WD 40 CO quarterly report, Q2 FY2022

WD-40 Company — Form 10-Q Summary

Reporting period: Fiscal second quarter and six months ended February 28, 2022. WD-40 Company sells maintenance products and homecare and cleaning products through three geographic segments: Americas, EMEA, and Asia-Pacific. Amounts below are in U.S. dollars.

Financial performance

MetricQ2 FY2022Six months FY2022
Net sales$130.0 million; +16%$264.7 million; +12%
Gross profit / margin$65.5 million / 50.4%; margin down 500 bps$134.0 million / 50.6%; margin down 530 bps
Operating income$24.7 million; +20%$48.8 million; down 0.5%
Net income$19.5 million; +13%$38.1 million; down 7%
Diluted EPS$1.41, versus $1.24$2.75, versus $2.96
Operating cash flowNot reported separately for the quarter$4.1 million, versus $42.5 million

Q2 sales growth was led by maintenance products, up 19%; homecare and cleaning products declined 12%. By region, Q2 sales increased 18% in the Americas, 9% in EMEA, and 34% in Asia-Pacific. For the six-month period, respective increases were 10%, 7%, and 34%.

Gross margin fell primarily because of higher specialty chemical and aerosol-can costs, freight, warehousing and distribution expense, and contract-manufacturer fees. Price increases partly offset those pressures. Six-month operating cash flow was reduced by increased inventory and receivables, as well as incentive compensation payments and lower incentive accruals.

Balance sheet, debt, and capital allocation

  • At February 28, 2022, cash and cash equivalents were $43.3 million, down from $86.0 million at August 31, 2021. Current assets were $234.6 million and current liabilities were $83.4 million.
  • Total borrowings were $114.8 million, comprising $2.0 million short-term and $112.8 million long-term. The company reported compliance with debt covenants; its revolving credit facility has a $150 million commitment and matures September 30, 2025.
  • Six-month financing cash outflow was $42.3 million, including $18.2 million of share repurchases and $20.6 million of dividends. The company had $56.8 million remaining under its $75 million repurchase authorization at period-end.
  • The board declared a subsequent quarterly dividend of $0.78 per share, payable April 29, 2022.

Outlook, risks, and notable developments

  • No specific full-year sales or earnings forecast is provided in the supplied filing text. Management says cost inflation and supply-chain pressures are expected to continue weighing on product costs while those conditions persist. Price increases are being implemented, but may affect volumes in the short term.
  • Management’s long-term 55/30/25 model targets gross margin of at least 55%, cost of doing business of 30% of sales, and EBITDA above 25% of sales. First-half results were approximately 51%, 31%, and 20%, respectively; these are long-term targets, not near-term guidance.
  • COVID-related supply constraints, raw-material inflation, freight costs, aerosol production capacity, and labor constraints remain risks. Management reported improved product availability in Q2 from supply-chain actions, while noting that onboarding new manufacturers can bring added costs and risks.
  • Following Russia’s invasion of Ukraine, the company suspended sales to Russia and Belarus beginning in March 2022 and was unable to sell in Ukraine. The affected regions represented approximately 4% of first-half FY2022 sales. Higher crude-oil prices may also raise product and transportation costs.
  • CEO Garry Ridge is scheduled to retire effective August 31, 2022; President and COO Steven Brass is scheduled to become CEO on September 1, 2022. Ridge will remain with the company through January 2, 2023, then serve as a consultant through June 30, 2023.
  • The company reported no probable litigation losses expected to materially affect its financial condition or results, and no material changes to the risk factors disclosed in its prior Form 10-K.

Most important facts for investors to verify

  • Whether pricing and supply-chain improvements can offset persistent input, freight, and manufacturing cost inflation without materially weakening demand.
  • Whether inventory and receivables convert to cash; first-half operating cash flow fell sharply year over year despite higher sales.
  • The extent of future sales and cost impacts from the Russia-Ukraine conflict, including commodity-price effects.
  • Progress toward the company’s long-term margin and EBITDA targets, and the execution of the announced CEO transition.
  • Future share repurchases and dividends in light of cash balances, borrowings, and operating cash generation.