WD-40 Company — FY2015 Form 10-K Summary
Reporting period: Fiscal year ended August 31, 2015. The filing also reports unaudited fourth-quarter results. Amounts below are in U.S. dollars; financial statement amounts are in millions unless otherwise noted.
Business context
WD-40 markets maintenance products and homecare and cleaning products in more than 176 countries. Maintenance products, led by WD-40 Multi-Use, are the core business; homecare and cleaning brands are managed with reduced investment. Management’s priorities include growing WD-40 Multi-Use and WD-40 Specialist, expanding distribution and markets, broadening products, developing talent and improving operating execution.
Financial performance and liquidity
| Metric | FY2015 | FY2014 |
|---|---|---|
| Net sales | $378.2 | $383.0 |
| Gross profit / gross margin | $200.2 / 52.9% | $198.9 / 51.9% |
| Operating income | $65.4 | $63.7 |
| Net income | $44.8 | $43.7 |
| Diluted EPS | $3.04 | $2.87 |
| Operating cash flow | $55.1 | $38.7 |
- Reported sales declined 1%; excluding an unfavorable $10.9 million foreign-exchange impact, sales increased 2%. Currency also reduced FY2015 net income by $1.7 million; constant-currency net income growth was 6%.
- Sales by segment: Americas $187.3 million, up 4%; EMEA $136.8 million, down 10% reported and down 5% at constant currency; Asia-Pacific $54.0 million, up 6% reported and up 10% at constant currency. EMEA weakness reflected currency effects and steep declines in Russia and Ukraine.
- Maintenance-product sales were $333.3 million, down 1%; homecare and cleaning sales were $44.8 million, down 1%. WD-40 Specialist sales grew 26% in both the Americas and EMEA.
- Gross margin improved primarily on lower petroleum-based chemical and aerosol-can costs, price increases and lower freight costs; higher promotional discounts and unfavorable currency and mix partly offset the gains. SG&A was $108.9 million; R&D spending rose to $9.0 million from $6.9 million.
- Cash and short-term investments totaled $102.5 million at year-end, including $90.8 million held outside the U.S. The company had $108.0 million outstanding on its $150 million revolving facility, classified as long-term after a May 2015 amendment; it reported compliance with covenants. Total assets were $339.3 million and total liabilities $181.4 million.
- FY2015 investing cash outflow was $17.0 million, including $4.1 million for the GT85 acquisition; financing cash outflow was $38.7 million, including $30.3 million of treasury-stock purchases and $21.7 million of dividends. The quarterly dividend increased 12% to $0.38 per share.
Fourth-quarter results
For the quarter ended August 31, 2015, sales were $92.0 million versus $97.6 million a year earlier; gross profit was $50.0 million versus $51.5 million; net income was $11.7 million versus $11.5 million; and diluted EPS was $0.80 versus $0.77.
Outlook, risks and unusual items
- Management expected FY2016 advertising and sales-promotion investment of 6%–7% of net sales. It also anticipated borrowing an additional $20–$25 million under the credit facility in FY2016, with estimated related interest of about $0.6 million. Management said existing liquidity and expected operating cash flows should cover projected needs for at least twelve months.
- Key risks include foreign-exchange exposure, volatile petroleum-linked inputs and transport costs, reliance on limited suppliers and contract manufacturers, competition and customer distribution changes, product safety and regulatory compliance, and execution of growth initiatives. The company does not hedge translation exposure; its U.K. subsidiary uses forward contracts for certain currency exposures.
- Management intends to keep $115.4 million of foreign-subsidiary earnings indefinitely reinvested abroad. Estimated unrecognized U.S. federal and state tax liability, net of foreign tax credits, was approximately $10.7 million if those earnings were repatriated.
- The GT85 business was acquired for $4.1 million in September 2014. No goodwill impairment was identified. The company recorded no FY2015 impairment charge; a $1.1 million non-cash impairment of the 2000 Flushes trade name occurred in FY2013.
- In the IQ Products dispute, arbitrators rejected all claims against WD-40 and identified the company as the prevailing party for fees and costs. IQ Products later sued DOT and PHMSA, alleging deficiencies in the agency’s investigation; WD-40 was not named. The company said it did not expect the matters to materially harm its financial condition or results.
- The filing reports effective disclosure controls and internal control over financial reporting; the auditor issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Whether underlying demand and distribution trends offset continued foreign-exchange headwinds, especially in EMEA and Eastern Europe.
- Whether gross-margin gains from input costs and pricing persist as commodity costs, promotional spending and currency rates change.
- Debt, covenant headroom and cash availability, considering that most cash and investments were held overseas and designated indefinitely reinvested.
- Execution and returns from WD-40 EZ Reach, Specialist, Bike and the GT85 acquisition, alongside continued weakness in homecare and cleaning brands.
- Any developments in the IQ Products-related litigation or product-safety and regulatory matters, and the effect of the announced dividend and ongoing repurchases on capital allocation.