WD-40 Company — Form 10-K Summary
Reporting period: Fiscal year ended August 31, 2020. This is an annual filing; it also reports unaudited fourth-quarter results. Unless stated otherwise, amounts are U.S. dollars.
Business context
WD-40 markets maintenance products and homecare and cleaning products in more than 176 countries and territories. Its flagship WD-40 Multi-Use Product accounts for a significant majority of sales. The company reports three geographic segments: Americas, EMEA, and Asia-Pacific.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Net sales | $408.5 million | $423.4 million |
| Gross profit / gross margin | $223.0 million / 54.6% | $232.3 million / 54.9% |
| Operating income | $77.2 million | $82.4 million |
| Net income | $60.7 million | $55.9 million |
| Diluted EPS | $4.40 | $4.02 |
| Operating cash flow | $72.7 million | $62.9 million |
| Capital expenditures | $19.3 million | $13.3 million |
Cash and cash equivalents were $56.5 million at year-end. Borrowings totaled $113.9 million, including $95.9 million drawn on the revolving credit facility and $18.0 million of Series A notes. The company reported compliance with debt covenants. It had $150 million of revolving capacity under the credit agreement at year-end.
Dividends paid were $36.0 million, or $2.62 per share. The quarterly dividend was raised from $0.61 to $0.67 per share in December 2019. The company repurchased 92,583 shares for $16.8 million during FY2020, then suspended repurchases in April to preserve cash; the plan expired August 31, 2020.
Material changes versus the prior year
- Sales declined 4% reported and 2% at constant currency. Maintenance product sales fell 4%, while homecare and cleaning sales increased 6%.
- Americas sales rose 3% and EMEA sales fell 3%; Asia-Pacific sales dropped 25%, principally reflecting pandemic-related market disruption in China and distributor markets.
- Operating income declined 6%. Gross margin slipped 0.3 percentage points; higher warehousing and freight costs and unfavorable mix were partly offset by lower petroleum-based input costs and price increases.
- Net income rose 9%, but the comparison benefited from FY2019’s $8.7 million uncertain-tax-position charge related to the Tax Act toll tax. The effective tax rate was 19.6% in FY2020 versus 30.8% in FY2019.
- Fourth-quarter FY2020 sales were $111.6 million and net income was $19.7 million, compared with $106.7 million and $8.6 million, respectively, in Q4 FY2019. The prior-year quarter included the tax charge noted above.
- Operating cash flow increased by $9.8 million. Year-end cash rose to $56.5 million from $27.2 million, while total borrowings increased from $81.4 million to $113.9 million.
Outlook, management commentary, risks, and unusual items
- Management said COVID-19 disrupted retail access, distributor markets, and industrial-channel demand. Stronger sales in some direct markets, e-commerce, and homecare products partly offset declines elsewhere. The duration and future financial effects remained uncertain; no quantified FY2021 sales or earnings guidance is provided.
- Management could not estimate FY2021 advertising and sales-promotion spending given pandemic uncertainty. It described higher pandemic-driven demand for certain homecare products as having an uncertain duration.
- Key exposures include foreign currency movements, volatile petroleum-based chemical and aerosol-can costs, dependence on contract manufacturers and limited suppliers, customer concentration in large retail channels, competition, regulation, and possible product-quality or liability claims.
- In September 2020, after year-end, WD-40 issued $52 million of senior notes—$26 million at 2.5% due 2027 and $26 million at 2.69% due 2030—and used proceeds to repay $50 million of revolving borrowings. The credit facility maturity was extended to September 30, 2025, and its maximum leverage covenant was raised from 3.0:1 to 3.5:1.
- No goodwill or definite-lived intangible-asset impairment was recorded. The company reported no pending claims it expected to result in a probable loss and no reasonably possible claim expected to materially affect results. Management and the auditor reported effective internal control over financial reporting; the financial-statement audit opinion was unqualified.
Important facts for investors to verify
- Whether sales and margins recover as COVID-related restrictions and channel disruptions ease, particularly in Asia-Pacific and distributor markets.
- Whether pandemic-related increases in homecare demand persist, and how e-commerce and direct-market growth develop.
- Current borrowing balances, interest costs, covenant headroom, and the impact of the September 2020 refinancing.
- The sustainability of FY2020 net income growth given the prior-year tax charge and the 19.6% FY2020 effective tax rate; also monitor the $9.4 million year-end gross reserve for uncertain tax positions.
- Whether cost inflation, foreign exchange, freight, product mix, and promotional spending materially affect gross margins and cash generation.