Shares of WD-40 (NASDAQ: WDFC) fell 9% in pre-market trading on Tuesday after the chemicals company posted weaker-than-expected first-quarter earnings. Revenue fell 4% year-over-year to $89.2 million, missing estimates by $7.1 million. Net income declined 3% to $11.8 million, or $0.82 per share -- a penny drop from the year-ago quarter and missing estimates by a nickel.
The key facts
The company attributed its miss to the strong dollar, since almost 40% of its revenue comes from overseas markets. On a constant-currency basis, its total revenues rose 3% year-over-year to $95.1 million.
WD-40 is primarily known for its namesake penetrating-oil and water-displacing spray, but it also produces other homecare, cleaning, and maintenance products. Revenue from its maintenance segment -- considered a key growth engine for the company -- fell 4% last quarter due to currency impacts, the timing of orders, and promotional activities. Homecare and cleaning revenue slipped 2%, which the company said was due to the commoditized nature of both markets.
CEO Garry Ridge noted that although currency headwinds were challenging, the company's "geographically diversified business still acts as "a natural hedge which can cushion us from the impact of localized events." He also noted that some markets outperform while others underperform "at any given time", but that the company's "long-term growth plans remain unchanged."
WD-40's gross margin actually improved 160 basis points to 57.2% during the quarter, and advertising and sales-promotion expenses fell 15% to $4.8 million. However, those improvements were offset by higher sales, general, and administrative expenses, which rose 4% to $29 million.
The competition and valuations
The company has a brand-name advantage in its core market, but it still faces stiff competition from Dow Chemical, DuPont, and Church and Dwight -- all of which have much more diversified product portfolios than WD-40.
Analysts currently expect WD-40 to respectively grow its revenue and earnings by 4% and 1% respectively this year. That's not much growth, and doesn't really justify its lofty P/E of 32 -- which is much higher than the industry average of 25 for specialty chemicals producers.
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Leo Sun has no position in any stocks mentioned.