WD 40 CO quarterly report, Q1 FY2021

Full document

WD-40 Company — Q1 FY2021 Form 10-Q

Reporting period: Three months ended November 30, 2020. WD-40 markets maintenance, homecare and cleaning products globally through the Americas, EMEA and Asia-Pacific segments.

Financial performance

  • Net sales: $124.6 million, up 26% from $98.6 million. Maintenance products grew 28% to $114.3 million; homecare and cleaning products grew 15% to $10.2 million.
  • Segment sales: Americas $54.2 million (+16%); EMEA $54.7 million (+40%, or +33% at constant currency); Asia-Pacific $15.6 million (+24%, or +21% at constant currency). Foreign exchange added $2.8 million to consolidated sales growth.
  • Profitability: Gross profit was $70.2 million, up 31%; gross margin rose to 56.4% from 54.3%. Operating income increased 93% to $28.4 million. Net income rose 94% to $23.6 million; diluted EPS was $1.72 versus $0.88.
  • Costs and margins: Operating expenses increased 8% to $41.9 million, but declined to 33.6% of sales from 39.4%. SG&A was $36.0 million; advertising and sales promotion expense was $5.5 million. Lower petroleum-based input and aerosol-can costs supported gross margin; higher warehousing and freight costs partly offset the benefit.
  • Cash flow: Operating cash flow was $23.9 million versus $15.2 million. Capital expenditures were $3.8 million; cash dividends paid were $9.2 million. Cash increased $9.4 million during the quarter to $65.8 million.
  • Liquidity and debt: Total borrowings were $115.5 million, including $45.9 million outstanding on the revolving facility. The company issued $52.0 million of Series B and C senior notes and used $50.0 million to repay U.S. revolver borrowings. The credit facility provides up to $150 million and matures September 30, 2025. WD-40 reported compliance with debt covenants.

Material changes and management commentary

  • Sales increased in all three segments. Management attributed the rebound to pandemic-related renovation and maintenance activity, e-commerce growth, recovering distributor markets, WD-40 Bike sales and elevated demand for homecare and cleaning products.
  • Gross margin improved 2.1 percentage points. Management cited lower petroleum-based specialty chemical and aerosol-can costs, as well as price increases; higher warehousing and inbound freight costs and unfavorable mix partly offset these gains.
  • 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. In the quarter, reported measures were 56% gross margin, 32% cost of doing business and 24% EBITDA margin. Cost of doing business and EBITDA are non-GAAP measures.
  • The share repurchase plan remained suspended; no shares were repurchased in the quarter. The board declared a $0.67-per-share dividend on December 7, 2020, payable January 29, 2021.

Outlook, risks and contingencies

  • The filing provides no specific quarterly or full-year revenue or earnings guidance. Management said the pandemic’s duration and financial effects remain difficult to estimate.
  • Renewed restrictions, reduced consumer maintenance activity, changes in government assistance and normalization of pandemic-driven demand could weaken future sales. Supply-chain capacity constraints, transportation disruption and competition for contract-manufacturer capacity could limit supply or increase costs.
  • Crude-oil price volatility may affect future input costs and margins. Management also noted travel and meeting costs could rise as pandemic restrictions ease.
  • Management reported no pending or unasserted claims expected to result in a probable loss, and no reasonably possible litigation outcome expected to materially affect financial condition, results or cash flows. State and foreign tax examinations are ongoing; potential unrecognized tax benefits from examinations or expiring statutes were not significant.

Important facts for investors to verify

  • Whether pandemic-driven demand, particularly for maintenance and homecare products, persists and how renewed restrictions affect sales.
  • Whether input-cost benefits continue and whether freight, warehousing or supply constraints pressure margins.
  • How foreign exchange, working-capital needs and the revolving facility balance affect cash generation and leverage.
  • Whether the declared dividend was paid as scheduled and whether the company later resumes share repurchases.
  • That comparisons use the same three-month periods and that constant-currency and 55/30/25 performance measures are non-GAAP disclosures.