WD-40 Forecast Tightens After Record Quarter

WD-40 Company recently announced its third-quarter results for fiscal year 2025, showcasing record sales and improved profitability. Here’s a breakdown of the company’s performance, outlook, and key discussion points from the earnings call.

Third Quarter Performance Highlights

• Record Sales: The company reported net sales of $156.9 million, a 1% increase compared to the same period last year. This marks a record sales quarter for WD-40.
• Gross Margin Improvement: Gross margin reached 56.2%, up from 53.1% in the previous year, representing a 310 basis point improvement. This was attributed to higher average selling prices, lower specialty chemical costs, and reduced can costs.
• Earnings Per Share (EPS) Increase: Diluted earnings per common share were $1.54, a 5% increase compared to $1.46 in the same quarter last year.
• Segment Performance:
  • Americas: Sales increased by 4% to $78.2 million.
  • EIMEA (Europe, India, Middle East, and Africa): Sales declined by 5% to $56.7 million due to distributor order timing and operational changes.
  • Asia Pacific: Sales increased by 7% to $22 million, driven by growth in China and distributor markets.
• WD-40 Multi-Use Product Sales: Global sales of the flagship WD-40 Multi-Use Product reached $353 million, a 6% increase year-over-year.
• Maintenance Product Sales: Sales of maintenance products increased 2% year-over-year for the quarter, with year-to-date sales reaching $435.2 million, a 6% increase.
• Capital Allocation: The company used $20 million in cash flow to pay down short-term, higher-interest-rate borrowings. Additionally, approximately 12,750 shares of stock were repurchased at a total cost of roughly $3 million.
• Adjusted EBITDA: Adjusted EBITDA was $30.7 million, up 3% from the prior quarter. Operating income improved to $27.4 million.

Updated Fiscal Year 2025 Guidance

• Net Sales Growth: The company narrowed its net sales growth guidance from the pro forma 2024 results to between 6% and 9%, with net sales expected to be between $600 million and $620 million, adjusted for foreign currency translation impacts.
• Gross Margin: The company reaffirmed its expectation for a full-year gross margin in the range of 55% to 56%.
• Operating Income: Operating income guidance was increased to be between $96 million and $101 million.
• Diluted EPS: Diluted EPS is now expected to be between $5.30 and $5.60.

Management Commentary

The CEO highlighted the record sales quarter and emphasized a strong start to the fourth quarter. Management expressed confidence in concluding the fiscal year with solid growth, supported by robust performance across all three trade blocks in June. They also noted the company’s focus on achieving a compound annual growth rate of greater than 10% for net sales of premiumized products.

The CFO discussed the favorable factors contributing to the improved gross margin, including higher average selling prices, lower specialty chemical costs, and reduced can costs.

Q&A Session Highlights

Analysts questioned the company on various topics, including:

• The rationale for the wide Q4 guidance range: Management attributed the range to the challenging comparison with the prior year’s fourth quarter but expressed confidence in the revenue targets.
• The sustainability of the gross margin: Management indicated that supply chain initiatives are in the pipeline that could potentially be accretive if the company does not encounter additional inflationary headwinds.
• General & Administrative (G&A) cost trends: The company stated that it is focused on managing costs and expects the rate of G&A cost increases to moderate in the coming year.
• Foreign exchange (FX) impact: Management expects a potentially positive FX impact in the fourth quarter, assuming current exchange rates hold. However, they noted that the Mexican and Brazilian currencies have been headwinds for the full year.
• Slowdown in the Middle East: Management acknowledged a slowdown in the Middle Eastern region due to the implementation of a new manufacturing partner in Dubai and reduced inventory needs.

Risks and Concerns

Management identified ongoing risks from cost volatility, tariffs, the timing of supply chain cost initiatives, and progress on asset divestitures. Unanticipated inflationary headwinds and currency fluctuations were also cited as potential factors affecting full-year results.

Analysts raised concerns about FX headwinds, cost escalation, and regional sales volatility, particularly in EIMEA and the Americas.

Segment Breakdown

The third-quarter global business was divided as follows:

• Americas: 50%
• EIMEA: 36%
• Asia Pacific: 14%

Analyst Sentiment

Analysts’ tone was neutral to slightly skeptical, probing the rationale for the guidance range, cost trends, and FX impact. The focus was on underlying growth volatility and cost management.

Management Sentiment

Management maintained a confident tone, emphasizing their confidence in concluding the fiscal year with solid growth. They highlighted proactive supply chain and cost control measures.

Key Takeaways

WD-40 Company reported record sales and improved gross margin in the third quarter, driven by strong performance in the Americas and Asia Pacific. The company narrowed its FY25 guidance for net sales growth and raised profitability targets, citing effective supply chain initiatives and a strong finish to June. Managing inflationary and FX headwinds remains a key focus, while ongoing divestiture efforts and operational adjustments are intended to sustain long-term growth and profitability.