WD-40 Company — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended May 31, 2022. Unaudited consolidated results; amounts below are U.S. dollars unless noted.
Business context and financial performance
WD-40 markets maintenance and homecare and cleaning products worldwide. Its reporting segments are the Americas, EMEA, and Asia-Pacific.
| Metric | Q3 FY2022 | Q3 FY2021 | Nine months FY2022 | Nine months FY2021 |
|---|---|---|---|---|
| Net sales | $123.7m | $136.4m | $388.4m | $372.9m |
| Gross profit / margin | $59.0m / 47.7% | $72.5m / 53.1% | $193.0m / 49.7% | $204.7m / 54.9% |
| Operating income | $19.0m | $27.3m | $67.8m | $76.4m |
| Net income | $14.5m | $21.0m | $52.5m | $61.8m |
| Diluted EPS | $1.07 | $1.52 | $3.82 | $4.48 |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $7.7m | $64.0m |
Q3 sales fell 9%, operating income fell 31%, and net income fell 31% year over year. For the nine-month period, sales rose 4% (5% on a constant-currency basis), while net income declined 15%. Maintenance products generated $363.4m of nine-month sales, up 6%; homecare and cleaning products generated $25.0m, down 12%.
Nine-month non-GAAP EBITDA was $73.8m, or 19% of sales, versus $82.1m, or 22%, a year earlier. Management’s long-term 55/30/25 model targets gross margin of at least 55%, cost of doing business at 30% of sales, and EBITDA above 25%; reported nine-month measures were 49.7%, 31%, and 19%, respectively.
Balance sheet, cash flow, and capital allocation
- At May 31, 2022, cash was $40.8m, down from $86.0m at August 31, 2021. Inventory rose to $96.0m from $55.8m.
- Total borrowings were $126.6m, compared with $115.7m at fiscal year-end; current and long-term borrowings were $16.4m and $110.2m. The revolving facility has a $150m commitment and matures September 30, 2025. The company reported compliance with debt covenants.
- Nine-month operating cash flow of $7.7m was sharply lower, primarily reflecting inventory investment and lower net income. Capital expenditures were $7.1m; dividends paid were $31.3m; share repurchases were $22.4m.
- A $75m repurchase authorization runs through August 31, 2023; $52.6m remained available at May 31. The board declared a $0.78-per-share dividend payable July 29, 2022.
Material changes and management commentary
- Gross margin fell 540 basis points in Q3 and 520 basis points for the nine-month period. Higher specialty chemical, aerosol can, manufacturing, freight, warehousing, and other input costs outweighed the benefit of price increases.
- Q3 segment sales changed by: Americas +2%, EMEA −16%, and Asia-Pacific −28%. Nine-month changes were Americas +7%, EMEA −1%, and Asia-Pacific +12%.
- Management cited COVID-related supply-chain disruption, inflation, constrained aerosol manufacturing capacity, and transportation and labor pressures. It increased inventory and worked to add or qualify manufacturers. Price increases were being implemented, but management cautioned that their full effect would take time and that volumes could be affected.
- China lockdowns disrupted production and logistics in Q3. Sales to Russia and Belarus were suspended beginning in March 2022; sales in Ukraine were also disrupted. Management said affected regions represented approximately 4% of consolidated sales in the first half of FY2022 before the suspension.
- Management described liquidity as strong and said operating cash and revolving-credit availability were expected to support operations, capital expenditures, dividends, and repurchases. No specific numerical earnings or sales guidance is provided in the filing.
Risks, contingencies, and unusual items
Key uncertainties include the duration and effects of inflation, supply-chain constraints, COVID-related disruptions, changing consumer demand, commodity and foreign-exchange movements, and the Russia-Ukraine conflict. The company reported no pending or unasserted claims it believed would result in a probable loss, and no material change to the risk factors in its latest Form 10-K. It also reported no off-balance-sheet arrangements and no material impairment of goodwill or definite-lived intangible assets.
Important facts for investors to verify
- Whether price increases can offset input, freight, and manufacturing costs without materially reducing volumes, and whether gross margin can recover toward the company’s 55% long-term target.
- Whether inventory growth converts to sales and cash, given the steep year-to-date decline in operating cash flow.
- Whether supply-chain capacity improvements resolve product availability issues, particularly in the Americas, and whether China production and logistics normalize.
- How suspended or disrupted sales in Russia, Belarus, and Ukraine, along with currency movements, affect future EMEA results.
- Future borrowing levels, covenant headroom, and the balance among dividends, repurchases, and operating liquidity.