WD-40 Company — Form 10-K Summary
Reporting period: Fiscal year ended August 31, 2019. The filing also reports unaudited fourth-quarter results. Figures are in U.S. dollars unless stated otherwise.
Business context
WD-40 is a global branded-products company selling maintenance products and homecare and cleaning products in more than 176 countries and territories. Maintenance products, led by WD-40 Multi-Use Product, generated most sales. The company reports three geographic segments: Americas, EMEA, and Asia-Pacific.
Financial results and liquidity
| Metric | FY2019 | FY2018 | Change |
|---|---|---|---|
| Net sales | $423.4 million | $408.5 million | +4%; +6% at constant currency |
| Gross profit / gross margin | $232.3 million / 54.9% | $225.3 million / 55.1% | Profit +3%; margin down 0.2 percentage points |
| Operating income | $82.4 million | $78.6 million | +5% |
| Net income | $55.9 million | $65.2 million | −14% |
| Diluted EPS | $4.02 | $4.64 | −13% |
| Cash from operations | $62.9 million | $64.8 million | −$1.9 million |
Operating expenses were $150.0 million, up 2%. The company’s non-GAAP EBITDA was $90.7 million, or 21% of sales, versus $86.7 million, also 21%, in FY2018. Its long-term 55/30/25 model targets gross margin above 55%, cost of doing business at 30% of sales, and EBITDA above 25%; FY2019 rounded results were 55%, 34%, and 21%, respectively.
At year-end, cash and cash equivalents were $27.2 million, down from $48.9 million. Total borrowings were $81.4 million, compared with $86.4 million a year earlier; this included $62.6 million outstanding under the revolving facility, including its autoborrow feature, and $18.8 million of senior notes. Current assets were $148.0 million and current liabilities were $74.6 million. The company reported compliance with debt covenants and said it expected operating cash flow and credit-facility access to meet operating and capital needs.
Capital returned during FY2019 included $32.9 million in dividends and $29.6 million in share repurchases. The quarterly dividend was increased 13% to $0.61 per share in December 2018; a further $0.61 dividend was declared in October 2019.
Fourth-quarter results
Q4 net sales were $106.7 million, compared with $102.6 million in Q4 FY2018. Gross profit was $58.3 million versus $56.7 million. Net income fell to $8.6 million from $21.6 million, and diluted EPS was $0.63 versus $1.54. The comparison was substantially affected by tax items: Q4 FY2019 included an $8.7 million reserve for an uncertain toll-tax position, while Q4 FY2018 included a $7.1 million provisional tax benefit.
Material changes and management commentary
- Maintenance-product sales increased 4% to $386.6 million; homecare and cleaning sales increased 2% to $36.7 million. WD-40 Specialist sales grew 13% to $35.4 million.
- Sales grew in all segments: Americas +1%, EMEA +6%, and Asia-Pacific +6%. Foreign exchange reduced reported consolidated sales by $10.5 million; EMEA was the largest source of the adverse translation effect.
- Gross margin was pressured by higher petroleum-based chemical and aerosol-can costs, freight and warehousing costs, and customer discounts. Pricing increases and favorable currency effects partly offset these pressures.
- The effective tax rate rose to 30.8% from 13.3%, principally because of the toll-tax reserve and a favorable $6.8 million deferred-tax remeasurement benefit in FY2018. Management stated that the toll-tax reserve reflected uncertainty following final U.S. Treasury regulations.
- Management’s stated priorities include expanding WD-40 Multi-Use Product geographically, growing WD-40 Specialist, broadening products and revenue, retaining talent, and operating with excellence. Advertising and sales-promotion investment for FY2020 was expected to be 5.5%–6.0% of sales. No specific net-sales or earnings-per-share forecast is provided in the filing text.
Risks, contingencies, and unusual items
- Key risks include foreign-exchange exposure, Brexit-related uncertainty, tariffs and trade restrictions, volatile commodity and freight costs, reliance on selected suppliers and contract manufacturers, competition, retailer concentration, regulatory compliance, product quality and liability, cybersecurity, and execution of growth initiatives. Approximately 63% of FY2019 sales were outside the U.S.; approximately 42% of revenue was generated in non-U.S.-dollar currencies.
- A Malaysian distributor-related lawsuit alleges conspiracy and business injury. WD-40 denies the allegations and intends to defend itself. The company considered an unfavorable outcome reasonably possible but could not estimate a loss or range of loss.
- The company recorded no goodwill or definite-lived intangible-asset impairment in FY2019. It expected adoption of the new lease standard on September 1, 2019 to increase assets and liabilities by approximately $9.0 million, without a material effect on earnings or cash flows.
- There were no off-balance-sheet arrangements reported. The independent auditor gave unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective.
Important facts for investors to verify
- Review the uncertain toll-tax position, related tax filings and potential resolution; the year-end unrecognized tax-benefit balance was $9.4 million, excluding interest and penalties.
- Confirm the quality and sustainability of sales growth, especially the contribution from promotions, distribution expansion, and foreign-exchange movements, and monitor WD-40 Specialist growth and homecare-brand trends.
- Track gross-margin recovery against raw-material, freight, discount and pricing trends, alongside progress toward the company’s long-term 55/30/25 targets.
- Assess debt, cash generation, capital returns and covenant headroom; the filing reports a $100 million revolving credit facility maturing in January 2024.
- Follow the Malaysian litigation and other legal or regulatory developments; the filing does not quantify the possible Malaysian loss.