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WD-40 Company Reports Second Quarter 2024 Financial Results

Published 09/04/2024, 21:52
WDFC
-

~ Global net sales grew 7 percent in the second quarter compared to the prior year fiscal quarter ~

~ Management increasing fiscal year 2024 net income and diluted earnings per share guidance ~

SAN DIEGO--(BUSINESS WIRE)--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, today reported financial results for its second fiscal quarter ended February 29, 2024.

Second Quarter Highlights and Summary:

  • Total net sales for the second quarter were $139.1 million, an increase of 7 percent compared to the prior year fiscal quarter. Year-to-date total net sales were $279.5 million, an increase of 10 percent compared to the prior year fiscal period.
  • Translation of the Company's foreign subsidiaries' results from their functional currencies to U.S. dollars had a favorable impact on net sales for the current quarter and year-to-date. On a non-GAAP constant currency basis, total net sales in the second quarter would have increased 5 percent to $136.3 million compared to the prior year fiscal quarter and would have increased 7 percent to $272.7 million compared to the prior year fiscal period.
  • Gross margin was 52.4 percent in the second quarter compared to 50.8 percent in the prior year fiscal quarter. Year-to-date gross margin was 53.1 percent compared to 51.1 percent in the prior year fiscal period.
  • Selling, general, and administrative expenses were up 19 percent in the second quarter to $45.0 million compared to the prior year fiscal quarter. Year-to-date selling, general and administrative expenses were up 15 percent to $89.2 million compared to the prior year fiscal period.
  • Advertising and sales promotion expenses were up 12 percent in the second quarter to $6.7 million compared to the prior year fiscal quarter. Year-to-date advertising and sales promotion expenses were up 21 percent to $13.7 million compared to the prior year fiscal period.
  • Net income for the second quarter was $15.5 million, a decrease of 6 percent from the prior year fiscal quarter. Year-to-date net income was $33.0 million, an increase of 8 percent from the prior year fiscal period.
  • Diluted earnings per share were $1.14 in the second quarter compared to $1.21 in the prior year fiscal quarter. Year-to-date diluted earnings per share were $2.42 compared to $2.23 for the prior year fiscal period.

We have made significant progress against our Four-by-Four strategic framework including the recent announcement of the acquisition of our Brazilian marketing distributor. Today, we are also announcing the decision to pursue a sale of our U.S. and U.K. Homecare and Cleaning Products portfolio, allowing us to focus on our core, higher-margin maintenance products while also creating headspace for future innovation, said Steve Brass, WD-40 Company (NASDAQ:WDFC)'s president and chief executive officer.

For the second quarter, global net sales were up 7 percent over the prior year with growth across all trade blocs. We also continue to expand gross margin, which improved 160 basis points over the prior year. Overall, we are incredibly pleased with our performance and are confident in achieving our long-term targets to drive sustainable, profitable growth, concluded Brass.

Net Sales by Segment (in thousands):

Three Months Ended February 29/28,

 

Six Months Ended February 29/28,

2024

 

2023

 

Dollars

 

Change

 

2024

 

2023

 

Dollars

 

Change

Americas (1)

$

63,507

 

$

62,890

 

$

617

 

1

%

 

$

127,582

 

$

120,904

 

$

6,678

 

6

%

EIMEA (2)

 

54,313

 

 

 

46,809

 

 

 

7,504

 

 

16

%

 

 

103,067

 

 

 

87,581

 

 

 

15,486

 

 

18

%

Asia-Pacific (3)

 

21,285

 

 

 

20,494

 

 

 

791

 

 

4

%

 

 

48,872

 

 

 

46,601

 

 

 

2,271

 

 

5

%

Total

$

139,105

 

 

$

130,193

 

 

$

8,912

 

 

7

%

 

$

279,521

 

 

$

255,086

 

 

$

24,435

 

 

10

%

Second Quarter Highlights by Segment:

Americas

  • The Americas segment represented 46 percent of total net sales in the second quarter.
  • Net sales in the Americas increased 1 percent in the second quarter compared to the prior year fiscal quarter. The increase was primarily due to net sales growth of WD-40 ® Multi-Use Product of $0.6 million, or 1 percent, primarily due to increases in Latin America and the U.S. of $1.1 million and $0.7 million, or 12 percent and 2 percent, respectively.
  • The increased sales in Latin America were primarily due to higher volumes in Mexico as a result of the timing of customer orders and favorable impacts of changes in foreign exchange rates.

EIMEA

  • The EIMEA segment represented 39 percent of total net sales in the second quarter.
  • Net sales in EIMEA increased 16 percent in the second quarter compared to the prior year fiscal quarter primarily due to an increase in net sales of WD-40 ® Multi-Use Product of 17 percent. WD-40 ® Multi-Use Product sales increased most significantly in France, India, and Iberia, which were up $1.0 million, $0.9 million, and $0.6 million, respectively.
  • WD-40 Specialist ® and other maintenance product sales increased 23 percent and 17 percent, respectively, primarily due to the combined impact of higher sales volume and the favorable impact of price increases across the regions.
  • Translation of the Company's foreign subsidiaries' results from their functional currencies to U.S. dollars had a favorable impact on sales in EIMEA for the current quarter. On a non-GAAP constant currency basis, net sales in EIMEA would have been $51.9 million for the second quarter.

Asia-Pacific

  • The Asia-Pacific segment represented 15 percent of total net sales in the second quarter.
  • Net sales in Asia-Pacific increased 4 percent in the second quarter compared to the prior year fiscal quarter primarily due to higher sales of WD-40 ® Multi-Use Product of 3 percent. Sales in the Asia distributor markets increased 7 percent, primarily due to price increases in these markets and successful promotional programs in certain regions, as well as the timing of customer orders.
  • WD-40 Specialist ® and other maintenance product sales remained relatively flat compared to the prior year.
  • Homecare and cleaning product sales increased 23 percent due to higher sales volume in Australia attributable to successful promotional activities and improved packaging.
  • Translation of the Company's foreign subsidiaries' results from their functional currencies to U.S. dollars had an unfavorable impact on sales in Asia-Pacific for the current quarter. On a non-GAAP constant currency basis, net sales in Asia-Pacific would have been $21.6 million for the second quarter.

Net Sales by Product Group (in thousands):

 

Three Months Ended February 29/28,

 

Six Months Ended February 29/28,

 

2024

 

2023

 

Dollars

 

Change

 

2024

 

2023

 

Dollars

 

Change

WD-40 Multi-Use Product

$

107,234

 

$

100,261

 

$

6,973

 

 

7

%

 

$

214,911

 

$

194,849

 

$

20,062

 

 

10

%

WD-40 Specialist

 

16,817

 

 

 

15,274

 

 

 

1,543

 

 

10

%

 

 

33,659

 

 

 

30,680

 

 

 

2,979

 

 

10

%

Other maintenance products (5)

 

7,188

 

 

 

6,569

 

 

 

619

 

 

9

%

 

 

14,814

 

 

 

12,887

 

 

 

1,927

 

 

15

%

Total maintenance products

 

131,239

 

 

 

122,104

 

 

 

9,135

 

 

7

%

 

 

263,384

 

 

 

238,416

 

 

 

24,968

 

 

10

%

HCCP (6)

 

7,866

 

 

 

8,089

 

 

 

(223

)

 

(3

)%

 

 

16,137

 

 

 

16,670

 

 

 

(533

)

 

(3

)%

Total

$

139,105

 

 

$

130,193

 

 

$

8,912

 

 

7

%

 

$

279,521

 

 

$

255,086

 

 

$

24,435

 

 

10

%

  • Net sales of maintenance products, which are considered the primary growth focus for the Company, represented 94 percent of total net sales in the second quarter. Net sales of maintenance products increased 7 percent in the second quarter when compared to the prior year fiscal quarter primarily due to higher sales of WD-40 ® Multi-Use Product in EIMEA.
  • Net sales of homecare and cleaning products represented 6 percent of total net sales in the second quarter. Net sales of the homecare and cleaning products declined 3 percent in the second quarter when compared to the prior year fiscal quarter.

Dividend and Share Repurchase Update

  • On March 19, 2024, the Company's board of directors declared a regular quarterly dividend of $0.88 per share payable on April 30, 2024 to stockholders of record at the close of business on April 19, 2024.
  • On June 19, 2023, the Company's board approved a share repurchase plan that became effective on September 1, 2023. Under the plan, the Company is authorized to acquire up to $50.0 million of its outstanding shares through August 31, 2025.
  • During the period from September 1, 2023 through the end of the second quarter, the Company repurchased 23,000 shares at a total cost of $5.3 million under this $50.0 million plan.
  • The timing and amount of repurchases under the plan are based on terms and conditions as may be acceptable to the Company's chief executive officer and chief financial officer, subject to present loan covenants, and in compliance with all laws and regulations applicable thereto.

We are pleased with our solid performance and progress against our Four-by-Four strategic framework. In the second quarter, we went live with the first, and most significant phase of our enterprise resource planning system, which is a key enabler to drive efficient productivity, said Sara Hyzer, WD-40 Company's vice president, finance and chief financial officer. Based on our year-to-date performance, we are raising the low-end of our full year 2024 gross margin guidance and increasing our net income and diluted earnings per share guidance.

Updating Fiscal Year 2024 Guidance

The Company is providing the following guidance for fiscal year 2024:

  • Reiterating net sales growth between 6 and 12 percent, with net sales expected to be between $570 million and $600 million on a non-GAAP constant currency basis.
  • Narrowing the gross margin range to now be between 51.5 and 53 percent, compared to prior guidance of between 51 and 53 percent.
  • Advertising and promotion investments are still expected to be between 5 and 6 percent of net sales.
  • Lowering the provision for income tax to now be in the range of 23 and 24 percent, compared to prior guidance of between 24 and 25 percent.
  • Increasing net income to now be in the range of $67.7 million and $71.8 million, compared to prior guidance of between $65 million and $70 million.
  • Increasing diluted earnings per share to now be in the range of $5.00 and $5.30, compared to prior guidance of between $4.78 and $5.15.
  • Diluted earnings per share guidance is based on an estimated 13.6 million weighted average shares outstanding, which is unchanged from prior guidance.

This guidance is expressed in good faith and is based on management's current view of anticipated results. Unanticipated inflationary headwinds and other unforeseen events may further affect the Company's financial results. Net sales presented on a non-GAAP constant currency basis use weighted average fiscal year 2023 foreign currency exchange rates.

Webcast Information

As previously announced, WD-40 Company management will host a live webcast at approximately 2:00 p.m. PDT today to discuss these results. Other forward-looking and material information may also be discussed during this call. Please visit http://investor.wd40company.com for more information and to view supporting materials.

About WD-40 Company

WD-40 Company is 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. The Company owns a wide range of well-known brands that include maintenance products and homecare and cleaning products: WD-40 ® Multi-Use Product, WD-40 Specialist ®, 3-IN-ONE ®, GT85 ®, 2000 Flushes ®, no vac ®, 1001 ®, Spot Shot ®, Lava ®, Solvol ®, X-14 ®, and Carpet Fresh ®.

Headquartered in San Diego, California, USA, WD-40 Company recorded net sales of $537.3 million in fiscal year 2023 and its products are currently available in more than 176 countries and territories worldwide. WD-40 Company is traded on the NASDAQ Global Select Market under the ticker symbol WDFC. For additional information about WD-40 Company please visit http://www.wd40company.com.

Forward-Looking Statements

Except for the historical information contained herein, this press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements reflect the Company's current expectations with respect to currently available operating, financial and economic information. These forward-looking statements are subject to certain risks, uncertainties and assumptions that could cause actual results to differ materially from those anticipated in or implied by the forward-looking statements. These forward-looking statements are generally identified with words such as believe, expect, intend, plan, project, could, may, aim, anticipate, target, estimate and similar expressions.

Our forward-looking statements include, but are not limited to, discussions about future financial and operating results, including: expected benefits from the acquisition transaction; acquired business not performing as expected; assuming unexpected risks, liabilities and obligations of the acquired business; disruption to the parties' business as a result of the announcement and acquisition transaction; integration of acquired business and operations into the company; growth expectations for maintenance products; expected levels of promotional and advertising spending; anticipated input costs for manufacturing and the costs associated with distribution of our products; plans for and success of product innovation; the impact of new product introductions on the growth of sales; anticipated results from product line extension sales; expected tax rates and the impact of tax legislation and regulatory action; changes in the political conditions or relations between the United States and other nations; the impacts from inflationary trends and supply chain constraints; changes in interest rates; and forecasted foreign currency exchange rates and commodity prices.

The Company's expectations, beliefs and forecasts are expressed in good faith and are believed by the Company to have a reasonable basis, but there can be no assurance that the Company's expectations, beliefs or forecasts will be achieved or accomplished. All forward-looking statements reflect the Company's expectations as of April 9, 2024. We undertake no obligation to revise or update any forward-looking statements.

Actual events or results may differ materially from those projected in forward-looking statements due to various factors, including, but not limited to, those identified in Part I”Item 1A, Risk Factors, in the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2023 which the Company filed with the SEC on October 23, 2023, and in the Company's Quarterly Report on Form 10-Q for the period ended February 29, 2024, which the Company expects to file with the SEC on April 9, 2024.

Table Notes and General Definitions

(1)

The Americas segment consists of the U.S., Canada and Latin America.

(2)

The EIMEA segment consists of countries in Europe, India, the Middle East and Africa.

(3)

The Asia-Pacific segment consists of Australia, China and other countries in the Asia region.

(4)

The DACH region is comprised of the countries of Germany, Austria and Switzerland.

(5)

The Company markets its other maintenance products under the GT85 ® and 3-IN-ONE ® brand names.

(6)

The Company markets its homecare and cleaning products (HCCP) under the X-14 ®, 2000 Flushes ®, Carpet Fresh ®, no vac ®, Spot Shot ®, 1001 ®, Lava ®, and Solvol ® brand names.

(7)

In order to show the impact of changes in foreign currency exchange rates on our results of operations, we have included constant currency disclosures, where necessary, in this press release. Constant currency disclosures represent the translation of our current fiscal year revenues, expenses and net income from the functional currencies of our subsidiaries to U.S. dollars using the exchange rates in effect for the corresponding period of the prior fiscal year. Results on a constant currency basis are not in accordance with accounting principles generally accepted in the United States of America (non-GAAP) and should be considered in addition to, not as a substitute for, results prepared in accordance with U.S. GAAP. We use results on a constant currency basis as one of the measures to understand our operating results and evaluate our performance in comparison to prior periods in order to enhance the visibility of the underlying business trends, excluding the impact of translation arising from foreign currency exchange rate fluctuations. Management believes this non-GAAP financial measure provides investors with additional financial information that should be considered when assessing our underlying business performance and trends. However, reference to constant currency basis should not be considered in isolation or as a substitute for other financial measures calculated and presented in accordance with U.S. GAAP.

WD-40 COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited and in thousands, except share and per share amounts)

 

February 29,

2024

 

August 31,

2023

Assets

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

55,443

 

 

$

48,143

 

Trade and other accounts receivable, net

 

104,794

 

 

 

98,039

 

Inventories

 

78,029

 

 

 

86,522

 

Other current assets

 

12,248

 

 

 

15,821

 

Total current assets

 

250,514

 

 

 

248,525

 

Property and equipment, net

 

64,575

 

 

 

66,791

 

Goodwill

 

95,499

 

 

 

95,505

 

Other intangible assets, net

 

4,165

 

 

 

4,670

 

Right-of-use assets

 

10,968

 

 

 

7,820

 

Deferred tax assets, net

 

1,189

 

 

 

1,201

 

Other assets

 

15,111

 

 

 

13,454

 

Total assets

$

442,021

 

 

$

437,966

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

Current liabilities:

 

 

 

Accounts payable

$

32,405

 

 

$

30,826

 

Accrued liabilities

 

31,710

 

 

 

30,000

 

Accrued payroll and related expenses

 

14,869

 

 

 

16,722

 

Short-term borrowings

 

29,790

 

 

 

10,800

 

Income taxes payable

 

1,657

 

 

 

494

 

Total current liabilities

 

110,431

 

 

 

88,842

 

Long-term borrowings

 

85,894

 

 

 

109,743

 

Deferred tax liabilities, net

 

10,987

 

 

 

10,305

 

Long-term operating lease liabilities

 

5,509

 

 

 

5,832

 

Other long-term liabilities

 

12,922

 

 

 

13,066

 

Total liabilities

 

225,743

 

 

 

227,788

 

 

 

 

 

Commitments and Contingencies

 

 

 

Stockholders' equity:

 

 

 

Common stock ” authorized 36,000,000 shares, $0.001 par value; 19,920,049 and 19,905,815 shares issued at February 29, 2024 and August 31, 2023, respectively; and 13,554,668 and 13,563,434 shares outstanding at February 29, 2024 and August 31, 2023, respectively

 

20

 

 

 

20

 

Additional paid-in capital

 

173,263

 

 

 

171,546

 

Retained earnings

 

487,233

 

 

 

477,488

 

Accumulated other comprehensive loss

 

(31,249

)

 

 

(31,206

)

Common stock held in treasury, at cost ” 6,365,381 and 6,342,381 shares at February 29, 2024 and August 31, 2023, respectively

 

(412,989

)

 

 

(407,670

)

Total stockholders' equity

 

216,278

 

 

 

210,178

 

Total liabilities and stockholders' equity

$

442,021

 

 

$

437,966

 

WD-40 COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited and in thousands, except per share amounts)

 

Three Months Ended February 29/28,

 

Six Months Ended February 29/28,

2024

 

2023

 

2024

 

2023

 

 

 

 

 

 

 

 

Net sales

$

139,105

 

 

$

130,193

 

 

$

279,521

 

 

$

255,086

 

Cost of products sold

 

66,164

 

 

 

64,115

 

 

 

131,027

 

 

 

124,753

 

Gross profit

 

72,941

 

 

 

66,078

 

 

 

148,494

 

 

 

130,333

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

Selling, general and administrative

 

45,023

 

 

 

37,690

 

 

 

89,158

 

 

 

77,674

 

Advertising and sales promotion

 

6,725

 

 

 

5,985

 

 

 

13,708

 

 

 

11,324

 

Amortization of definite-lived intangible assets

 

252

 

 

 

250

 

 

 

503

 

 

 

503

 

Total operating expenses

 

52,000

 

 

 

43,925

 

 

 

103,369

 

 

 

89,501

 

 

 

 

 

 

 

 

 

Income from operations

 

20,941

 

 

 

22,153

 

 

 

45,125

 

 

 

40,832

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

Interest income

 

66

 

 

 

51

 

 

 

140

 

 

 

95

 

Interest expense

 

(1,008

)

 

 

(1,502

)

 

 

(2,154

)

 

 

(2,671

)

Other (expense) income, net

 

(193

)

 

 

165

 

 

 

(233

)

 

 

315

 

Income before income taxes

 

19,806

 

 

 

20,867

 

 

 

42,878

 

 

 

38,571

 

Provision for income taxes

 

4,270

 

 

 

4,341

 

 

 

9,860

 

 

 

8,048

 

Net income

$

15,536

 

 

$

16,526

 

 

$

33,018

 

 

$

30,523

 

 

 

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

 

 

 

Basic

$

1.14

 

 

$

1.21

 

 

$

2.43

 

 

$

2.24

 

Diluted

$

1.14

 

 

$

1.21

 

 

$

2.42

 

 

$

2.23

 

 

 

 

 

 

 

 

 

Shares used in per share calculations:

 

 

 

 

 

 

 

Basic

 

13,558

 

 

 

13,583

 

 

 

13,559

 

 

 

13,586

 

Diluted

 

13,583

 

 

 

13,608

 

 

 

13,583

 

 

 

13,608

 

WD-40 COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited and in thousands)

 

Six Months Ended February 29/28,

2024

 

2023

Operating activities:

 

 

 

Net income

$

33,018

 

 

$

30,523

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

Depreciation and amortization

 

4,683

 

 

 

3,864

 

Net (gains) losses on sales and disposals of property and equipment

 

(108

)

 

 

83

 

Deferred income taxes

 

711

 

 

 

(224

)

Stock-based compensation

 

4,137

 

 

 

4,980

 

Amortization of implementation costs associated with cloud computing arrangements

 

313

 

 

 

150

 

Unrealized foreign currency exchange losses (gains)

 

245

 

 

 

(1,820

)

Provision for credit losses

 

122

 

 

 

53

 

Write-off of inventories

 

1,088

 

 

 

568

 

Changes in assets and liabilities:

 

 

 

Trade and other accounts receivable

 

(7,071

)

 

 

(9,689

)

Inventories

 

7,267

 

 

 

(4,159

)

Other assets

 

(2,256

)

 

 

(930

)

Operating lease assets and liabilities, net

 

(16

)

 

 

60

 

Accounts payable and accrued liabilities

 

3,612

 

 

 

(3,059

)

Accrued payroll and related expenses

 

(1,872

)

 

 

260

 

Other long-term liabilities and income taxes payable

 

1,019

 

 

 

287

 

Net cash provided by operating activities

 

44,892

 

 

 

20,947

 

 

 

 

Investing activities:

 

 

 

Purchases of property and equipment

 

(2,092

)

 

 

(3,571

)

Proceeds from sales of property and equipment

 

349

 

 

 

290

 

Net cash used in investing activities

 

(1,743

)

 

 

(3,281

)

 

 

 

Financing activities:

 

 

 

Treasury stock purchases

 

(5,319

)

 

 

(5,641

)

Dividends paid

 

(23,273

)

 

 

(21,958

)

Repayments of long-term senior notes

 

(400

)

 

 

(400

)

Net (repayments) proceeds from revolving credit facility

 

(4,177

)

 

 

8,305

 

Shares withheld to cover taxes upon conversions of equity awards

 

(2,420

)

 

 

(600

)

Net cash used in financing activities

 

(35,589

)

 

 

(20,294

)

Effect of exchange rate changes on cash and cash equivalents

 

(260

)

 

 

2,777

 

Net increase in cash and cash equivalents

 

7,300

 

 

 

149

 

Cash and cash equivalents at beginning of period

 

48,143

 

 

 

37,843

 

Cash and cash equivalents at end of period

$

55,443

 

 

$

37,992

 

 

Media and Investor Contact:
Wendy Kelley
Vice President, Stakeholder and Investor Engagement
investorrelations@wd40.com
+1-619-275-9304

Source: WD-40 Company

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