Americas 1001 in EMA and Novak and solve all in Asia Pacific. We believe we are on track to reach a combined revenue for these.
Products of approximately 70 million by 2025.
Global sales of these products included under this initiative with 13.7 million in the fourth quarter flat compared to last year.
We made reasonable progress in 29 teen toward our long term target for these products. We successfully launched another new SK you Nfthree in one BK line in the U.S., we continue to grow at WD 40 bike product business and weeks experienced unprecedented.
Right about 1001 brand in the UK due to some favorable impacts of digital marketing associated with the brain.
For the full fiscal year.
Net sales of products included under this initiative with 52.5 million up 2% from last fiscal year.
Strategic initiative for us to attract develop and retain outstanding tribe members. Our goal under this initiative is to attract develop and retain talented tribe members and to grow tried member engagement to greater than 95%.
At the end of the fiscal year, we had 495 tribe members located in 15 countries around the world.
Always amazed that just under 500 people can deliver the famous blue and yellow can with little Red top two 176 countries and territories around the world. How companies success is certainly directly linked to our outstanding tribe members and their exceptional motivation and dedication to the WD 40 company.
Its purpose values and products also in support of this initiative, we will begin to relocate our UK based tribe members into a new office building in Milton Keynes over the next couple of weeks approximately 87 tribe members will be house in this new facility, which was specifically designed to increase engagement in club.
Operationally, we are excited that we will officially have the M.K. all open for business very soon.
Strategic initiative number five is operational excellence.
As reflected in our company's values at trial I've never stops trying to make it better than it is today and 29 team was no exception guided by a 55 30 25 business model, we found new ways to optimize resources systems and processes, while applying rigorous commitment to quality assurance regulatory.
The compliance and intellectual property protection.
One of the most exciting initiatives that we embarked on this fiscal year is related to a topic that has made headlines recently environmental social and government governance for E.S.G.
He SG topics have been top of mind here at WD 40 company for longer than the acronym. It has existed for decades, we've been focused on doing what's right.
And how we create products for our news is how we treat our employees and those you now supply chain and how we support the communities, where we live and work it's part of our cultural bedrock. However to further pursue our long standing commitments in fiscal year 29 team, we created a cross regional.
Yes, functional SG team supported by X, but sustainability advises to identify all out SG related activities and to complete immateriality assessment to prior to prioritize areas for investigation. This assessment incorporated input from customers suppliers.
Management in uses directors stock holders and of course add tribe around the world. We will further this work in fiscal year 2020 by completing a life cycle assessment for our flagship multi use product and by creating an efficient and effective DSG reporting capability.
Look forward to updating investors on our progress in the coming quarters.
That completes the update a vast strategic drivers so let's move on to the details of the fourth quarter results starting with sales as I mentioned earlier consolidated net sales were 106.7 billion in the fourth quarter up 4% year over year on a constant currency basis net sales would have been 109.
<unk> point 2 million in the fourth quarter up 6% compared to last year.
Before I discuss what's happening in the individual segments I'd like to take a moment to remind investors that we do not consider our business to be a seasonal one it's common for our sales results to fluctuate one period to another due to various factors, including the level of promotional activities specific programs.
Being run a customer locations, the timing of customer orders or the impact of new product launches.
This is all a normal part of that business and we are accustomed to these types of fluctuations and manage them as part of a normal business activities. It's when something out of the ordinary happens that we will discuss the event here within esters.
So now let's start with the Americas.
Net sales in the Americas, which include the United States Latin America in Canada or were up 1% in the fourth quarter to 49.3 million for the full fiscal year net sales in the Americas 194 million up 1% from last year.
The fourth quarter sales of maintenance products increased 2% or $750000.
In the Americas entirely due to high sales of maintenance products in the United States and Canada.
Maintenance product sales in the United States increased 2% in the fourth quarter, primarily due to the increased sales of WD 40 specialist sales of WD 40 specialist were up 28% in the U.S. due to new distribution successful promotional activities and strong sales growth in the E Commerce trade channel.
This increase in sales was partially offset by lower sales of WD 40, multi use product in the U.S., which was down 3% compared to last year due the timing of promotional activities, we're up against a very tough comparable period in the United States due to a successful easy reach promotion, we ran in the fourth quarter of last fiscal year.
[noise] maintenance product sales in Canada increased nearly 19% in the fourth quarter, primarily due to strong sales of WD 40, multi use product at Canadian tribe successfully executed some new and enhanced customer promotions, which helped drive the growth.
The increase in maintenance product sales in the U.S. in Canada with significantly offset by a decrease in sales in Latin America year over year sales of maintenance products in Latin America was down 10% due to the timing of customer orders and unstable economic conditions in the region.
As a reminder, our maintenance products exclude out homecare and cleaning products sales of our homecare and cleaning products in the Americas decreased 3% in the fourth quarter compared to the same period last year, largely due to lower sales of LABA and spot shot, which both declined 12% in the quarter, we continue to consider.
Homecare and cleaning products, except those listed as 2025 brands as hospice brands that continue to generate meaningful contribution and cash flows, but generally expected to become a smaller part of that business side of the Todd.
In total our Americas segment made up 46% about global business at the end of the fiscal year over the long term, we expect sales within this segment will grow between 3% to 6% annually.
Now onto EMA net sales in EMA, which includes Europe , the Middle East Africa in India with 36.4 million in the fourth quarter down about 1% from last year year to date and it sounds anymore.
Nearly 7% compared to last year.
As reported results in the fourth quarter were negatively impacted by foreign currency exchange rates on a constant currency basis thousand EMA increased 4% in the fourth quarter and nearly 12% for the in the full fiscal year.
We sell into EMA through a combination of direct operations as well as through marketing distributors reported consolidated sales anemia direct markets, which accounted for 69% of the region sales decreased 4% during the quarter to 25.2 million entirely due to the fluctuating currency exchange rates.
On a constant currency basis sales edema direct marketing increased 1% in the fourth quarter and 10% in the full fiscal year.
The increase in sales in the fourth quarter was primarily due to higher sales of maintenance products in many of the EMA direct markets also contributing to the growth in EMS segment was this quarter were higher sales of the 1001 carpet fresh in the UK, which continues to benefit from favorable impacts of digital Mark.
Getting associated with the brain.
Significantly offsetting these high sales were lower sales of WD 40, multi use product in the United Kingdom due to the timing of promotional activities net sales in our EMEA distributor markets, which accounted for 31% of the region sales in the fourth quarter increased 8% during the quota and 9% in the full fiscal.
Yes.
The increase in the fourth quarter was primarily due to increased sales of WD 40, multi use product in eastern Europe due to the timing of custom orders and more stable economic conditions in the region.
In total.
Amos segment made up 38% about global business at the end of the fiscal year over the long term, we anticipate cells within this region will grow between 8% to 11% annually.
Now onto Asia Pacific.
Consolidated net sales in Asia Pacific, which includes Australia, China and other countries in the agent region in Creased to 21.1 million in the fourth quarter up 22% from last year you today net sales in Asia Pacific were up 6% compared to last year.
Changes in foreign currency exchange rates had an unfavorable impact on sales in the region on a constant currency basis sales in Asia Pacific would have increased to 21.6 million in the fourth quarter up 25% from last year.
Australia.
Net sales were 4.8 million in the fourth quarter up 14% compared to last year I'm happy to report that I was the tribe had the biggest quarter than the company's history because of a major customer, placing a large order for WD 40, non aerosol trigger pro which meets the stringent regulatory constraints that are press.
In the Australian market.
Changes in foreign currency exchange rates had an unfavorable impact on sales in the region on a constant currency basis cells. In a strategy would have increased 5.2 5.1 million in the fourth quarter up 21% from last year.
You know Asia distributor markets net sales were 8.9 million for the quarter up 28% compared to last year.
This increase in sales was driven by successful promotional programs as well as the Tom Your custom orders now Asia distributor markets are not impacted by currency since we sell out products in us dollars in the region.
In China net sales in us dollars increased to 7.4 million in the fourth quarter up 22%.
Compared to last year, primarily due to the timing of promotional activities as well as continued growth from our E. Commerce channel China is the world's largest ecommerce market and that digital strategy in the country is a significant area of opportunity.
On a constant currency basis sales in China was 7.6 million up 25% compared to the fourth quarter of last year.
For the full fiscal year net sales in China increase increased to 19.2 million up 12% compared to last year in constant currency sales China.
China sales were up 16% in the full fiscal year.
We remain optimistic about the long term opportunities in China, Although we expect a lot of volatility along the way due to the timing of promotional programs. The building of distribution shifting economic patents and varying industrial activities.
In total Asia Pacific segment made up 16% of our global business at the end of the fiscal year and over the long term week sick spec sales in this segment will probably between 10 and 13% annually.
Before we begin now review the financials I'd like to take a moment to welcome Steve Bras to a call today as Wendy mentioned earlier, Steve as being a member about tried the 28 years, a native of the UK, Steve spend a quarter of this century working in various leadership roles in emo trading block before moving to San Diego three.
Years ago to step in the role of president of the Americas.
Trading block in conjunction with this role as president of the Americas, Steve is being overseeing global brands digital an e-commerce strategies with Oh, we thought that he needed a little more to do so in June we appointed him as president and Chief operating officer, So with that I'll pass the call to see.
Thanks, Gary Good afternoon, I'm delighted to be joining todays conference call.
You mentioned on new to the role of President and Chief operating officer, but I have a great deal of experience working embarrassed to be 40 company markets around the world.
Recently in addition to oversight of our Americas trade look I had the opportunity to lead our global digital and E Commerce strategy as well as oversee the coherency about brand strategy.
These areas, where historically and much of the work was done within our individual trade books as our company has grown its become clear better alignment around these areas is necessary to ensure we continue to move towards our probably Rome, and roughly right objective of reaching $700 million in revenue by 2020 going.
During fiscal 2019, great progress is made in the areas of digital in E. Commerce, we rolled out our low cost, but high performing website model to almost 50 countries around the world and considerably raised our dislike you globally with several high impact training events outstanding progress was made in the fast growing area of E Commerce, well we experience.
Global sales growth of approximately 80%.
Pacing category growth.
In fiscal year 2020 , we will continue a heightened focus on digital and E Commerce, and we expect to make an investment of approximately $2 million an S&P this fiscal year to support our digital brand building activities.
I also want to show you. Some work our tribe has been doing related to brand architecture, the blue and yellow can with little Red to open that same as shield anyways. So showed up and still shows in the United States over 60 years ago. We know our end users around the World Trust to shield, and they're making buying decisions based on that brand loyalty.
In 2011, we leverage the power of the shield and introduced a line of best in class specialty products, which we branded devotee 40 specialists. This product line has been extremely successful for us and currently represents about 8% about global revenue.
The spirit of making it better than is today earlier. This year, we decided to evaluate the brand architecture associated with our WD 40 brand products that is the products and align that were the same issue.
The objective of this global endeavor was to optimize our WD 40 specialist line, while protecting nucor to be 40 multi use product.
We needed to be certain that our primary packaging that is to say the coldren words and under before especially as Ken was presenting our products in a way that reinforces the product lines connection to the blue and yellow Ken and helps our end users find the solution, they're looking for in any channel where they show.
Later this fiscal year, we will update investors on changes that will truly unleashed the global power of the blue and yellow came with a little red till I look forward to updating investors on our assets in coming quarters now I'll turn the call over to Jane for an update on the financials.
Thanks, Steve.
Let's start with a discussion about how we performed against our most recently issued fiscal year 2019 guidance.
We expected our 2019 net sales to be between 425 and $437 million today, we reported fiscal year revenue of 423.4 million.
4% compared to 28 team and coming in slightly under our projected expectations. We expected gross margin to be near 55% today, we reported gross margin of 54.9%.
Expected, our global advertising and promotional investment to be between 5.5% and 6% of net sales today, we reported and P. investment of 5.5%.
I'd like to remind everyone that we revised our net income and EPS guidance on July 29, following the publication of final US Treasury Department regulations. These regulations prompted us to take a reserves for uncertain tax position in the fourth quarter and this resulted in the company.
Lowering its 2019 guidance for net income and diluted earnings per share by approximately $8.7 million or 63 cents a share.
With this adjustment in mind, we expect we expected net income to be between 54.6 million and $55.7 million.
Resulting in diluted EPS of between $3 a 95.
Sense and $4.02, assuming 13.8 million weighted average shares outstanding.
And today, we reported net income of 55.9 billion and diluted EPS of $4.02 based on 13.8 million weighted average shares outstanding.
For more information on our tax provision I recommended investors review the 8-K report that we filed with the FCC on July 29.
Now, let's review, our 55 30 25 business model.
The long term targets, we used to guide our business.
As you May recall that 55 represents gross margin, which we target to be a 55% of net sales.
The 30 represents our cost of doing business, which is our total operating expenses, excluding depreciation and amortization.
Our goal is to drive our cost of doing business overtime towards 30% of net sales and finally, the 25 represents our target for EBITDA.
First look at the 55 or our gross margin.
In the fourth quarter.
Our gross margin was 54.6% compared to 55.2% last year. This represents a decline of 60 basis points year over year.
Changes in major input costs, which include petroleum based specialty chemicals, and aerosol cans negatively impacted our margin by 60 basis points approximately 30 basis points came from increased costs associated with petroleum based specialty chemicals.
30 basis points 20 was due to a formulation changes that we made to our WD 40, multi use product in Asia Pacific.
The remaining 30 basis points came from higher costs associated with aerosol cans.
In addition, gross margin was negatively impacted by 60 basis points in the fourth quarter due to sales mix changes and other miscellaneous costs and finally gross margin was negatively impacted by increased promotional and other discounts that we give to our customers, which lowered our gross margin by 30 basis.
As points during the quarter.
These negative impacts to gross margin were partially offset by the favorable effects of price increases, which we've implemented in all three trading blocks over the last 12 months and which positively impacted gross margin by 60 basis points in the fourth quarter.
Changes in foreign currency exchange rates had a positive impact on our gross margin of 30 basis points. This is because in EMEA. Our cost of goods are sourced primarily in pound sterling well approximately 50% of our revenues are generated in euros, 20% in the U.S.
Dollar and only.
The remaining 30% or generated in pound sterling.
The combined effect of the strengthening of both the euro and the U.S. dollar against the pound Sterling cause revenues and totaled to be worth more in pound sterling, thus improving our gross margin.
As it was as a reminder, our gross margin target of 55%, it's not contingent upon commodity prices or currencies staying at any particular price point, we cannot control global market dynamics, but we continue to be focused and deliberate and managing the rest of our business. So that we can maintain gross margin.
At or above our target of 55%.
Over the long term.
Now I'll address the 30 or cost of doing business.
In the fourth quarter, our cost of doing business declined 31% down from 34% last year. This decline is primarily due to increased leverage gained by higher reported revenues as well as lower employee related costs and lower.
Advertising and promotional investments compared to the prior year quarter.
For the fourth quarter, 76% of our cost of doing business came from three areas people costs or the investments we make in our tribe.
The investments, we make in marketing advertising and promotion as a percentage of sales are and P. investment was 5.5% in the fourth quarter and finally freight costs, you get our products to our customers.
Investing in our future is always a priority and looking forward well our long term goal is to drive our cost of doing business toward 30% of net sales will be making some increased investments in operational assistant efficiencies during fiscal year 2020. Examples of these investments include.
Living our next generation smarts drug delivery system, improving information system capabilities.
And executing on the SG initiative, Gary shared with you earlier as a result, we expect our cost of doing business as a percentage of net sales will trend up slightly in the near term.
We believe these investments will better position us to achieve our long term.
Both objectives overtime, we do expect our cost of doing business will move towards our long term target of 30% as revenues increase.
And this brings us to EBITDA the last of our 55 30 25 measures.
EBITDA was 23% of net sales for the fourth quarter.
Which is up from 21% last year.
That now concludes our discussion on our business model.
Now, let's discuss some items that fall below the EBITDA line.
Significantly impacting our net income and diluted.
As in the fourth quarter was the provision for income taxes in the fourth quarter. The company's tax rate was 62% compared to negative 13% in the fourth quarter of the prior year.
This large swing in the tax rate is the result of a change in the calculation of the toll tax as prescribed by the us tax cuts in jobs Act.
Last year in the fourth quarter, we really are we recorded a large benefit for the toll tax Conversely in the fourth quarter of this fiscal year. Following the Treasury Department issuance of final regulations. We were is versus this benefit which resulted in the unusually high.
Tax rate for both the quarter end the year.
There's been a lot of noise in our net income and EPS numbers for the current and prior period due to the tax provision, but we expect that our tax rate will be in that 20% to 22% range for full for the full fiscal year 2020.
Because of the tax reserve net income for the fourth quarter was 8.6 billion versus 21.6 million.
In the prior year.
This resulted in diluted earnings per share of 63 cents in the fourth quarter compared to $1.54 cents.
For the same period last year.
Diluted weighted average shares outstanding decreased to 13.8 million shares from 13.9 million shares a year ago.
Now.
A word about our capital allocation.
Our capital allocation strategy include the comprehensive approach to balance investing in long term growth, while providing strong returns to our stock holders.
We continue to return capital to our shareholders through regular dividends and share repurchases.
On October 829 team our board of directors approved a quarterly cash dividend of 61 cents per share payable October 31st to shareholders of record at the close of business on October 18th.
And based upon today's closing price of $182.67 the annualized dividend yield is 1.3%.
During the fiscal year, we repurchased approximately 176000 shares of our stock at a total cost of $29.6 million under the current $75 million share repurchase plan, which was approved by the board in June of 2018.
At the end of our fiscal year, we had 400, we had 45.4 million.
Remaining under the plan.
We have historically had an asset light business model, which is required very low levels of capital invested.
Roughly between one and 2% of sales.
Fundamentally nothing has changed over the long term and we believe this is a good way to think about our current and future capital needs. However, more recently, we have been investing more heavily to support our growing business. We've made investments in new facilities in San Diego.
Milton Keynes and Pine Brooke.
In addition, we've begun making investments in new manufacturing equipment to increase capacity and make improvements to our smart straw delivery systems.
In fiscal year 2020, we will once again make some larger investments that we believe.
We will help to drive growth inefficiencies in our business in total we expect to invest approximately $25 million in fiscal year 2020, the majority of which will be used to procure the proprietary machinery and equipment needed to manufacture our next generation smart straw.
Delivery system.
We are nearing the end of this heightened period of capital investment.
And we'll be returning to our asset light model in the near future.
Now we will tear into our 2020 guidance, we want to remind everyone that well there are some global dynamics outside of our control that may have an impact on our fiscal year 2020 results. What are the things that is concerning to us. This year is the instability of four.
Foreign currency exchange rates.
With that.
We.
Our guiding toward net sales growth projected to be between three and 7% with net sales expected to be between $436 million and $453 million.
Gross margin for the full year is expected to be between 54 and 55%.
Advertising and promotion investment is projected to be between 5.5, and 6% of net sales and the provision for income taxes is expected to be between 2022 %.
Net income is projected to be.
Between 65.
And $66.2 million.
And diluted earnings per share is expected to be between $4.74 and $4. An 83 cents based at an estimated at 13.7 million weighted average shares outstanding.
This guidance is expressed in good faith and is believed by the company to have a reasonable basis. However, it is not possible for us to predict with reasonable degree of certainty. The actual impacts of fluctuating currency exchange rates may have these currency fluctuations could potentially have a significant.
Packed on our fiscal 2020 guidance. This guidance does not include any future acquisitions or divestitures and assumes that.
Crude oil prices remain close to current levels for the remainder of fiscal 2020.
Now that completes the financial overview now I'll turn it back to Gary Hi, guys. Thank you Jay.
So in summary, what did you hear from us on our call today.
You heard that we had 4% global sales growth for both the fourth quarter and the full fiscal year.
You heard that global sales of WD 40, multi use product grew nearly 3% in the fourth quarter and 4% for the full fiscal year.
You heard that global sales of WD 40 specialist grew nearly 22% in the fourth quarter and 13% in the full fiscal year.
You heard that foreign currency exchange rates continue to be a headwind on our consolidated global net sales and you heard that for the full year sales grew 6% on a constant currency basis.
You hit that you heard that we continued to be committed to out probably wrong and roughly right long term goal to drive consolidated net sales to approximately 700 million by the end of fiscal year 2025.
You heard that we've created a new cross regional cross functional SG team and we anticipate creating an efficient SG reporting capability in fiscal year 2020.
You heard that will can be continuing I MP investment in this fiscal year 2020 to support add digital brand building activities you heard that we're currently evaluating the brand architecture associated with at WD 40 brand products and that will be sharing a progress on this exciting project next year.
You heard that during fiscal year 2019, great progress was made in the areas of digital an e-commerce .
You heard that both add net income and the diluted earnings per share were unfavorably impacted in the fourth quarter and the full fiscal year due to a onetime noncash tax reserve.
You heard that we issued guidance, which predicts the company will continue with solid top line growth.
For fiscal year 2020.
In closing today I'd like to share with you at quite from Illinois, Didnt go people would go succeed because they know where they going thank you for joining US today, we would be pleased to now open the conference call to your questions.
Ladies and gentlemen, if you would like to register a question. Please press star one on your telephone keypad. Please make sure. Your mute function is turned off till now your signal to be chocolate.
A question has been answered and you would like to withdraw your registration. Please press the pound Keith one moment. Please for the first question.
Our first question comes on line of Linda Bolton wafer with D.A. Davidson. Please proceed with your question.
Hi, everybody how are you.
Good Linda Thank you.
So I guess first of all.
Can I just simple question can I, just clarify that capex.
I know you have this additional investment to support the new innovation 25 million is that the capex guidance or that the increase in Capex can you just clarify that.
That's a full year guidance.
Okay.
Thanks, and then.
I think Steve brass when he was talking mentioned something about increased investments and he mentioned AMC and you mentioned $2 million. So.
Is it.
The us DNA line in the piano also going to be experiencing some increased investment is that the $2 million he was referring to.
There will be some investment in the HP investment as well as some other SGN a.
Investment opportunities.
So I would say there.
There will be growth in both.
Okay did he say $2 million.
Turning that or something.
Now he said $2 million for the past couple of years. We've included in the 5.5% to 6% guidance. The value NP is that 2 million dollar investment that we've been focusing particularly on E Commerce digital and brand building activities.
Oh, Okay. So that's all right. So it's it's included in the 5.5% to 6% guide.
Correct, Okay Gotcha.
So.
The one element of the guidance for F. Why 20, that's a little bit.
Different than I would've thought is the gross margin.
Because you're kind of saying it's flat to down.
And I mean, you've got the wind at your back at least for few quarters on petroleum based input costs and I know you've talked about the difference between Brent and Wi Fi, but I've noticed that brand to MW T.I. are both down quite a bit year over year.
So.
I don't know what am I missing I mean, it just seems to me that that I.
We'd be concerned that gross margin is.
His sorted could be down and that's not really what I am expecting based on the input costs. So can you kind of elaborate a little bit.
Yes, well we have you.
I would have seen that we've experienced some higher can costs.
Which has some upward which has had some upward pressure in the last year and continues into this year.
There's been some additional warehousing costs as weve.
Increased inventories to try to help support any sort of Brexit activities.
And we'll that will resolve itself hopefully.
Soon and we should be able to.
Two.
I have a better understanding of what that will be in the next few weeks.
So there are some upward pressures, but you're right with respect to petroleum based products, even though we've we do have we have had a formula change that has caused us to use a more expensive input than we've had in the past.
So.
We have had.
Some some cost charge some cost increases.
But from an oil based.
From oil we do expect some.
Some impacts to to benefit us as we go forward.
Okay.
In terms of the Formula teens is that something thats required in certain markets to be more environmentally certain environmental type regulation or what can you explain a little more about the formula.
Yes, it was really there to enable us to meet a lot of the dangerous good requirements in a number of our markets.
So we've upgraded the in the formula to lower or.
Our two to be more compliant in.
And allow for easier transportation unless restrictions.
Around transportation storage and that's primarily in Asia Pacific mm.
You may have heard and may have seen there's been a lot of talk about dangerous goods storage, particularly in China and then also down in Australia. So we changed one of the carriers in our formula to reduce.
The impact of dangerous goods storage.
And that that.
Korea is a more expensive carrier than the one that we had in there before.
Okay, well that explains it. Thank you so much I mean, it doesn't have to do with.
You know.
Earth and the fact that you're actually maybe delivering these things in a different method because of the growth of e-commerce something to do with it or.
Steve you want to talk to that no other than it has any impact to told its.
E Commerce and it's very similar.
And.
Kind of.
Expectations for the remainder about this.
I think that's it that's.
That said, Linda we are and continued to be focused on.
Generating in driving our gross margin at or above that 55%. So while we see a headwind for a.
One of the near future a slight headwind.
We're making efforts to drive up gross margin.
Yes, and Linda just add lastly to that as Jay mentioned.
The guidance also is impacted by I realize uncertainty around currency, you'll see in the in the the range of our revenue it's because currency is so unpredictable.
When you look at our business in transaction currencies were actually Neely, leading out long term growth goals of.
In each market many markets in Europe grew at double digit in revenues last year, but when we have the impact of the strengthening of the pound sorry, the dollar against the pound, we can lose up to 5% to 6% for example lifts type the UK for example last year in two.
Transaction currencies out revenue in the UK alone was up 14% in report when we report it's down to 9%. So we've put a range in there to hopefully give us some sort of a.
Positioned to be able to understand where these currencies, but they truly are a very unpredictable and and do really pollute our results. Unfortunately.
Right, yes. Thank you. Thank you for the explanation I mean this way I know this is asking a lot but is there anyway to quantify the impact of those formulation and transportation cost increases on the gross margin impact for the full.
Sure.
Okay.
We we havent done that.
Okay.
Okay, but once these changes are made I mean.
It's now embedded in your cost structure, so to speak in terms of this new formulations and it's it's it's now embedded in your cost structure going forward correct.
Yes, yes, and it actually happened in the fourth quarter.
Oh, okay.
Okay.
Thank you.
Let me just if I could just ask one more.
Your new innovation, that's coming out that were.
Expecting to see is that like mid year I know is it more going to be may or is it going to be more like the last year. There anyway, we helped US yes, it's smart strode too well, we're talking about the smart straw next generation part of that is smart store to its first launch will be in June and the first country will be Canada.
Okay.
And how how quickly after Canada would the next market follow fairly quick or.
Were going to watch how we go in Canada, where also upgrading our smart store overall, so you'll start to see some of that rollout, but initially we'll see the first impacting as we rolled out in Canada, and then as we ramp up production around the world.
You know, we're moving us Montral stroll production to now two locations around the world increasing al capabilities.
One of the new releases, we just released was al.
BD 40 specialists penetrant without easy reach on it which also takes into consideration some of the new delivery system, you'll find that in stores now exciting.
Development in their penetrant range, but the first signs of smart straw II will be in June and the first market will be Canada.
Okay. Thanks, guys I really appreciate it.
Thanks ceiling.
Our next question comes on line of Daniel Rizzo with Jefferies. Your question.
Hi.
Just for clarification struck Smartstrand two is what you were talking about last call you student name at that correct. It's the same thats just the updated yes.
Yeah, we call it tomorrow to yes, okay.
And then you mentioned.
That can't costs are rising I mean is there something specific there is it aluminum cost of what's what's causing that to trend higher.
Well most of that Kansas steel Tin cans that were impacted initially by the tariff impacts that we had about that was a about a million into half dollars I think Jay is that about approximately what it was.
And that was the tariff impacts that were put on European steel.
We haven't really seen those savings of reversal of that come through as supply chain yet.
Although were having ongoing conversations with alcan manufacturers about how those savings well those reductions may come through and then just an overall increase in the cost of cans. We use very few out one medium cans are most of them out tinplate cadence. Okay. And then just one other question you mentioned if any.
I think distraught to the penetrant.
Product line is the plan thats kind of introducing different products were over next few years, there's going to spend it alright everywhere.
So I'm not everywhere, but where it's the end user appropriate.
And the penetrant product is absolutely end user appropriate when.
When you can think about needing to get I, a drop of penetrant to a hard to get at bolt.
Or something it's very very appropriate so we release that a couple of months ago, We've got a big.
Really solve it at the Sema show coming up in Las Vegas, It a couple of weeks.
Initial indications are that it's been well is received we now end users love it so.
Reach might not go on old product, but it will certainly go on end user appropriate products over time.
Just one final on penetrant.
It is interested in Las Vegas.
Just can roll out in the U.S. first as opposed to.
Just wanted for two which is why wouldn't really on kind of course, there I mean does it just because of more penetrate sales here or.
Thank you.
Show a penetrate is in the market right now it's already on the shelves.
We'll be introducing to the automotive trade at at a at the Sema show.
The reason we introduced that in penetrant here is that it's one of our key development products in the specialists range.
And.
And our biggest market for penetrant is in the specialists penetrate is the us.
Okay.
Thank you very much but for clarification.
So.
Our next question comes from the line of Joseph could Tanya with TV Research. Please proceed with your question.
Hi, good afternoon, everyone.
In terms of.
Your market opportunity in China, obviously, you're showing significant growth in China, whereas other companies are showing that is.
Large chunk of the reason for weakness.
You talk little bit more about your runway there, obviously, you're going off a relatively small base, but.
How do you see this developing over time and what kind of potential do you see.
Even possibly getting better if there's a situation where you have trade resolution worked out.
We made an investment in China 14 years ago to wipe in our own subsidiary that China is now the second largest.
Marketing the well for at Blue and yellow can with a little red top.
We will we anticipate will continue to see double digit growth in China going forward. The reason being is were building a market there even though they may have been some slowdown in manufacturing in China.
There are a lot of opportunities that we continue to have to introduce our product to end uses that are using it yet and then to educate current end uses to use more product. So China is a long term hole for us and we feel.
We feel reasonably comfortable about opportunities to build that too.
Six.
SIGA market over time.
Okay and on in Latin America, obviously maintenance was down 10% you mentioned some economic challenges to existing region can you break that down specifically by country, where.
You may have an outsized impact is there any sort of specific disruption that's affecting you.
More so than not and I guess other regions and in that area.
Sure. This is Steve and we had we suffered from the and Argentinian economic situation, we had some phasing issues in Mexico with with orders.
And then.
Business in Central America, and the Caribbean was phase and based upon price increases that happened last year and there was pre price increase buying last year. So the comparison was unfavorable so they were the main three areas that caused the Latin America business to be down.
It's a first time, you've seen Latin America failed to growth since 2012, and we certainly expect normal service to resume into 2000.
Great and one more from me regarding the tax reserves I'm, assuming theres, some sort of potential for this to or at least a portion of this to come back to crack since you and having any conversations with the Treasury department about the guidelines they release I remember you mentioning.
Point that they weren't quite in line and so if you thought the law was supposed to be so is there anymore color. There in terms of this is like the most conservis scenario and maybe some that'll come back.
That's exactly right. We took the full reserve for what was the the kind of the the far end potential.
And I think Oh, we do have what we would say is a very strong position of that we filed our tax return under which would suggest that there is a in the future.
An audit or some other resolution that there might be some recovery.
Great. Thanks, that's all from me.
Ladies and gentlemen that does conclude or a lot of time for questions. We thank you for your participation on today's conference call and ask you. Please disconnect your lines.