WD-40 Company
Q1 2015 Earnings Call Transcript

Published: 8 Jan 2015

[Operator:]

Ladies and gentlemen, thank you for standing by. Good day and welcome to the WD-40 Company First Quarter Fiscal Year 2015 Earnings Conference Call. Today’s call is being recorded. At this time, all participants are in a listen-only mode. At the end of the prepared remarks, we will conduct a question-and-answer session. [Operator Instructions] I’d now like to turn the presentation over to the host for today’s call, Ms. Wendy Kelley, Director of Investor Relations and Corporate Communications. Please proceed ma'am.

[Wendy Kelley:]

Thank you. Good afternoon and thanks to everyone for joining us today. On our call today are WD-40 Company’s President and Chief Executive Officer, Garry Ridge; and Vice President and Chief Financial Officer, Jay Rembolt. Following their prepared remarks, the operator will come back on the line for the Q&A portion of the call. Before we get started, let me remind you that supporting materials for this call are available on our Investor Relations Web site at investor.wd40company.com. In addition to our traditional disclosures, the Company has published an earnings presentation which can be downloaded from this Web site. We encourage investors to review this presentation in conjunction with today’s prepared remarks. A replay of today’s webcast will also be made available at that location shortly after this call. As a reminder, today’s call includes forward-looking statements about our expectations for the Company’s future performance. Of course, actual results could differ materially. The Company’s expectations, beliefs and projections are expressed in good faith that there can be no assurance that they will be achieved or accomplished. Please refer to the Risk Factors detailed in our SEC filings for further discussion. Finally, for anyone listening to a taped or webcast replay or reviewing a written transcript of this call, please note that all information presented is current only as of today’s date, January 7, 2015. The Company disclaims any duty or obligation to update any forward-looking information whether as a result of new information, future events or otherwise. With that, I’d now like to turn the call over to Garry.

[Garry Ridge:]

Thank you, Wendy, and good day all and thanks for joining us for today’s conference call. Today, we reported net sales of $96.4 million for the first quarter of fiscal year 2015, which was a 1% increase from the first quarter of last fiscal year. Net income for the first quarter was $10.8 million compared to $11.5 million in Q1 last year and diluted earnings per share for the first quarter was $0.73 compared to $0.74 last year. Before we dive into the sales results, I’d like to take a moment to update you on the progress around our strategic initiatives. Strategic initiative number one is to grow WD-40 Multi-Use Product, affectionately known as MUP. Our goal under this first initiative is to take WD-40 MUP to more places for more people with more uses. Although global sales of WD-40 Multi-Use Product were nearly flat in the first quarter of this year’s compared to the first quarter of last year, we saw a growth of MUP sales in both of the Americas and Asia Pacific segments. In fact, we experienced double-digit growth in several markets within our Asia Pacific segment, primarily within our distributor markets in the Asian region. The sales growth of the WD-40 Multi-Use Product that we experienced in the Americas and Asia Pacific was entirely offset by a decline in EMEA, primarily due to the unfavorable impacts of foreign currency and a decline in orders following a heavy promotional period in the fourth quarter of last fiscal year. I’ll discuss this decline in EMEA in more detail when I review the results by segment. Finally, we look forward to sharing with you in the near future new initiatives we’ve planned for the WD-40 Multi Product -- Multi-Use Product line later in the year. Strategic initiative number two is to grow the WD-40 Specialist product line. Our goal under this initiative is to leverage the power of the shield to develop new products and categories within defined geographies and platforms. The WD-40 Specialist product line continued to support the WD-40 brand with a global growth rate of 28% in the first quarter compared to the prior year first quarter. Each market, country and segment experiences different short-term trends relating to the sales of the WD-40 Specialist product line. We continue to believe that WD-40 Specialist should be a substantial revenue and earnings growth engine for many years to come. Strategic initiative number three is to broaden our product and revenue base. Our goal under this initiative is to leverage the strengths within the -- of our Company to derive revenue from new sources outside of our flagship WD-40 brand. In fiscal year 2014, we launched some exciting new products under the multipurpose maintenance products umbrella, which included a complete refresh of the three in one offering in the U.S and we expect these new products will start to contribute to our sales growth in fiscal 2015. We also have completed the acquisition of the GT85 brand in September 2014 and we started to generate sales from this new brand during the first quarter of this fiscal year. Strategic initiative number four is to attract, develop, and retain outstanding Tribe members. In attracting we welcome 26 new Tribe members during the first quarter. As Zig Ziglar once said, you don’t feel the Company, you feel people and then the people build the business. Building our Company’s bench strength for our future success is a top priority. To support this initiative in fiscal year 2015, we have launched another year of our leadership laboratory program, a program which has been created to provide comprehensive training to develop all levels of Tribe members who -- in the interest of their own professional development. As far as retain is concerned, we’re excited to learn in this quarter that recently our U.S profit sharing on 401(k) retirement plan received the highest rating in its peer group by BrightScope, a leading independent provider of retirement plan ratings and investment analytics. Our strategic initiative number five looks at operational excellence. This initiative includes the continuous improvement of optimizing resources, systems and processes in order to help offset rising costs and protect our operating margin. Operational excellence is important to meet the ever increasing customer and regulatory requirements and the efficiency of managing our time, talent and treasure. We have several initiatives planned for fiscal 2015, which include marketing enhancements -- sorry, making enhancements to our supply chain in both the Americas and EMEA, transitioning all 50 states to the lower VOC formula we launched in California in fiscal year 2014, focusing on category management and continuing the implementation and upgrade of our ERP system in EMEA. We look forward to providing you with updates on these initiatives throughout the fiscal year. That completes the update on our strategic initiatives. So let’s move on to the details of our first quarter results starting with sales. Consolidated net sales grew to $96.4 million, which is a growth of approximately 1% in the first quarter versus the comparable period last year. Although the sales growth is lower than our targeted growth rate for fiscal 2015, we believe that we continue to be well-positioned for substantial growth and sustainable growth of our multi-purpose maintenance products over the longer term and are maintaining our fiscal year 2015 sales growth guidance of between 4% and 8%. If we take a closer look at sales by product group, sales of our multi-purpose maintenance products were $84.9 million in the first quarter, up approximately one percentage point versus last year. And as a reminder, products under this category include WD-40 Multi-Use Product, WD-40 Specialist and the 3-IN-ONE brand, WD-40 Bike as well as our newest member of the WD-40 brand family GT85. As you know we focus our time, talent, and treasure on this area of our business which accounted for 88% of our global sales in the first quarter. By trading block, sales of multi-purpose maintenance products in the first quarter were up 3% in the Americas, down 5% in EMEA and up 14% in Asia-Pacific. I will discuss the drivers of some of these changes in a few moments. Sales of our homecare and cleaning products were $11.5 million in the first quarter, down about 1% from last year. The category accounted for 12% of our net sales in Q1. As a reminder, the homecare and cleaning products include the brands of Spot Shot, 2000 Flushes, Carpet Fresh, No Vac, 1001, X-14, Lava and Solvol brands. By trading block, sales of our homecare and cleaning products were down 3% in the Americas, down 6% in EMEA and up 13% in Asia-Pacific. As a reminder, our homecare and cleaning products, particularly, those in the U.S. are considered harvest brands that continue to generate positive cash flows, but are becoming a smaller part of the business as net sales of the multi-purpose maintenance products grow with the execution of our strategic initiatives. Now onto our results by segment. Let’s start firstly with the Americas. Net sales in the Americas which includes the United States, Canada, and Latin America increased to $44.8 million in the first quarter, up 2% versus last year. The segment amounted -- accounted for 46% of global sales in both the current and prior year. Sales of multi-purpose maintenance products increased nearly 3% in the Americas, but that increase was partially offset by a nearly 3% decrease in the sales of our homecare and cleaning products. The increase in sales in multi-purpose maintenance products was mainly driven by higher sales of WD-40 Multi-Purpose maintenance products in Latin America, which were up 19%. This growth is attributed to the continued growth of WD-40 MUP through the Latin American region including in Mexico, Brazil and Peru. This increase in sales was partially offset by a 13% decrease in sales in Canada, primarily due to the change in distribution as well as the timing of some customer specific promotions. In the United States, sales of multi-purpose maintenance products remain relatively flat quarter-to-quarter. Now on to our EMEA segment, net sales in the EMEA segment which includes Europe, the Middle East, Africa and India decreased to $34.6 million in the first quarter, down 5% versus last year. The segment accounted for 36% of global sales compared to 38% in the first quarter of last year. Sales of multi-purpose maintenance products decreased by approximately 5% and sales of homecare and cleaning products decreased by approximately 6%. Because our results can fluctuate due to the change in foreign currency exchange rates, we also show our results in what we call constant currency. For that we translate the current period results from our foreign subsidiaries' functional currencies into U.S dollars at the prior period exchange rate. The functional currency of our U.K. subsidiary is the pound sterling. On a constant currency basis, sales in the EMEA segment would have decreased to $33.8 million in the first quarter, down 7% versus last year. In addition to the impact of foreign currency changes when translating functional currency results in U.S dollars, EMEA results in pound sterling have also affected by foreign currency exchange rates due to the fact that a significant portion of these sales denominated in euros and U.S dollars. As a result, pound sterling sales are also negatively or positively impacted by the weakening or strengthening of the euro and the U.S dollar against the pound sterling. In the first quarter the euro and the U.S dollar declined against the pound sterling by 8% and 3% respectively as compared to the first quarter of last fiscal year, reducing EMEA sales by approximately 3% from period-to-period. We sell into EMEA through a combination of direct operations as well as throughout exclusive marketing distributors. In direct markets which account for 56% of sales in EMEA, net sales declined 7% primarily due to the decline in the euro and the low level of customer orders following a heavy promotional period in the fourth quarter of fiscal year 2014. Other direct markets, which generate a significant portion of their sales in euros were down by approximately 5% in pound sterling during the -- due to the weakening of the euro. In the distributor markets, which account for 44% of EMEA net sales declined 4% primarily due to the decline in the U.S dollar and slower sales in the Middle East and Eastern European markets primarily due to the political unrest in the regions. The distributor markets which generate a significant portion of the sales in the U.S dollars were down by approximately 2% in pound sterling due to the weakening of the U.S dollar. Lot of exchange rates there. Now on to the Asia Pacific segment. Net sales in the Asia-Pacific segment which includes Australia, China, and other countries in the Asian region, increased to $17 million in the first quarter, up 14% versus last year. The segment accounted for 18% of global sales compared to 16% in the first quarter of last year. Sales of multi-purpose maintenance products increased 14% and sales of homecare and cleaning products increased 13%. Changes in foreign currency exchange rates did not have a material impact on sales for Asia Pacific segment from period-to-period. Net sales in Australia remained relatively constant from the first quarter of this year as compared to last year. Changes in foreign currency exchange rate had a negative impact on the sales results in Australia. In Australian dollars sales increased 3% over the period last year, primarily due to increased promotional activities. Sales in China decreased 14% in the first quarter compared to the first quarter of last year, primarily due to the timing of promotional programs. The promotional program that we ran in the first quarter of last year started and ended during the quarter. Whereas the one that we’ve run in the first quarter of this year started mid quarter and will end or did end in mid December. We continue to focus on the long-term opportunities in China, but they will continue to be a lot of volatility on the way as due to the timing of promotional programs, the building of distribution, shifting economic patterns and varying industrial activities. Sales in the rest of the Asian region increased 36% in the first quarter as compared to last year and more than made up for the sales declines we saw in China. These increases were driven by improved sales of their multi-purpose products through most of our distributor markets including those in South Korea, Indonesia, and the Philippines. That’s it for the sales update. I will take a break now and turn over to Jay, who will continue the review of the financials.

[Jay Rembolt:]

Thank you, Garry. In addition to the information that we are presenting in this call today, we suggest that you review our Form 10-Q for the quarter, which we will file tomorrow. First, a quick review of our 50/30/20 rule, that’s the measures that we use to guide our business. And as you may recall, 50 represents gross margin, which we target to be above 50% of net sales. The 30 represents our cost of doing business which is our total operating expenses excluding depreciation and amortization. Our target is at or below 30% of net sales. And finally the 20 represents EBITDA. If our gross margin is above 50% and our cost of business is 30% or less, our EBITDA will be above 20%. EBITDA is earnings before interest, taxes, depreciation and amortization. And the descriptions and reconciliations of these non-GAAP measures are available in our 10-Q and in our investor presentation which is available on the Investor Relations Web site. Now a look at the 50 or our gross margin in the 50/30/20 rule. Gross margin in the first quarter was 51.6% compared to 52% in the prior fiscal year period. The slight decrease in gross margin was driven by the impacts from foreign currency exchange rates in EMEA, and costs associated with increased promotional activities in the Asia Pacific and the Americas regions. These unfavorable impacts were partially offset by decrease in input costs along with price increases. Though we cannot control the impacts of foreign currency on our results, we continue to be focused and deliberate in managing the rest of our business for maximum growth in our gross margin. We experienced a net favorable impact of 80 basis points from our major input costs. This was driven by changes in the cost of petroleum-based special chemicals and aerosol cans, primarily in our EMEA segment. In addition, our gross margin improved by 30 basis points as a result of increases implemented -- price increases implemented over the past 12 months in parts of EMEA and parts of Asia Pacific. Changes in foreign currency exchange rates within our EMEA segment negatively impact the gross margin by 60 basis points. In EMEA, our cost of goods are sourced almost entirely in pound/sterling, while revenues are generated in euros, pound/sterling and the U.S. dollars. The value of the euro and the U.S. dollar both deteriorated versus the pound/sterling in the first quarter of this year as compared to the first quarter of last year. This caused revenues sourced in those currencies to be worth less in pound/sterling, thus resulting in the decrease to gross margin. Also impacting gross margin this quarter were higher promotional discounts which had an unfavorable impact on our gross margin of 50 basis points. The cost of promotional activities such as sales incentives, trade promotions and cash discounts that we give to our customers are recorded as a reduction in sales. The timing and magnitude of these activities cause fluctuations in gross margin period-to-period. Gross margin was also negatively impacted by 40 basis points due to sales mix changes as well as other miscellaneous costs, which had a slight increase from the prior first quarter of last year. Now on to the 30 or our cost of doing business. In the first quarter, our cost of doing business was 34%. This is a slight increase from the 33% for the first quarter last year. While our goal is to have our cost of doing business to be at or below 30% of net sales, we plan to continue our investments in new product development, brand protection, as well as regulatory and quality assurance. As a result, we expect our cost of doing business to remain near current levels throughout the remainder of fiscal 2015. We expect to move closer to our target of 30% over time as our revenues grow. Year-to-date, 76% of the total cost of doing business came from three areas

[Garry Ridge:]

Great. Thank you, Jay. Most of you have heard me say many times that I look at our business over the longer term, and that performance in a particular quarter isn’t not as important as the long-term trend of our business. Our progress in this quarter should be viewed with this perspective. Our global business and our results are subject to ebbs and flows of many things including changing foreign currency exchange rates, political un-risks, from the changes in input costs just to name a few. However well we expect to see fluctuations in our sales and in our financial results in particular quarters, we anticipate seeing continued growth driven by our strategic initiatives which we believe will enable us to continue to deliver strong returns to our stockholders over the longer period. Therefore, our fiscal year 2015 guidance is as follows. This guidance does not include any future acquisitions or divestiture activity. We expect our global fiscal year sales to be in the range of $398 million to $430 million, and that’s a growth of between 4% and 8%. We project our gross margin to be better than 52%, that’s a slight upward revision from our last quarter guidance. We expect our global advertising promotion investment to be in the range of 6% and to 7%. We expect net income between $45.1 million and $46.4 million which would achieve a diluted EPS of between $3.07 and $3.16, assuming 14.7 million weighted average shares outstanding. We are comfortable with our current guidance range for net income, but there are global market dynamics going on outside the company’s control that may have offsetting effects which could impact specific elements of our guidance. These include the recent decline in the price of crude oil and the present trends in foreign currency exchange rates. Falling crude prices are certainly a net positive for our gross margin, but it will take time to fully understand the impact that recent declines in the price of crude oil will have on our financials. Conversely, if recent trends in foreign currency exchange rates continue particularly the strengthening of the U.S. dollar our consolidated results would be adversely impacted. We will continue to monitor the situation closely and look forward to updating investors on any impact that these external factors might have on our guidance in the future. In summary, what did you hear from us on the call today? You heard we experienced slow but steady growth of our multi-purpose maintenance products. You heard that our WD-40 specialist product line continues to perform well with global growth rate of 28% quarter-over-quarter or year-over-year in the quarter. You heard that we increased that divided by 12%. You heard that we’ve identified some volatility around specific elements that impact our financial performance including the recent decline in the price of crude oil and the recent trends in foreign currency exchange rates, and you heard that our long-term outlook remains optimistic and we believe we are and off to a good start in 2015 and we see a solid steady year ahead as we continue to put our efforts behind our strategic initiatives. In closing, as I do, I would like to share a quote with you this time from Winston Churchill. It’s always wise to look ahead, but difficult to look further than you can see. Thank you for joining us today. We would be pleased to now open the call for -- the conference for any calls, and I would turn it back to the operator.

[Operator:]

[Operator Instructions] Our first question comes from the line of Liam Burke with Wunderlich Securities.

[Liam Burke:]

Good afternoon, Garry.

[Garry Ridge:]

Hi, Liam.

[Liam Burke:]

Garry, part of the cost of doing business is, you talked about additional investments in brand protection and new product development. That’s right off the slide. In terms of new product development, which way you’re looking? Are you looking to develop another vertical like BIKE or something to leverage of the WD-40 brand?

[Garry Ridge:]

Currently the majority of the -- well, let me put it -- divide it. There is longer term development which would include new specialist areas, but we’ve been doing a lot of work around WD-40 MUP. And as I mentioned in the call earlier, we’ll be sharing later on in the year a -- what we consider to be a new and an exciting development under the blue and yellow can. On top of that we’re also working on extensions of the specialist product line particularly in categories that we identified have some longer term growth opportunities.

[Liam Burke:]

Okay. You mentioned BIKE and that looks to be another developed product line here. You made the acquisition of the GT85. How is that progressing vis-à-vis your expectations?

[Garry Ridge:]

We’re very encouraged with the initial launch in Europe with WD-40 BIKE. We are now selling our BIKE products in all three trading blocks, and that currently now during this slow season, this winter season in the northern hemisphere building distribution out for the summer season that will come. So, we’re in the BIKE business. We see it as being a meaningful and developing business over time, and we’re integrating GT85 into our network. So overall, I think we feel comfortable at the positioning of BIKE and we’ll look forward to continuing to build it to a meaningful part of our revenue, but it will take time.

[Liam Burke:]

Great. Thank you, Garry.

[Garry Ridge:]

Thanks, Liam.

[Operator:]

And our next question comes from the line of Linda Bolton-Weiser with B. Riley.

[Linda Bolton-Weiser:]

Hi. Happy New Year to you guys.

[Garry Ridge:]

Happy New Year, Linda.

[Jay Rembolt:]

Happy New Year as well.

[Linda Bolton-Weiser:]

Could I just ask you to clarify on the currency impact elements? When you were talking about the EMEA region, can you just clarify once again the total FX impact on the sales in the EMEA region for the quarter, in millions of dollars?

[Jay Rembolt:]

Are you looking at the percent changes?

[Linda Bolton-Weiser:]

Well, either give it to me in dollar, what sales would have been in local currency versus in dollars or give me a percentage impact, yes.

[Jay Rembolt:]

Let me just take a quick look at this Linda. So we’ve got -- again the challenge in EMEA is that we have a currency impact on translation that is taking the sterling results and translating them back into U.S. dollars and that would have changed. So for example we ended up -- our current results were $34.6 million and had we not had the changes in currencies on translation we would have been at $33.8 million. Now again as Garry said, we also have changes in the sterling results that occur as the sterling changes against both the dollar and the euro and that had a -- in period to period, there was effectively an 8% change in the euro over that period and about 3% change in the dollar.

[Linda Bolton-Weiser:]

Okay. So, I guess what I’m trying to get at, as an analyst I’m trying to project for the year what that currency impact on your sales will be for the full year? And I guess I had been modeling maybe negative 1% to 1.5%, is that at the ballpark range? Or can you help us out with that in any way?

[Jay Rembolt:]

Well, if rates stay at the current levels it would be more than that.

[Linda Bolton-Weiser:]

Okay. Can you give some rough idea given where rates are now?

[Jay Rembolt:]

We haven’t provided an outlook that basically locks in current rates throughout the remainder of the year. We haven’t provided that.

[Linda Bolton-Weiser:]

All right. And then did the small acquisition even though it was very small in the UK, did it make any favorable effect on sales growth in the EMEA regions?

[Jay Rembolt:]

It was only small Linda, a few hundred thousand, that’s all.

[Linda Bolton-Weiser:]

Okay.

[Jay Rembolt:]

We’re still very much in integration mode of that. We haven’t started to expand its distribution yet. We have to tuck it into our system, and we would expect to start to ramp up that activity after February.

[Linda Bolton-Weiser:]

Okay, all right. And then, it seems that one of the difficulties a little bit with projecting everything for you guys quarter-by-quarter is just the timing of your promotions, and I know you’ve always cautioned that. So, if this was a -- I guess, I’d say with heavier promotion last quarter especially in EMEA you mentioned and that was lighter now. Is there any way to project, I mean you’re sort of in the midst of your next quarter. Is the next quarter going to be normal or is there any sort of shift that you can tell us about ahead of time to help us out?

[Garry Ridge:]

We would expect that -- we would expect EMEA in the second quarter to show growth. We have a lot of activity. We would expect quarters two and three to be particularly active this year given what we know in EMEA given some launch of some new products that we have got planned. So, to be honest with you, Q1 was not a disappointment to us, but we haven’t got quarteritis and we don’t get quarteritis. So the things -- the two things that are confusing us at the moment is the impact of oil in foreign currencies. The underlying trading in the business, we have a very good handle on it Linda and feel really good.

[Linda Bolton-Weiser:]

Okay, all right. So, just the oil issue of course we’re all watching these, these low oil prices. I actually try, I don’t know if I’m looking at the right exact thing, but I try to monitor from Bloomberg a commodity that it might be similar to what you actually use and it looks like that’s down also, not down quite as much as oil, but it is starting to really be down quite a bit double digit year-over-year. So, is it just a matter of the lag before if the inventory that you have rolled off and it flows into you income statement. Is that kind of the timing lag that you referred to?

[Garry Ridge:]

Well, two things. Firstly, if you think about the quarter we’ve just been in, although we’re talking about it. Oil prices started the quarter at $95 and ended the quarter around $80. So well really we’re looking at a quarter that was very similar to all the quarters we’ve had in the past, and in fact if you look at the last two quarters, if we started at a $100 and end it up at about $80. So finally and up it was right within our band and we had movement within the quarter. Then you saw oil drop from about mid October to now. So, again we are now watching the impacts of that, and its going to take time for A; the inventory that we have in the system to move through this make; the new inventory to come into the system and get into this make and then move through this make. And on the input, in the input cost not all of them, and as Jay shared there’s only a portion of them that react closely to oil, the others react at different times because they’re processed and manufactured. So, this is an interesting time for us. We have never really reflected at it going down like this. We know that whenever prices go up we feel them sooner and harder. And now we’re saying, where is the reduction for the price coming down? There is no doubt in our mind that lower oil prices are a good thing for gross margin going forward. We’re still working out how much, how long and that’s why we revised our guidance to say instead of close to greater than or better than the $52 that we have now. We hope to learn more on the way it flows into our business in the next 60 to 90 days.

[Linda Bolton-Weiser:]

Right. I understand totally. So, can you give us a feel Garry for how you think about, if you do -- if oil does stay down and you just start to experience these benefits; how do you think about like reinvesting some back into your growth initiatives in the company? Would you tend to do that? Or can you just think of like how you think about that in your business?

[Garry Ridge:]

Well, I think the thing that we do think about is our end users a lot. And if oil stays at a low number for a long period of time and we don’t know that yet, because if I go back to 2008 and 2009, it was down around these numbers all over then but it bounced back again. But the thing we don’t want to do is we don’t want to unnaturally impact regular pricing because it just whiplashes the whole business. What we may do is increase the value proposition to our end users by running different or new promotions that would might get us new distribution, we really want to make sure that we continue to grow and to have a strong gross margin, but we also want to recognize the fact that we want to continue to deliver great value to our customers, into our end users. So we’ll be watching that closely. It’s a topic of constant conversation in the company right now because we don’t know, but we’ll decide going forward.

[Linda Bolton-Weiser:]

Great. That sounds good. And then just finally, I know you had tested this Lawn & Garden line I think in Australia. Do you have any further information on that? I mean could we see a launch more broadly come this spring?

[Garry Ridge:]

We’re still waiting, its still summer time in Australia. They are not suffering the cold that we in some parts of the U.S. are as you know. And when we get that back we’ll let it know, we may -- but we also have other things. We’ve got some great new product development i.e. products or a product in the line under our MUP blue and yellow can that we will be bringing to market later in the year that we think is very exciting, that probably will have a greater impact on the U.S. market in a Lawn & Garden launch. But Lawn & Garden is certainly on the table and if it works we’ll be bringing it to the market.

[Linda Bolton-Weiser:]

Great. Thank you very much.

[Garry Ridge:]

Thanks, Linda.

[Operator:]

[Operator Instructions] And our next question comes from the line of Jeffrey Zekauskas with JPMorgan.

[Ben Richardson:]

Hi. This is Ben Richardson stepping in for, Jeff.

[Garry Ridge:]

Hello, Ben.

[Ben Richardson:]

How are you, Garry?

[Garry Ridge:]

Good.

[Ben Richardson:]

So just wanted to say quickly, it’s touching on raw materials again, but just the timing of some of your negotiations and the duration of contracts you might have on steel cans or plastics or any of this. Is there anything that’s to be negotiated sooner or later and how long might these contracts be for these materials?

[Garry Ridge:]

Well, typically the one that’s longest term is our can pricing. And that’s typically been an annual contract. We’ve had discussions and have -- we’re in that timeframe of renewal. We don’t see a negative impact from this year. And we will update you once they’re concluded.

[Ben Richardson:]

Okay. And just for -- from previous drops in crude that we’ve seen fourth quarter 2008, fourth quarter of 2010, I look and it’s a multi quarter response in your gross margin. Would you expect it to be any faster or any slower, given the magnitude of the decline in crude, just on the gross margin end?

[Garry Ridge:]

I mean we think it will take some time to fully embed as we said earlier that there are -- oil is at the foundation of a number of these costs, but the speed with which any price in the underlying gets translated into our -- the finished goods that we buy that become our input costs can take time and we’ve typically seen that delay on the downside much longer than on the upside.

[Ben Richardson:]

Sure.

[Garry Ridge:]

But I would expect that it would lay out over a couple of quarters as we say.

[Ben Richardson:]

Okay. And then on the European weakness, I know some of its clearly currency, but what’s going on fundamentally in any of those channels that -- can you identify any specific regions or what might be the source of …?

[Garry Ridge:]

Well, over the whole of Europe, we had a quarter that was impacted a little bit by some political unrest in the Ukraine, but it was insignificant in the big scheme of things. I think it was what I would call a sit down quarter. You can’t dance at the party all night. You have to sit down a little while and let the market absorb what’s in there. So I think it’s long-term. For the year, we see Europe as a growth market. We’ve got some major wins in the bag coming in the second and third quarter. The key markets like Germany, France, Italy, Spain and the U.K. look well. We’ve seen stabilization in Russia now. We didn’t -- we felt we may have got a little worst decline or even a little worse activity in Russia that didn’t come. In fact, our can sales, I believe are up in Russia. So I think its just a quarter where we didn’t have as much activity and -- but we think that two and three will be fine.

[Ben Richardson:]

Okay, all right. Well, thank you very much.

[Garry Ridge:]

Thanks very much, Ben.

[Operator:]

[Operator Instructions] And ladies and gentlemen, our next question comes from the line of -- a follow-up question from Linda Bolton-Weiser with B. Riley.

[Linda Bolton-Weiser:]

Hi. Is there any way that you can quantify roughly how much the heavy promotional in EMEA in the last quarter, in the fourth quarter? How much that shifted from the first quarter into that -- into the fourth quarter of 2014?

[Garry Ridge:]

Linda, it doesn’t shift, it just happened.

[Linda Bolton-Weiser:]

Okay. So you wouldn’t regard it as taking away -- I thought the way you worded it was took away from some of the sales in this quarter, no?

[Garry Ridge:]

No, no it’s just that we had a heavier fourth quarter promotional quarter. The year -- its going to be a growth year. So as I just said to Ben, excuse the way I describe it, but you can’t dance at a party all night. Sometimes you situation down rest and I think in Europe they had a little sit down in the first quarter and the party will start in the second quarter again.

[Linda Bolton-Weiser:]

Okay. I look forward to the party.

[Garry Ridge:]

Yes, and you know that a majority of our product is sold on impulse and it’s driven by display. So you have to sell in, let us go through the system and then sell out and sell in again. So majority of our volume doesn’t come off that shelf. It comes off what we call the playground which is driven by multiple location displays driven by promotional events and activities and you just -- and we don’t -- Linda, we don’t mix very well with Barbie dolls and barbecue sets. Christmas time is not a high -- the traffic aisles and the promotional aisles in stores are filled with gift items. So its not unnatural for us in that Christmas quarter, not to have as many promotions as we normally have.

[Linda Bolton-Weiser:]

Okay. Thank you very much.

[Garry Ridge:]

Thanks, Linda.

[Operator:]

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