WD-40 Company (NASDAQ: WDFC), a global marketing organization dedicated to creating positive lasting memories by developing and selling products that solve problems in workshops, factories and homes around the world, recently stated financial results for its 2nd fiscal quarter ended February 28, 2k19.
Financial Highlights and Summary
- Whole net sales for the 2nd quarter were $101.3M, relatively constant difference to the prior year fiscal quarter. Year-to-date whole net sales were $202.6M, a boost of 2 percent difference to the prior year fiscal period.
- Translation of the Company’s foreign partner results to U.S. dollars had an unfavorable impact on sales for the current quarter and year-to-date. On a constant currency basis, whole net sales would have been $104.6M for the 2nd quarter and $207.1M year to date.
- Net income for the 2nd quarter was $15.9M, a boost of 7 percent difference to the prior year fiscal quarter. Year-to-date net income was $29.2M, a boost of 6 percent from the prior year fiscal period.
- Diluted earnings per share were $1.14 in the 2nd quarter, difference to $1.05 per share for the prior year fiscal quarter. Year-to-date diluted earnings per share were $2.09 difference to $1.95 in the prior year fiscal period.
- Gross margin was 55.4 percent in the 2nd quarter difference to 55.1 percent in the prior year fiscal quarter. Year-to-date gross margin remained constant at 55.3 percent for both the current and prior year fiscal period.
- Selling, general and administrative costs were up 1 percent in the 2nd quarter to $30.6M when difference to the prior year fiscal quarter. Year-to-date selling, general and administrative costs were up 3 percent to $63.3M difference to the prior year fiscal period.
- Advertising and sales promotion costs remained relatively constant at $5.2M for both the current and prior year fiscal quarter. Year-to-date advertising and sales promotion costs were up 8 percent to $11.1Mdifference to the prior year fiscal period.
“I have often found it wise to consider whether an ‘event’ or a ‘trend’ is behind any particular operational outcome. This quarter is a great example of why I think about our business in this way,” said Garry Ridge, WD-40 Company’s president and chief executive officer. “We practiced two ‘events’ in the United States this quarter that resulted in a 6 percent decline in sales of WD-40 Multi-Use Product in the country difference to last year.
This decline in sales was driven by the rotation of products that periodically occurs in the warehouse club channel in addition to some delayed promotions with a key U.S. customer.
“Product rotation is a very normal ‘event’ in the warehouse club channel driven by the fact that they have a limited amount of shelf space for a limited number of brands.
In Addition To, the delayed promotions we practiced with a key U.S. customer is directly tied to the proactive price raises we put in place last June to offset rising commodity prices. Though necessary, pricing decisions like these can cause ‘events’ which are disruptive.
“Even though we had softer revenue in the quarter than we would have liked because of these ‘events,’ in the U.S., we continue to see long-term global development that is in-line with our aspirational targets. For example, on a constant currency basis EMEA sales for the 2nd quarter raised by 10 percent difference to the prior year fiscal quarter.
This is on the high-end of our targeted compound annual development rate for this segment. While we expect we will continue to see fluctuations in the performance of certain markets quarter to quarter, our long-term development plans remain unchanged,” concluded Ridge.
- Net sales by segment as a percent of whole net sales for the 2nd quarter were as follows: for the Americas, 43 percent; for EMEA, 41 percent; and for Asia-Pacific, 16 percent.
- Net sales in the Americas reduced 2 percent in the 2nd quarter mainly because of lower sales of maintenance products, which reduced 1 percent difference to the prior year fiscal period. This sales decline was mainly because of lower sales of WD-40 Multi-Use Product in the United States which declined 6 percent difference to the prior-year quarter. This was driven by the normal rotation that occurs in the warehouse club channel and some delayed promotions with a key customer. This decline in sales was partially offset by higher sales of WD-40 Specialist in the United States and higher sales of maintenance products in Canada and Latin American driven by the timing of customer orders and expanded distribution.
- Net sales in EMEA raised 3 percent in the 2nd quarter mainly because of higher sales of homecare and cleaning products which raised 56 percent difference to the prior year fiscal period. These sales raise was mainly because of higher sales of 1001 Carpet Fresh because of the favorable impacts of some digital marketing windfalls associated with this brand and raised sales of the WD-40 EZ Reach Flexible Straw product. Changes in foreign currency exchange rates had an unfavorable impact on sales for EMEA from period to period. On a constant currency basis, EMEA sales for the 2nd quarter would have raised by $3.8M or 10 percent difference to the prior year fiscal quarter.
- Net sales in Asia-Pacific reduced 1 percent in the 2nd quarter mainly because of a decline in sales of maintenance products in Australia and the Asia distributor markets. This lower level of sales was partially offset by a 19 percent raise in sales of maintenance products in China. The sales decline in the Asia distributor markets was mainly because of the timing of customer orders of the WD-40 Specialist product line from period to period. The sales development in China was mainly attributable to successful promotional programs and raised distribution in the region. The decline in Australia was mainly due to changes in foreign currency exchange rates. Foreign currency exchange rates had an unfavorable impact on sales in Asia-Pacific from period to period. On a constant currency basis Asia-Pacific sales for the 2nd quarter would have raised $0.4M or 3 percent difference to the prior year fiscal period.
Dividend and Share Repurchase
As formerly declared, WD-40 Company’s board of directors declared on Tuesday, March 19, 2k19 a quarterly dividend of $0.61 per share payable April 30, 2k19 to stockholders of record at the close of business on April 19, 2k19.
On June 19, 2k18, the Company’s Board of Directors approved a share buy-back plan. Under the plan, which became effective on September 1, 2k18, the Company is authorized to acquire up to $75.0M of its outstanding shares through August 31, 2k20.
The timing and amount of repurchases are based on terms and conditions as may be acceptable to the Company’s Chief Executive Officer and Chief Financial Officer and in compliance with all laws and regulations applicable thereto. Throughout the period from September 1, 2k18 through February 28, 2k19, the Company repurchased 70,684 shares at a whole cost of $12.1M under this $75.0M plan.
Fiscal Year 2k19 Guidance
The Company reaffirmed its guidance for fiscal year 2k19 as follows:
- Net sales development is projected to be between 4 and 7 percent with net sales expected to be between $425M and $437M.
- Gross margin percentage for the full year is expected to be near 55 percent.
- Advertising and promotion investments are projected to be between 5.5 and 6.0 percent of net sales.
- The provision for income tax is expected to be between 21 and 22 percent.
- Net income is projected to be between $62.2M and $63.2M.
- Diluted earnings per share is expected to be between $4.51 and $4.58 based on an estimated 13.8M weighted average shares outstanding.
This guidance does not include any future acquisitions or divestitures.
“We believe we are going to end the year in-line with our formerly issued guidance and are reaffirming guidance recently,” said Jay Rembolt, WD-40 Company’s vice president and chief financial officer. “We expect our net sales may eventually be at the lower end of the range we’ve shared with shareholders.
However, gross margin has shown a slight positive trend in recent weeks. All our current indicators show that the back half of the fiscal year should be solid.”
As formerly declared, WD-40 Company administration will host a live webcast at about 5:00 p.m. ET / 2:00 p.m. PT recently to discuss these results. Other forward-looking and material information may also be talked about throughout this call.