WD-40 Company (WDFC) — Fiscal 2021 Second-Quarter 10-Q
Reporting period: Three and six months ended February 28, 2021, compared with the periods ended February 29, 2020. WD-40 markets maintenance, homecare and cleaning products globally.
Financial performance
| Metric | Q2 FY2021 | Six months FY2021 | Comparable prior period |
|---|---|---|---|
| Net sales | $111.9 million, +12% | $236.5 million, +19% | $100.0 million; $198.6 million |
| Gross profit | $62.0 million; 55.4% margin | $132.3 million; 55.9% margin | $53.6 million; 53.6% margin; $107.1 million; 53.9% margin |
| Operating income | $20.7 million, +14% | $49.0 million, +49% | $18.2 million; $32.9 million |
| Net income | $17.2 million, +20% | $40.8 million, +54% | $14.3 million; $26.5 million |
| Diluted EPS | $1.24 | $2.96 | $1.04; $1.92 |
| Operating cash flow | Not presented separately | $42.5 million | $23.4 million for six months |
First-half sales growth reflected increases across all three segments and product groups. EMEA sales rose 29% and Asia-Pacific 31%; Americas sales rose 7%. Maintenance products generated $217.1 million of first-half sales (+20%), while homecare and cleaning products generated $19.4 million (+9%). Foreign exchange added $5.5 million to reported first-half sales growth; constant-currency growth was $32.4 million, or approximately 16%.
First-half gross-margin improvement mainly reflected lower petroleum-based chemical and aerosol-can costs and pricing, partly offset by higher warehousing and inbound freight costs. SG&A was $71.5 million for the half, up $9.0 million, although it declined to 30.2% of sales from 31.5%. Employee-related costs and freight increased; lower travel and meeting costs partly offset those increases. The company’s non-GAAP EBITDA was $52.8 million, or 22% of sales, versus $36.7 million, or 18%, in the prior-year half.
Cash, debt and liquidity
At February 28, 2021, cash and cash equivalents were $72.4 million, compared with $56.5 million at August 31, 2020. Net cash provided by operations was $42.5 million; capital expenditures were $7.6 million; dividends paid were $18.4 million. Total borrowings were $117.5 million, including $47.9 million under the revolving facility and $69.6 million of senior notes; $0.8 million was classified as short-term. The company reported compliance with all debt covenants. Its revolving credit commitment is $150 million, with a September 2025 maturity. Share repurchases remained suspended.
Developments, outlook and risks
- Management said supply-chain capacity constraints, transportation disruptions and severe U.S. winter storms limited the company’s ability to meet strong Americas demand in Q2 and added costs. Management expects these costs to weigh on cost of goods sold and result in a lower gross margin in the second half of FY2021 than in the first half. No quantified full-year forecast was provided.
- Management attributed higher demand to pandemic-related renovation and maintenance activity, e-commerce growth, recovering distributor markets, WD-40 Bike sales and demand for certain homecare products. It cautioned that demand may ease as restrictions or government support change, and that future pandemic effects are difficult to estimate.
- Q2 Americas sales declined 1%, including an 11% decline in U.S. maintenance-product sales, principally attributed to supply constraints. Stronger EMEA and Asia-Pacific sales included pandemic recovery and comparison effects, notably the prior-year disruption in China.
- The lower first-half effective tax rate reflected tax benefits, including the GILTI High Tax Exemption and excess tax benefits from equity-award settlements. In Q2, the rate also benefited from the release of uncertain-tax-position liabilities following statute expirations.
- On March 16, 2021, the board approved a 7% quarterly dividend increase, from $0.67 to $0.72 per share. The filing reported no pending claims expected to cause a material adverse effect and no material changes to previously disclosed risk factors.
Key facts for investors to verify
- Whether Americas supply constraints and higher freight and production costs persist, and their effect on second-half margins.
- How much elevated maintenance and homecare demand is sustained after pandemic-related conditions change.
- The extent to which reported growth reflects underlying demand versus currency effects and prior-year comparison disruptions, particularly in EMEA and China.
- Debt, covenant headroom, cash deployment, and the sustainability of the increased dividend while repurchases remain suspended.
- Whether favorable tax items recur; management’s filing does not provide quantified full-year earnings or margin guidance.